The good news: The economy appears to be picking up. The bad news: It is pulling fuel prices up with it.
For the first week of 2011, gasoline prices are up 15 percent from a year ago while diesel prices are up a whopping 19 percent, according to the U.S. Energy Information Administration. And party rental operators are bracing themselves for the possibility of higher prices yet to come.
"We just had a strategy meeting regarding fuel prices" on Monday, notes Larry Guitar, head of Special Events Rental of Warren, Mich.
SURCHARGE: YES OR NO?
The hot topic: Will rising fuel prices compel party rental operators to increase delivery rates or impose a specific fuel surcharge? Ninety percent of rental operators told Special Events they boosted delivery rates in one way or another in the summer of 2008, when diesel prices hit an average $4.76 a gallon. That figure is about 30 percent higher than prices are today.
"We've been absorbing the increase, but will reinstate a fuel surcharge if fuel reaches $3.50 a gallon," Guitar says.
Imposing a fuel surcharge brings mixed results, many operators say. On one hand, "The corporate clients sympathize," says Steve Kohn, president of Miller's Rentals of Edison, N.J. But on the other hand, "The homeowners will shop around for cheaper rates." Because he expects higher fuel rates to stick around for "quite some time," Kohn says, "it makes more sense just to increase delivery fees."
But one of the plusses of a fuel surcharge is that it is so easy to adjust. Cincinnati-based All Occasions Event Rental added a fuel surcharge six years ago, which bounced between 6 percent and 9 percent, notes director of special events Robert H. Hughes, CSEP. The company dropped it entirely two years ago after fuel prices fell. Not only was the surcharge "an easier pill for customers to swallow," Hughes notes, "It is an easy application in our computer system to simply add the fuel charge back or remove it if needed."
With competition still so tough, however, most operators prefer to increase efficiencies rather than raise any rates for clients.
Special Events Rental has installed an above-ground diesel fuel tank to gas up its fleet; "Fuel tanks save money over the pump," Guitar notes.
Since adding any extra charges would put him at a competitive disadvantage, "We continue to stress our advantage in that we offer a wider array of products and services than our competition," notes Mike Berk, head of Carol Stream, Ill-based M&M The Special Events Co. "If the clients use more of our products and services, they don't need to order from other vendors and pay their delivery fees." Another strategy: "We're mapping our deliveries to see if we can get better vehicle utilization," Berk adds. "We're experimenting with using different size vehicles to save fuel and in some cases operate with one man versus two."
Phoenix-based PRO EM keeps fuel costs in check with a sophisticated vehicle tracking system. "We have recently implemented a new inventory control system that has a dispatch/routing module that we are having a lot of success with," notes vice president of operations Brady Castro. "It gives us the cost data relative to travel time, fuel consumption and labor hours for each job we deliver so that we can evaluate our processes, find inefficiencies and correct them, as well as understand if our pricing is in line with our cost structure and overhead." Also, "We have created cross-training and a consolidated delivery model that allows for our people to be proficient in multiple areas and thus reduce the number of trucks or routes to a given job site," Castro adds.
WHAT REALLY HURTS
More than fuel prices, the real headache in 2011 will be rising rates for insurance, some say.
"Fuel for delivery trucks accounts for only 1 percent of our budget," says Jack Luft, head of Chicago-based Halls Rental. "Although increases in that area do affect us, it is not that significant."
The real threat: "Increases in health insurance and workers compensation insurance are much more significant in our business than fuel prices," Luft says, "and insurance rates have been rising steadily."