Growth Strategies

Rising Gas Prices Push Small Businesses to the Brink

At a House hearing, executives air their grievances, ask for federal help, and hear a few solutions.
Kate O'SullivanApril 10, 2008

Small business executives, though not traditionally fond of government intervention, are begging for federal help in addressing the rising cost of fuel prices. In a Wednesday hearing held on Capitol Hill by a subcommittee of the House Small Business Committee, experts and executives testified on the impact of energy costs on industries from trucking to home health care.

“I’m at the point where I’m questioning my ability to continue to operate,” said Michael Graff of Graff Trucking, citing diesel prices averaging between $4 and $4.50 a gallon.

Experts shared an array of alarming statistics — that oil is expected to remain at $100 per barrel for the remainder of 2008, that gas prices could hit an average of $3.60 this summer, and that the average pump price of gasoline this year is up 28 percent.

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Panelists said such price increases can severely impact small businesses, which often lack the negotiating power and margin buffer enjoyed by their larger counterparts. They often must raise prices to try to maintain their margins, which in turn impacts consumers as they struggle with inflation across the board. Energy cost increases are also forcing small business executives to cut in other areas, such as employee benefits and safety training, said Tim Williford, vice president of finance and administration at Southern Piping, a contractor based in North Carolina.

Gary Gilberti, CFO at Chesapeake Rehab Equipment, which delivers and services home medical equipment for the disabled, said his company had seen a 126 percent increase in its fuel cost since 2003, making gas for its fleet of delivery vehicles its third-largest operating cost, behind payroll and rent. “When you increase fuel prices at this rate, you put an already very fragile industry underwater,” he said.

While much of the discussion focused on the struggle of small businesses, some panelists did propose alternatives. John Urbanchuk, an expert on biofuels, pushed for increased ethanol use, while Graff urged greater federal oversight of energy trading, which he argued drives up the cost of fuel.

Graff also suggested that the government mandate that fuel prices be set once weekly rather than fluctuating throughout the week, as his company bids on contracts at the beginning of the week and frequently faces fuel cost hikes as the week progresses.

Vincent Orza, dean of the Meinders School of Business at Oklahoma City University, recommended that federal gas and diesel taxes be suspended to provide some immediate relief.