Alexander Coolidge reports:
Local gas prices so far in 2012 are at their most expensive in at least five years, but businesses that ship and haul products are taking some comfort in the fact that the pace of rising fuel costs has ebbed after sharp increases in 2010 and 2011.
Since Jan. 1, the average cost of regular gasoline is $3.62 in Cincinnati and $3.69 in Northern Kentucky, according to industry tracker Oil Price Information Service. That represents a 2 percent increase from the same period a year ago, a welcome respite from two years of 23 to 31 percent spikes.
Companies that do extensive hauling and shipping typically use diesel gas, but those prices, as well as jet fuel, follow the same trajectory as regular gasoline.
“It doesn’t feel good, but it’s been worse,” said Kerry Byrne, executive vice president of Total Quality Logistics. The Union Township-based freight brokerage firm sells space on trucks for more than 17,000 customers hauling everything from construction materials to food and beverages. TQL does not own trucks.
Byrne said rising gas prices pose a unique challenge for the shipping industry. Trucking companies immediately increase their prices as fuel costs rise, but TQL’s contracts with customers typically prohibit the company from doing the same. The slower rate of price increases is helpful, he said.
“Ultimately, it evens out,” Byrne said. “We’ll feel pain in the short term, but it becomes a pass-through expense.”
The Batesville division of Hillenbrand Inc., which makes caskets and related products, has also benefited from the lower rate of price increases this year.
Marketing director Teresa Gyulafia said rising fuel prices are a concern because the funeral industry places a premium on consistency. As a result, Batesville sets its prices once a year.
When gas prices unexpectedly spiked 30 percent in 2011, the company, which has a fleet of more than 500 delivery vehicles, took the hit.
“We don’t make adjustments. Those are costs we have to absorb,” she said.
Prices encourage energy efficiency
While this year’s slower rate of increases is helpful, high gas prices are likely here to stay, said Josh Agenbroad, an analyst with Rocky Mountain Institute, a Snowmass, Colo.,-think tank dedicated to energy efficiency issues.
“Not a whole lot of people are waiting it out,” he said.
Companies instead are focusing efforts on managing fuel consumption. Kroger Co. makes 3,100 deliveries a day using a majority owned fleet of 2,700 semi tractors and 10,000 trailers that constantly circulate between the company’s 38 factories, 34 distribution centers and more than 2,400 supermarkets.
“Just like our customers, when gas prices go up, it impacts our business,” said spokesman Keith Dailey.
Kroger is constantly working to lower its fuel consumption by identifying the shortest routes, updating fleets with more energy-efficient trucks, and training drivers to minimize fuel costs through steps that include monitoring tire pressure, Dailey said.
Agenbroad said companies with large fleets are also using more energy-efficient trucks to reduce consumption. He said trucks with aerodynamic improvements such as “boat tailing” backs (not flat) can consume 11 percent less fuel. A study released this year by the North American Council for Freight Efficiency showed that firms using efficiency measures saved an average of $4,400 a year per truck.
Efficiency becomes competitive edge
Investing in more-efficient planes and passing rising costs to customers has, for the most part, helped Air Transport Services Group of Wilmington navigate the last five years of fluctuations.
ATSG deliberately structures its contracts so customers cover the expense of fuel, but price fluctuations still impact its business. The company flies cargo planes and leases air craft to companies that want to operate the jets themselves.
Passing fuel costs to customers can be risky. ATSG chief executive officer Joe Hete said the company’s second-largest customer stopped leasing aircraft in part because of fuel costs.
Still, he said, the company also picks up business as more customers look to offset fuel costs. ATSG has invested in newer, more fuel-efficient aircraft.
“Higher fuel costs generally are beneficial to our business because there are a lot of inefficient aircraft out there, which makes our jets more attractive,” he said.