How Will Companies Make Money with Rising Fuel Costs ?

[wwswimming]

... and what effect will it have on the broader stock market ?

http://biz.yahoo.com/rb/080624/ups_outlook.html

for reference, another article by John Mauldin (actually voted
by Motley Fool as #2 investor after Warren Buffett ... plus he
actually took time to explain mortgage-backed securities,
hedge funds, etc. to his readers)

Article about "Terms of Trade"

"terms of trade" is a term used to describe, among other things,
how many hours an "average worker" has to work to pay for
a barrel of oil.

that article is interesting because it argues that in a situation
like we are in now, with liquid fuel prices sky-rocketing, low
interest rates are good because they spread the pain around
more equally.

when i took economics & business classes, the definition of a
stock market price was, present value of the future earnings
stream of a company (divided by the number of shares). i
have a feeling that if you did that calculation for the DOW components
for various oil prices, the DOW is over-valued at 12,000.

good websites for ref. info about energy tech -
http://www.theoildrum.com/
http://www.energybulletin.net/index.php

 

[child of wonder]

My uncle works for a trucking company. He says they're making more money than ever because now they add on a "fuel surcharge" to their bills. Trick is, however, they keep the fuel surcharge higher than their actual additional fuel costs.

 

[Xavier434]

Originally posted by: child of wonder
My uncle works for a trucking company. He says they're making more money than ever because now they add on a "fuel surcharge" to their bills. Trick is, however, they keep the fuel surcharge higher than their actual additional fuel costs.

:|

Not that it surprises me.

 

[StageLeft]

Originally posted by: child of wonder
My uncle works for a trucking company. He says they're making more money than ever because now they add on a "fuel surcharge" to their bills. Trick is, however, they keep the fuel surcharge higher than their actual additional fuel costs.

Hopefully he's saving his money. WHen you have a recession married to high fuel costs, you will see less transportation. That is inevitable.

To answer the OP's question: you don't. That's why things do not look positive. Costs of goods go up with fuel costs as consumers have less spare money because of their own fuel costs and they simply buy less.

 

[BrunoPuntzJones]

Originally posted by: child of wonder
My uncle works for a trucking company. He says they're making more money than ever because now they add on a "fuel surcharge" to their bills. Trick is, however, they keep the fuel surcharge higher than their actual additional fuel costs.

Similar to my dad. He has a service business that works on commercial equipment (freezers, fryers, etc.).

There aren't any others within a hundred something miles, so a lot of the calls are from convenience stores in the middle of nowhere and they get hammered with fuel surcharges. It's nothing excessive, I think $0.50 a mile or so but adds upwards of $100 to each bill. His trucks get about 10MPG which at $5 a gallon for diesel works out to $0.50 per mile.

He probably needs to go up on the surcharge, and will have to when prices go up.

An extra $100 per service call can be a lot to a little gas station in the middle of no where, considering they aren't making money on gasoline sales.

 

[BoberFett]

Originally posted by: Xavier434

Originally posted by: child of wonder
My uncle works for a trucking company. He says they're making more money than ever because now they add on a "fuel surcharge" to their bills. Trick is, however, they keep the fuel surcharge higher than their actual additional fuel costs.

:|

Not that it surprises me.

What, he should work for free?

 

[Thump553]

For now, a lot of businesses are eating a big chunk of the increased fuel & energy costs in order to preserve market share. This has helped keep inflation down to lower than expected for the last several months. That is clearly not a long term solution, so expect the costs to be passed on in full (plus perhaps an adder, like in the trucking fuel surcharge above) in the not too distant future (weeks or months, at most). For example Dow Chemcial today is implementing a 25% cost increase, plus an increase in shipping rates. More significantly they did this change with only a couple of days notice, when for decades they traditionally gave 90 days notice of a price increase.

Industry, and jobs, will change. In the trucking industry expect much higher transportation fees, probably more team driving, and less independent operators. In the grocery store, expect much higher costs, less variety especially in produce. Expect your future airline ride to be more like an extremely overpriced greyhound bus ride than an exotic adventure.

We are facing massive changes all across our economy. Some industries, some companies and some jobs will blossom in the new environment. Some-for example union carmakers-will be like the dinosaurs.

 

[Martin]

Most companies will just absorb it - I can't imagine fuel/transportation being a major expenditure for most companies. Say you have a 10% profit margin, and fuel is 5% of your expenditures. If you're in a competitive market, you'll just absorb the cost.

Companies that rely very heavily on fuel are the ones that won't be able to do that and will have to increase prices, though it won't be proportional to fuel prices (even companies like Greyhound have tons of other expenditures - vehicles, labour, etc)

 

[Deeko]

I Don't Know Because I Can't Really Understand What You're Saying When You Type Like This

reminds me of will ferrell's snl character. HOW DARE YOU TINA FEY???

 

[PingSpike]

Originally posted by: BoberFett

Originally posted by: Xavier434

Originally posted by: child of wonder
My uncle works for a trucking company. He says they're making more money than ever because now they add on a "fuel surcharge" to their bills. Trick is, however, they keep the fuel surcharge higher than their actual additional fuel costs.

:|

Not that it surprises me.

What, he should work for free?

His pricing model is hardly unique these days, but it is kind of dishonest since companies always had to buy fuel and they used to just roll its cost into the advertised price. Now you pay the advertised price and then there's that little surprise on the end. I don't think a lot of people expect it, and at that point they've probably already done the work and you're stuck.

Even you admit the fuel surcharge is a lie and isn't just for paying for the fuel...whats wrong with just raising your advertised price?

I'm speaking more to home service calls, I don't really know about trucking companies and their business practices.

 

[PingSpike]

Originally posted by: Martin
Most companies will just absorb it - I can't imagine fuel/transportation being a major expenditure for most companies. Say you have a 10% profit margin, and fuel is 5% of your expenditures. If you're in a competitive market, you'll just absorb the cost.

Companies that rely very heavily on fuel are the ones that won't be able to do that and will have to increase prices, though it won't be proportional to fuel prices (even companies like Greyhound have tons of other expenditures - vehicles, labour, etc)

My opinion...companies have been eating part of the fuel cost increases for awhile now and the bottom is going to blow out of that situation pretty soon. The fuel surcharges are just the beginning.

 

[wwswimming]

Originally posted by: PingSpikeHis pricing model is hardly unique these days, but it is kind of dishonest since companies always had to buy fuel and they used to just roll its cost into the advertised price. Now you pay the advertised price and then there's that little surprise on the end. I don't think a lot of people expect it, and at that point they've probably already done the work and you're stuck.

i think the main problem with the fuel surcharge is when it's
sprung on you AFTER the sale. if it's disclosed up-front, what's
the big deal ?

i had a mover do this during a move about a year ago. i was
actually thinking about asking the sales lady out ... she liked
my SFF computers with all the blue lights ! then she tacks $75
on for fuel, which i hear about when it's time to write the check.

 

[CPA]

Originally posted by: child of wonder
My uncle works for a trucking company. He says they're making more money than ever because now they add on a "fuel surcharge" to their bills. Trick is, however, they keep the fuel surcharge higher than their actual additional fuel costs.

Article in today's Houston Chronicle about how there are mass shortages of over the road and local truck drivers. Gas/diesel prices may be up, but business is still good.

 

[CycloWizard]

Maybe some company will decide to build its own rail lines since the government is too myopic to do it.