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Gas Pains for Entrepreneurs

With crude oil prices pushing past $60 a barrel, everyone is feeling the pain at the pump. But for small companies that depend heavily on transportation, the effect is more punch than pinch.

Hard-hit entrepreneurs are using various means to cope with the surge in fuel prices this summer. Some are raising their own prices, others are conserving, and nearly all are lowering earnings expectations.

SHIPPING BRICKS. J.C. Calcote's transportation costs at Tascosa Brick have nearly doubled over the past two years. As a distributor, he uses railroad cars to ship bricks and masonry supplies from wholesalers around the country into his Amarillo (Tex.) plant, then sends his trucks to construction sites around the Southwest.

"Two years ago, my cost was $2,100 or $2,200 for a rail car from Utah," he says. "Now it's more than $4,100." And he has just received word that rail transport prices will go up an additional 11.5% come September.

"Fuel has gone up, I understand that, but we're struggling to keep our costs down to stay competitive," he says. Although he has raised prices, Calcote says he has not yet contemplated downsizing the seven-employee, 21-year-old operation.

VOLUME NOT AN OPTION. Typically, when energy or other fixed costs rise drastically without advance warning, small employers tolerate reduced earnings or raise prices before they lay off employees, says Denny Dennis, senior research fellow at the National Federation of Independent Business. Past NFIB surveys have found that about three out of four small-business owners lower earnings as the first response to increased energy costs.

The record-high fuel prices can affect small companies in myriad ways. At Tascosa Brick, for instance, trucking and rail shipment constitute just one part of the picture. "Natural gas is used to heat the brick during the manufacturing process, so the cost to make the raw material is going up also," Calcote says. "A large corporation, they can probably handle the cost a little bit better, as they may get a special discount for volume. As a small company, those advantages are not going to be here for me."

Rising prices at the pump, however, remain the primary concern. Take Mike Milam, vice-president of Runabout Courier, a delivery company based in Titusville, Fla. His outfit, which offers same-day delivery of documents, parts, and medical specimens within about a 200-mile radius, initially added fuel surcharges and then raised prices. And when one of his eight vehicles needed to be replaced earlier this year, he bought a small, fuel-efficient car. Runabout has traditionally used pickup trucks.

"ADJUSTING THE THERMOSTAT." When you're running 10 hours a day, five days a week, a lot of gallons of gas go in your tanks," Milam says. "Even five miles more a gallon makes a big difference."

Conservation is also a typical response to energy cost increases, the NFIB's Dennis says. "The approach is to reduce the total volume of energy the business uses, either by conservation -- adjusting the thermostat up or down -- or by taking vehicles off the roads or avoiding rush hours, that kind of thing."

As a last resort, people typically cut or eliminate their investment in their businesses, delaying growth opportunities or foregoing them altogether. "Less often, you see them actually cutting out employee raises or not filling open positions on their staffs," Dennis says.

BACK IN THE WATER. Still, there are some signs that before it gets to that point, both business owners and consumers will start accepting higher energy prices as a fact of life.

Bob Gibbons, president of Gibbons Fiberglass and Aluminum Boat Repair in Bismarck, N.D., says that while his business dropped 30% over the last year, things have started to pick up this summer. "Around here, our lakes are about 70 miles away, so, for a while, people weren't taking their boats out of storage to use them," he says. "Also, boats today are bigger, faster, and they use more gas."

But in the last few months, some of his regular customers have come back in for boat overhauls and repairs. "People are starting to grin and bear it and say, 'What the heck, we're going to go boating anyway,'" he says.

SOME ADVANTAGES. Milam is also trying to look on the bright side: "Everyone goes to the gas station. They all know what the problem is, so none of our customers objected when we implemented fuel surcharges or price increases," he says. And companies that used to make their own deliveries are starting to rethink that model as it gets more and more expensive to put their own employees on the road.

That means more new customers inquiring about his service and whether it could save them money. "When it costs this much, we actually have less competition from the do-it-yourselfers," Milam says. For the nimblest of entrepreneurs, the legacy of the latest energy crunch just may be new opportunities.

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