From: Reuters
Published May 27, 2008 08:13 AM

Small business crunched by fuel prices

FORT WORTH, Texas (Reuters) - Many U.S. small business owners say soaring fuel costs are eating their profits at a time when the economy is already weak, making them more cautious about expanding or hiring.

"In theory we could pass on extra costs with fuel surcharges," said Vince Puente, part owner of Southwest Office Systems Inc (SOS), which sells and services copy machines and other office equipment to companies in the Dallas-Fort Worth area. "However, our competitors are all bigger than us and aren't doing that, so surcharges would kill us."

"With gas rising 5 to 10 cents a week, you have to find ways to cut costs," he added.

SOS has 70 employees and 2007 revenue of $16 million.

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But Puente said his freight costs have gone up as the companies hauling his office machines apply fuel surcharges.

SOS has also just had to raise the amount of gasoline it pays employees for driving to visit clients to 42 cents from 36 cents per mile (1.6 km), at a cost $3,000 a month.

"That money comes straight out of my pocket," Puente said, adding that he has now also put his assistant in charge of administering equipment leasing, a revenue-generating job.

"We can't afford many jobs that don't bring in revenue because we're not as fat and happy as we used to be," he said.

Small businesses like Puente's are the backbone of the U.S. jobs market and vital to job creation.

In 2002, the United States had 112 million paid employees, according to Census Bureau data. About 56.4 million, or just over 50 percent, worked at companies with fewer than 500 employees.

But with crude oil prices now above $130 a barrel -- doubling in the past year and rising sixfold since 2002 -- the squeeze of absorbing these costs for transportation and utilities is intense as revenue comes under recession pressures.

"Small businesses are caught in the scissors between high fuel costs and rather slow economic growth," said University of Maryland economist Peter Morici.

That leaves small businesses in a bind. Should they pass on fuel costs to customers? Or absorb those costs, surrender profits and cut expansion, therefore creating fewer jobs?

"My concern is what fuel is doing to the bottom line of American small business owners," said Todd McCracken, president of National Small Business Association. "But if they use fuel surcharges, what does that do to inflation and the economy?"

"COMMUTING ON MY FUEL BILL"

The answer from many small businesses is that, like SOS, they can only pass on a portion of high fuel costs to customers. So expansion plans are shelved and they are focused on getting more out of current employees, not taking more on.

"There is no bottom line at the moment," said Sidney Goldman, owner of Providence, Rhode Island-based food distributor Greylawn Foods Inc.

Greylawn is a family business with 26 trucks whose weekly fuel bill has risen to $28,000 from $18,000 in the past year.

"I can pass on some fuel costs to a few customers, but they're small companies too. I get some pushback. But I can't afford to lose money," Goldman said.

Many owners say they are also looking closely at their employees' commutes and their business travel patterns.

Mike Mittelnight owns Factory Service Agency Inc, an air conditioning construction and servicing company in New Orleans, with 16 employees and sales of $2.1 million last year.

The construction projects his company handles often take a year to get going, so the work he has now he bid on a year ago based on fuel prices at the time.

To cut fuel consumption on his trucks, which get only eight to 10 miles to the gallon, a little more than three to four km per litre) , Mittelnight has his crews work longer days on-site to reduce commuting. But his weekly fuel bill has still risen to $1,000 from $350 in the past year.

Mittelnight said he is now reluctant to hire technicians who live too far away. His technicians drive company trucks home and are on-call for servicing jobs.

"I can't have people driving too far to service clients because then they're commuting on my fuel bill," he said.

Mary Galvan owns GLM DFW Inc, a Dallas company with about 50 employees and annual sales of $20 million that arranges recycling services for large firms nationwide.

She says some prospective employees have demanded higher salaries to offset the cost of driving to work.

"But it's too hard to justify paying them more than employees who have been here for years," she said.

Galvan said any investment, from paper to office furniture, is now weighed more carefully. She employs only people she knows can double or triple up by taking on different jobs.

"If it's not absolutely necessary, we don't do it," she said.

(Editing by Peter Bohan and Walker Simon)

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