ATLANTA — Last week’s blackout could put more of a squeeze on tight fuel supplies, making gasoline and diesel prices higher, and in turn make shipping goods more expensive for apparel wholesalers and retailers.

Three Midwestern refineries, two in Toledo, Ohio, and one in Detroit, shut down Thursday, with gradual startups over the weekend. Those refineries supply more than half the gasoline for Michigan and northwest Ohio, according to the U.S. Department of Energy.

“This is one more tightening influence that may impact gasoline prices, especially in the Midwest, for at least a week or two,” said Michael Burdette, a senior analyst with the Energy Information Administration, an arm of the DOE.

Burdette said the Northeast should escape higher prices, as a New York refinery was not shut down.

Nationwide, fuel prices were already high last week, averaging $1.57 for gasoline, $1.49 for diesel fuel, up around 18 percent from a year ago. Fuel prices peaked in March, fell in early summer and are now back up again, which typically happens this time of year, but also reflects continuing instability in Iraq and refinery problems in Venezuela and Nigeria over the last year. Burdette estimated that crude oil prices, the main factor in high gasoline prices, would stay high, at around $30 a barrel, for the rest of the year.

Jamal Qureshi, a market risk analyst with PFC Energy, a Washington-based energy consulting firm, said futures markets that measure gasoline prices rose significantly on Friday. He predicted a run-up in gas prices in the Midwest, where refineries have less flexibility than other areas. He added that lost demand, from a day when most people didn’t work, should help temper any price hikes, along with new supplies expected later this year from non-OPEC producers, referring to the Organization of the Petroleum Exporting Countries.

Higher fuel prices would not be good news for apparel manufacturers already struggling with rising shipping and transportation costs. Most major carriers regularly add surcharges, for both fuel and security, that average from 8 to 10 cents a mile for shipping by trucks. Airline surcharges average 10 cents per kilogram for fuel and 10 to 15 cents per kilogram for security. For steamships, fuel charges are between $200 and $300 per container, with up to $100 per container for security, according to Customs & Trade, a Miami customs broker and freight forwarder.The nation’s truck carriers say surcharges are necessary, and while they acknowledge the charges are high, they contend the charges don’t always cover fuel costs, which represent 20 to 25 percent of operating expenses.

“We’ve seen a record number of bankruptcies in the past few years because of fuel costs and the economy,” said Bob Costello, chief economist with the American Trucking Association in Alexandria, Va. “[Attrition] has come mainly from smaller carriers that haven’t imposed surcharges. Some trucks do 10,000 miles a month and get seven miles a gallon. When fuel prices rise, it means real money.”

Costello predicted the pressure on prices caused by tight fuel supplies will be compounded by rising demand, as the economy improves.

“Fuel surcharges are a way of life, and will be, with supplies as they are,” said Jose I. Aguirre, vice president for Latin American business with Miami International Forwarders, recently bought by Eagle Global Logistics in Houston.

Aguirre estimated that security and fuel charges have added 15 percent to shipping costs in recent years.

“This is affecting manufacturers’ profit margins, as manufacturers are hit on both sides, from carriers and their retail clients,” he said. “Wal-Mart doesn’t care about a manufacturers’ fuel surcharges.”

For big manufacturers, fuel surcharges are negotiable. In recent years, large firms with multichannel distribution have outsourced more shipping rather than maintain costly in-house fleets of trucks.

Tony Brooks, vice president of transportation for Sears Logistics Services, said Sears now uses third-party carriers exclusively for its multichannel shipping.

Brooks said fuel costs had been “extremely volatile” over the past three years and have been unexpectedly high since May, when President Bush declared fighting over in Iraq.

“We have to plan for the unplanned spike in fuel costs and offset that through productivity initiatives to reduce mileage and capacity, etc.,” he said.

A spokeswoman for Sara Lee Branded Apparel agreed that volatile fuel and security charges have made manufacturers plan more efficiently.

“We’ve always watched transportation costs, but we’ve gotten smarter, breaking all the pieces out so we can negotiate,” said the spokeswoman. “The trucking industry can’t bear the brunt of fuel costs increases, so we share it. But we plan for it well in advance.”While big manufacturers have the clout to negotiate, small-to-midsize companies can also negotiate through such groups as the American Apparel & Footwear Association.

Siriani & Associates, a Costa Mesa, Calif.-based logistics company, puts together transportation savings programs for members of associations, including the AAFA, said Dave Silver, vice president of Siriani. Most of his clients are smaller manufacturers.

“Smaller companies need to take preventative measures before costs spike,” he said, noting the importance of negotiating costs for inbound as well as outbound shipping, especially as imports continue to grow.

Analysts said that while fuel costs are high now, assuming a moderate winter and no major unplanned events, such as another war or terrorist attack in the U.S., prices may be about as high as they will get for the rest of the year. But beyond manufacturers’ transportation budgets, every little spike in gasoline presents another drain on consumer spending.

“I’m more concerned about higher gas prices from the consumer perspective,” said the Sara Lee spokeswoman. “We compete with apparel and nonapparel companies for the share of consumer dollars, and higher gas prices take money out of consumers’ pockets.”

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus