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Higher Fuel Prices: A Two-Sided Threat

High fuel prices are a double-edged threat -- consumer spending and shipping costs -- against which retailers and vendors can do little to defend.

WASHINGTON — High fuel prices are proving to be a double-edged threat that retailers and vendors can do little to defend against.

Not only are consumers spending more of their discretionary dollars at the gas pump, fashion firms are paying more to ship goods by land, air and sea. While the impact increased fuel costs has on consumer spending habits might be of a more immediate concern for fashion companies, the increase in shipping costs keeps rising and is expected to continue.

On average, a gallon of diesel fuel sold for $2.55 on Monday, up from $2.46 a month earlier and $1.86 a year ago, according to the American Automobile Association.

Such increases have a dramatic impact on shipping companies, as diesel fuel accounts for 20 to 25 percent of carriers’ costs, said Tavio Headley, a staff economist with American Trucking Associations.

Bernard Holtzman, chief executive officer of sportswear firm Harvé Benard, said he is most concerned about the effect of fuel prices on the cost of shipping goods by plane for quicker turn times.

“It’s the air freight that’s going to kill you,” Holtzman said. “It will have an impact to the point where you’re going to lose money on every garment you’re going to ship. We’re praying we don’t have to fly anything in.”

Freight companies typically pass along fuel increases in the form of surcharges that aren’t always clearly laid out, said Robert Caton, president of Cargo Shipping Transportation Analysts, a St. James, N.Y.-based consultancy.

Fuel surcharges, which as recently as two weeks ago were 40 cents per kilo of cargo, could go up by 5 to 10 cents soon, said Caton.

“Nobody really can absorb these changes, so they will be passed through,” he said.

So far, the extra costs have been manageable, said Ken Sitomer, a principal at Apparel Holdings Group, which markets the Caribbean Joe brand.

AHG has run into fuel surcharges on goods shipped by air and across land. But Sitomer is keeping a closer eye on the consumer, shelling out those extra dollars to fill the tank.

“Until now, I don’t think the impact has been significant, but when you’re talking about $3.10 a gallon, in many parts of America they’ll say, ‘I’d rather not go shopping now,'” he said.

Larger firms often have yearlong contracts that offer them predictability in pricing, said Jonathan Gold, vice president of global supply chain policy for the Retail Industry Leaders of America. Many of those contracts, however, come up for renewal at the end of this year after the busy holiday shipping season.

“You’ll definitely see increases in transportation costs,” he said. “I doubt you’ll see that on the end product. Pretty much that’s eaten by the company [and the transportation provider].”

Increased demand for oil, particularly as the Chinese economy develops, a lack of new production and geopolitical instability in the resource-rich Middle East leave future fuel prices in question.

“Eventually, the consumer ends up having to pay for any increase in costs,” said Kevin Burke, president and ceo of the American Apparel & Footwear Association. “This is unfortunately an ongoing trend and, frankly, I don’t see relief in sight.”