Transcripts

Businesses Are Absorbing Fuel Costs Instead of Passing Them On

SUSIE GHARIB: With oil prices rising, many businesses are bracing themselves for even higher gasoline prices. Already many firms are struggling with increased fuel costs and are finding it difficult to pass the costs onto customers. But Diane Eastabrook found one company that is taking some simple steps to save fuel.

DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: High gas prices are milking profits from Oberweiss Dairy. Fuel costs for the dairy`s fleet of 90 delivery trucks have risen more than 50 percent in the past year and drained $500,000 from profits. Oberweiss doesn`t want to raise its $2.50 home delivery charge since it hiked the fee a year ago. So for now, the dairy is trying to live with the extra cost.

ROBERT RENAUT, PRESIDENT AND CEO, OBERWEISS DAIRY: We provide a certain value proposition to our customers and we have the ability to control our costs and to the extent we can, that`s what we should be doing and not automatically passing price increases onto our customers.

EASTABROOK: Triple AAA says the current average price for unleaded regular is $2.92 a gallon. That`s about a penny more than it was a week ago and $0.09 less than the highest record price last September. The dairy isn`t large enough to hedge on fuel, but it is taking steps to become more fuel efficient. The company says maintaining the correct tire pressure on vehicles has saved it about $35,000 in the last year. Investing in a software program that maps out the fastest routes for drivers has also saved fuel.

RENAUT: We were able to save about 38,000 miles a quarter off of those delivery routes. Every mile fewer that you drive less fuel used.

EASTABROOK: But if fuel costs keep rising, economists say companies may not be able to absorb them.

MARTIN EICHENBAUM, ECONOMICS PROFESSOR, NORTHWESTERN UNIVERSITY: If it`s energy intensive, they can squeeze their margins for so long, but they`re not going to be giving away the stuff for free. So, if your basic raw materials are going up, you can try and be more energy efficient, but in the end the consumer has to pay the price for the higher oil prices.

EASTABROOK: Renaut says Oberweiss continues to look at ways of cutting its energy costs and at some point may even consider switching from diesel to flexible fuel vehicles. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Hinsdale, Illinois.