Fuel Cost Spike Hurting Economic Growth

Posted on September 21, 2005 by LCT Staff - Also by this author - About the author

PHILADELPHIA – The sweeping devastation in the Gulf region, which sent already-rising gasoline prices soaring, is having a wide-sweeping impact on local businesses. While legislators look for ways to rein in prices, businesses are trying to cope.

Across sectors, businesses are being crunched by rising energy prices, whether they are in manufacturing or service industries, said Kevin Shivers of the National Federation of Independent Businesses (NFIB).

"Businesses are holding back on making investments in expansion,” he said. “They're holding back on buying new technology. They are holding back on training. And they are holding back on hiring people.”

Fifty-nine percent of the state's small businesses surveyed by NFIB reported an increase in costs for goods and services over the past three months. Only 18% of those businesses were able to pass that additional cost on, which means 82% were left eating the cost, Shivers said. "As costs go up, business people are going to have to do one of two things," Shivers said. "They are going to have to postpone investments, which affects their competition, or not hire people or not provide their employees with scheduled training, which would help make them more efficient."

Peco Energy Corp., which provides gas and electricity to nearly two million customers in southeastern Pennsylvania, expects costs to fuel the fleet to jump by 20% this year due to rising gas prices.

The power utility has added 26 Ford Escape electric hybrid SUVs to its fleet, which is expected to reduce costs by at least $1,387 a month. Peco spent nearly $3.3 million last year to fuel its more than 1,300 heavy and light duty trucks and SUVs. The company plans to add a hybrid bucket truck to its fleet next year.

City Tavern owner Walter Staib said his vendors are considering adding surcharges anywhere between $2 and $30 on each delivery to the Philadelphia restaurant because of rising fuel costs.

Among those taking the hit on costs are limousine company owners who often contract with corporations for services at a set rate, and Philadelphia's taxi drivers, who were just granted a rate increase in July. "Most limousine owners have one to five cars," Francis Shane, executive director of the National Limousine Association (NLA) said. "It puts a big hurting on them, and we're hoping they will be able to survive and stay in business."

Philadelphia's 1,600 medallion taxi cabs, which fall under the Philadelphia Parking Authority's jurisdiction, are also forced to shoulder rising fuel costs, said Jim Ney, director of the Philadelphia Parking Authority's taxi cab and limousine division.

Cabs drivers were granted an increase, which took effect July 5. Under the increase, the initial fare charged, when the meter is engaged, rose from $1.80 to $2.30 and the per-mile rate rose from $1.80 to $2.10 per mile. The waiting time fare increased from $12 per hour to $20 per hour, and the flat rate to Philadelphia International Airport from the Center City zone went from $20 to $25, Ney said. "I realize the situation the drivers are in now, they are not realizing any of this increase given the steep increases in gas prices, but what I'm hearing is these increases won't continue forever and will in fact decrease again in the near future," Ney said.

Rising fuel costs have pushed the operating costs of the Parking Authority up by an additional 30%, said Joseph Egan, its executive director.

"It rose and rose in a significant fashion over the last six or seven months," Egan said. "There are a whole series of vehicle operational efforts and that is a legitimate concern of ours and has been for the last 60 days."

"A lot of people make their living on the highway, moving things around, and this is really devastating to everyone – families, drivers and business owners," Shane said.

Gov. Ed Rendell launched a pilot program last month that would add hybrid vehicles to the state's fleet to reduce pollution and the state's dependence on foreign oil. In the wake of major gas supply disruptions caused by Hurricane Katrina, which sent area prices to record levels, Rendell joined governors from New Jersey, Delaware, Michigan and Wisconsin in asking President Bush to guard against price gouging. Additionally, Rendell and legislators are considering temporarily suspending the state's 31 cent per gallon gas tax to alleviate the burden of rising fuel costs.

Businesses that are cutting back now will survive in the short-term, but in the long-term they could be devastated, Shivers said.

"When companies don't grow, when companies don't invest in equipment and technology, [or] hire workers to make themselves more efficient – they don't stay in business for long," Shivers said.

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