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Fuel Prices Fall But Rental Profits Still Feel Pressure

Fuel Prices Fall But Rental Profits Still Feel Pressure

The price of a gallon of gasoline has dropped by almost 30 percent since July. Diesel fuel in the U.S. fell 18 cents to an average of $3.48 a gallon this week, down from an all-time high of $4.76 on July 14. With fuel prices dropping, are event rental fleets reaping the benefit? So far, the answer is mixed.

The fleet of trucks at Edina, Minn.-based Apres Party and Rental runs solely on diesel fuel, so, "We have seen the price drop to levels that make any difference in costs only in the last two weeks," notes company founder Charlie Feldbaum.


Apres will continue its 20 percent fuel surcharge, which Feldbaum imposed in June. "It will help offset the increases in fuel costs for 2008," he says. He started adding a fuel surcharge--of 12 percent--about a year ago. He raised it to 15 percent and then to 20 percent. "Interestingly enough, we got a letter from our largest caterer today asking us to take that off," he says. "They feel they can no longer pass that cost along to their customers since prices are so low. I told them I would do it for them. But I have the right to raise it as I feel it necessary. I do feel we are going to have a lot of 'dealing' in these tougher times."

Stockton, Calif.-based American Event Rentals has a $15 fuel surcharge in place--"Unfortunately, we started charging it later than most," says company head Steve Anthony. He plans to keep it in place until diesel prices fall below $3.90 per gallon in his area.

Event Rents, with locations in Santa Barbara and Ventura, Calif., has kept its fuel surcharge steady despite the jump in diesel prices from $3.50 to $5.25 a gallon, notes company founder Jim Lisi. After a 16 percent increase in fuel costs over the last 12 months, he says his fuel cost has dropped about 5 percent within the last 60 days from the year-earlier period.

"We want to eliminate our fuel surcharge--not because our costs have really changed but because our customers would rather see these costs rolled into our delivery and rental prices," Lisi says. "But, I worry that we really will not see that surcharge revenue come back in higher prices next year with the market getting soft."


Fuel costs vary across the U.S. "The price of diesel is still elevated in Georgia," notes Dan Nolan III, general manager and managing partner of Tents Unlimited, Marietta, Ga. "We are in a unique situation. Georgia traditionally had one of the lowest averages for a gallon of fuel in the entire country, so we are still paying much more than we did just 20 months ago. This anomaly has caused a pretty steep spike in our fuel expense line on the P & L. I hope we settle back into that 'low' cost per gallon once the diesel fuel standards are rolled out in all 50 states and we get the same blend across the country." Effective Dec. 1, 2010, all U.S. retail outlets will have to offer Ultra Low Sulfur Diesel fuel.

While easing fuel prices are a blessing, higher operating costs are still pinching profits, some operators say.


"We were never able to pass along the full impact of the increases," notes Mike Berk, head of Carol Stream, Ill.-based M&M The Special Events Co. "With fuel prices dropping to where they are, which is still higher than a year ago, we are just now at a point of covering the increases. Some of our competitors must have found oil wells in their backyards because they didn’t see fit to increase delivery charges."

Many rental pros interviewed by Special Events put fuel-economy measures in place when fuel prices started spiking a year ago, and no one plans to pull back on them now.

"We have actually figured out how to do deliveries from one place to another and not return equipment to the warehouse," says Rene Martinez, vice president of Covina, Calif.-based A-1 Event & Party Rentals. "We are double-checking orders for no mistakes, and making sure that we have a little extra material on all our loads, especially if they are of some distance."

American Event Rentals has consolidated deliveries on a larger, 24-foot bobtail diesel truck. "This allows us to have less people out on the road at any one given time," Anthony notes. "We planned with our customers routing schedules that were flexible and could be moved to another day if needed. We will need to keep these methods in place as we try to manage our customers’ expectations."

Although labor remains the biggest item on his balance sheet, "Transportation is getting closer and closer," Anthony says. "With expenses on the rise, employees who ‘milk the clock’ are finding one-way tickets to the Employment Development Department. We are now expecting higher productivity in the workplace. Our customers expect superior products, and they want to know why things cost what they do."

The lingering question: What will happen in 2009?


"I am assuming that the holiday season will be less than 'merry' this year, and I am really going to hold back with purchases in early 2009 until I see how the economy will react and stimulate from the election and economic stimulus [measures]," Feldbaum says. "It is a wait-and-see attitude, but we all need to be cautious regarding spending and growth when we may very well see a slowdown for at least the first quarter of 2009."

Berk is similarly cautious. "The economy hasn’t impacted our business yet, but it is only a matter of time," he says. "Events are 100 percent discretionary, and they are one of the first categories to be reviewed and trimmed. There will be tough times ahead, and it will cause everyone to review expenses and personnel and reallocate resources."

"Everyone is very aware of a downturned economy, and I think the fuel is a small portion of what is really concerning most people," notes Jim "Smitty" Smith, general manager of Orlando, Fla.-based Kirby Rentals. "Many companies have already made up their minds to cut back, and the few bucks they can save on fuel is not going to change their minds to start spending. As a company, we did not change how we do business because of fuel costs; what we did was make every employee aware that we need to watch every facet of what we do and how we do it."

Get the most mileage Fleet Owner, a sister publication of Special Events, offers driving tips to get the best mileage from truck fleets; to read more, click here.

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