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.”
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye