Fuel cost thoughts for small business owners

To the consternation of many, I’ve quietly noted for several years that the rise in fuel costs would also have some positive impacts on us and on our society – in addition to the obvious negative ones.

It’s not a liberal or conservative issue, it’s a pragmatic one.

Among other things, higher fuel costs will…

  • force us to become more self-sufficient, both as individuals and as communities.
  • force us to become better thinkers. The smartest business now has even more of an edge.
  • force us to become better planners.
  • force us to become far more responsible to ourselves, our neighbors and to our businesses.
  • force us to deliver even more services via the Internet
  • force us to use the Internet to fine tune the logistics of every aspect of our businesses
  • require our communities to become far more dependent on the individuals and businesses within, rather than on a largely-faceless community 600 or 6000 miles away.

That last one is where the business that has a personal relationship with its clients will shine.

What should fuel costs have the small business owner thinking about?

The obvious thing is the rising cost of shipping and transportation of goods.

While it is “really cool” to order a new computer on the internet at 2am and then be surprised to have the Airborne guy standing in my driveway with the computer box at 8am that day, the cost of making that happen is far more than the $5 extra I paid to make it so back in 1987.

The changes that rising fuel costs cause require some thought, no matter what you do or sell.

Some might not be so obvious, and those are the ones that can make the most difference.

Look for things that are below the radar of “most people”.

One example: the real estate business

Evidence is appearing that prospective home buyers are looking far more closely at the location of homes and the resulting commutes.

The higher price of homes close to town is offset by shorter commutes to work and shopping. How many people in California (much less Boise) would rather spend that extra 2-4 hours a day with their family rather than on gas, as they stare at the back of the car in front of them? Suddenly, even with California wages, those numbers become significant.

If you are a Realtor or a mortgage broker, you have to be watching for small changes in people’s behavior before they become large changes. You might start selling more homes in areas that are less congested (slower traffic, longer commutes), yet still close in and convenient.

You might have a new tool that takes MLS address info, ownership years, employer data and change real estate agent farming forever.

Maybe you “niche yourself” by offering a service for employers that helps their people find homes closer to the office, or a similar service for employers who are moving employees to the area.

You might focus your attention on selling those remote homes by touting their access to broadband internet and place your marketing attention on work-at-home business owners, telecommuters and the like – people who are far less concerned about commuting distances.

Distances to day cares from work and homes are now more important. This will affect your ability to find employees. Minimum wage work will be chosen more carefully, since commute costs will eat into a small wages quickly.

If you were having a hard time finding people a year ago, commute costs due to fuel prices might complicate that further.

You must put far more thought into those 3 little words: location, location, location.

The best Realtors are going to find smart ways to leverage today’s issues, as they always have, only the parameters have changed.

It isn’t just real estate though

If you do a lot of mail order/internet order/phone order business, how are you preparing your business to do more locally?

What if shipping costs tripled tomorrow? Would your mail order business survive? Where would you find “replacement” customers locally? How would you attract them? Would you focus on regional mail order clients vs national? What changes in your product line are necessary to succeed on that refocused client market?

These are things you should already be thinking about, no matter what you do.

Fuel Surcharges: Another reason to buy local

My CFO friend does that sort of financial wizardry for a large international importer.

Last weekend, she told me she had been informed by her shipping vendors that the fuel surcharge on seagoing containers was going up at least 30%, to about $1200 for a large container.

That got me to thinking about a number of issues, so I started digging around.

The Westbound Transpacific Stabilization Agreement (WTSA) covers oceangoing freight in the Pacific in and out of the Oakland area. They recently announced a $600 per container increase, which is a brief resting place before Oct 1’s full “floating” charges take effect.

Up in Canada, the news is the same. The Canada Transpacific Stabilization Agreement (doesn’t that sound benign?) recently set their fuel surcharge at $1,260 for a 45 foot container.

There is similar news elsewhere in the industry.

A 45 foot container holds 3000 cubic feet of “stuff” (that’s 86 cubic meters for my overseas readers).

Let’s look at the impact of these fees on imported goods that your store might be selling or consuming.

Let’s say you have a 40″ big screen HDTV. Figure the box to be 2 feet thick, 4 feet tall and 5 feet long (all wild guesses). That’s 40 cubic feet, or about 75 TVs per container.

It might be more or less, but my box size guesstimate will probably be made up for by the space used by pallets and the like. The math isn’t the point.

If 75 televisions have to split that $1,260 fee, then each TV will go up about $20. Or should.

What will the increase be when it gets to you, the retailer? Do the math before you sign that contract.

If you sell imported cars, figure 4 cars per 40 foot container. That adds $315 per car to your cost, if you’re lucky.

It isn’t just ocean-going freight.

You need to be looking at this elsewhere. A simple example: Does a $1 Fedex or UPS fuel surcharge make sense on a 10 ounce overnight envelope? Call your Fedex/UPS sales rep and see what kind of flexibility they offer, if you do the kind of volume that would make this substantial to you.

My CFO friend tells me to expect some things to rise 30%, even though the fee increases don’t appear to reflect that size of increase in the cost of your goods. October’s increase will push you again.

It’s easy to watch this sort of news on CNN or MSNBC and think it doesn’t impact you – but it does. I suggest paying closer attention to it, particularly if you do a lot of international shipping. Maybe that’s another reason why Ian doesn’t buy Chinese.

On Monday, we’ll hit a lot closer to home on these fuel surcharges. And I might even make you mad.

In the meantime, take a long hard look at the kind of value you’re delivering now. Consider whether those increasing international shipping charges might just be better spent elsewhere – like on locally produced goods.