FUEL prices have jumped again since our survey last year of event rental companies, and the companies are driven to do something about it. In an informal Special Events survey conducted in May, rental companies report an average increase of 24 percent in fuel prices and an average increase of 22 percent in the cost of operating trucks since June 2004. These hikes, coming on top of last year's reported 16 percent increase in fuel prices, have forced rental companies to look into different ways to offset speeding costs.
Although some companies cite only a small impact from the increase in fuel prices, far more feel a wallop. In response, this year's survey shows, nearly 90 percent of rental companies are choosing either to increase delivery fees or to put a surcharge on delivery to ease their gas pains.
David Shaw, president of Phoenix-based Party People Rentals, had to raise delivery prices by 11 percent in 2004 because of an increase in fuel costs and in product or freight cost from vendors. “We really have no choice but to pass such costs on,” Shaw explains. “An average delivery will cost our customer about $60. If I had to charge that same customer that same delivery charge based on what it actually costs us, by the time you figure in driver with helper wages and insurance and fuel and service and benefits, etc., I would have to charge $150 or more.”
Last June, Steve Kohn, president of Edison, N.J.-based Miller's Rentals & Sales, reported putting a fuel surcharge of 20 percent on standard delivery and charging for go-backs because of the hike in fuel prices. Kohn reports that he is continuing with these fees in 2005 after facing a 25 percent increase in the cost of fuel, which has led to a 15 percent increase in the cost of operating trucks in his area. “Sometimes it's more cost-effective to charge lower rates for equipment, but more for services provided,” he says. “Our clients are aware of the world around us and know what labor, fuel and insurance costs are. They are not familiar with what a chair costs. So charging a reasonable rate for a chair — rather than an excessive rate — can be better offset by charging more for the services to provide it.”
CUT THE COST
Because of the labor-intensive nature of rental delivery, many companies are decreasing unnecessary labor costs by increasing efficiency.
Chair-Man Mills operates 14 trucks from its Toronto base and has seen a 12 percent increase in the cost of operating those trucks. The company has been exploring many options to cut back on fuel costs, says company president Mary Crothers. “We are trying to get drivers to make certain they pick up everything the first time. If the client is not there at the scheduled pickup, we are trying to add an additional charge for the second trip,” she explains. “We are trying to get our caterers to make the correct list first time out, so we don't have to make several deliveries with ‘additions.’ This is all good on paper, but hard to do in reality to good clients.”
Jack Luft, president of Niles, Ill.-based Halls Rental, reports that even though fuel prices have increased about 20 percent over the last year, fuel costs represent about only 1 percent of the company's expenses. Even so, the company still tries to reduce labor costs. “Event rental companies are very labor-intensive, and anything we can do to reduce labor can be significant,” he says. “Several years ago, we hired a company that sends a fuel truck to our facility to fuel our trucks in the evening. We probably saved more than any increase in fuel prices by lowering our labor cost. The 10 minutes that each truck sits at a gas station with a driver and one or two helpers in the truck add up.”
DO CUSTOMERS CARE?
For some companies, the fuel burden is exacerbated by customer relations issues.
Mark Clawson of Diamond Rental, a company that operates some 25 trucks from three facilities in Utah and Idaho, reports a “disconnect in the consumer mind” concerning the costs of delivery. “It's not immediately intuitive to the average event planner that a request to ‘just run one more chiavari out to the job site’ is going to mean two employees getting paid overtime sitting in rush hour traffic for three hours in a truck that gets seven miles to the gallon on a good day,” he says. “The reality is that our customers expect a very high level of service and sometimes have a hard time understanding why they should pay for it.”
Charlotte, N.C.-based Party Reflections has raised its delivery charges and imposed a charge for deliveries slated for specific times after the company suffered an increase of as much as 20 percent in fuel costs plus a jump of more than 20 percent in insurance costs. The company is trying various ways to reduce costs, such as using smaller trucks, searching for the best price on fuel, plotting routes better and looking at trucks that are less expensive to operate.
But Party Reflections president Dan Hooks notes the labor aspect and the relationship between the company and its customers have a powerful impact. “Our customers are much more time-sensitive now than in years past. They not only dictate to us what day they want the equipment, but now relegate us to a production schedule that they set with complete disregard to what we may have to deliver that day,” he says. “When you have a limited number of trucks to cover a 60-mile radius of downtown, it definitely impacts our efficiency if we have to make a truck go out of its way to meet a timed delivery.”
On the other hand, Luft has an understanding customer base. “We did increase our delivery charge on each order this year by about 10 percent,” he reports. But, “Our customers understand that this is necessary, and we did not hear one complaint. I think that everyone realizes that fuel prices are up and reasonable delivery charge increases are accepted.”
With 93 percent of rental companies reporting that they don't believe it's their responsibility to absorb the increased costs, it's clear that higher costs must be shared.
Michael Berk of M&M The Special Events Co., based in Carol Stream, Ill., operates 24 trucks in his facility, and estimates that he has faced a 40 percent to 45 percent increase in the cost to operate the trucks since 2004. “Competitive pressures have already reduced margins to a critical point, and these real costs must be passed along to the end user,” Berk says. “If we raise delivery prices $10 on an average delivery ticket of $500, the increase is truly minimal to the user, but if we average 40 deliveries a day and pick up the additional $10, that goes a long way toward offsetting our increased costs.”
Ben Shipper IV of Chicago Party Rental agrees. “If prices need to be raised, then that is what must be done,” Shipper explains. “Sure there will be some resistance from clients, but if the time is taken to explain why prices must be raised so that your services can continue to meet their expectations, then what reasonable business person would not understand that?”
Chair-Man Mills, 416/391-0400; Chicago Party Rental, 800/322-5868, 708/352-7007; Diamond Rental, 801/262-2229; Halls Rental, 847/929-2222; M&M The Special Events Co., 630/871-9999; Miller's Rentals & Sales, 732/985-3050; Party People Rentals, 602/264-0062; Party Reflections, 704/332-8176