War jitters - Triad companies feel uncertainties of Iraqi conflict

triad.bizjournals.com From the February 28, 2003 print edition Boris Hartl   The Business Journal

Crowds are thin these days at Liberty Oak, a restaurant that opened in downtown Greensboro a few years ago when interest and activity in a revitalized center city began to gain ground.

Nowadays, Liberty Oak co-owner John Fancourt can finger everything from wintery weather to the slow economy as being at least partly to blame for the slowdown. But another emerging factor, Fancourt says, is the possibility of war with Iraq.

Half a world away from potential battlefields, Triad merchants like Fancourt are among the business owners already feeling tremors from the possibility of conflict in the Persian Gulf.

"War is on everybody's mind, and people are uncertain what effect it will have," Fancourt said.

Economists say the timing of a possible war, coming in the midst of an anemic recovery from a national recession and after three years of bear equity markets, makes the current uncertainties all the more difficult for Triad businesses to absorb.

While some economists, including Don Jud, an economics professor at UNC-Greensboro, portend a quick war could actually help the economy by returning a sense of normalcy and stability, a prolonged conflict will likely push the nation back into recession.

Gas and diesel prices affected

One place the potential war's effect is already being felt is at Triad gas pumps.

The average price for a gallon of gasoline in North Carolina is $1.591, the highest state average in the last 20 years, AAA Carolina officials said. Since the middle of January, the national average of self-service gasoline has jumped from $1.47 to $1.61 a gallon.

Local freight haulers, distributors and logistics companies have been particularly hard hit.

Steve Immel, terminal manager for AAA Cooper Transportation in Greensboro, has seen the national price of diesel fuel, which now averages $1.76 a gallon, force changes in some operating procedures.

"If we have additional fuel costs, we'll pass them onto customers," Immel said. "They will then pass these costs on. It's definitely a chain-link effect."

Chris Caffey, president of a beer distributing company in Greensboro, has 70 vehicles that burn about 20,000 gallons of fuel a month. As the head of I.H. Caffey Distributing Co. Inc., he has seen his company's monthly fuel costs rise 33 percent to $40,000.

The increased fuel costs won't necessitate any work force cutbacks, but the company may delay building expansion plans.

'Dealing with lower margins'

"We cope by dealing with lower margins, and we hope things get better for us," Caffey said.

A portion of the high prices can be attributed to the strike in Venezuela, which is hampering crude-oil distribution to the United States and forcing the use of more crude oil to produce heating oil, said Gary Harris, executive vice president of the North Carolina Petroleum Marketers Association in Raleigh.

A prolonged military campaign or damage to Iraqi oil fields could push oil prices to $35 a barrel or higher, analysts said, thus further increasing production costs.

"The fuel industry is simply unsure of what is going to happen in the future," said David Parsons, the president and CEO of AAA Carolinas. "Are we really going to war with Iraq? What will the parameters of that war be? Will oil supplies be threatened?"

Until those questions are answered, businesses such as AAA Cooper Transportation and I.H. Caffey Distributing Co. will wait to see what develops next.

"With the economy softening, hopefully it will be clear, one way or another, whether we go in or pull back," said Bart Lassiter, head of City Transfer and Storage Co. Inc. in High Point.

Jud, the UNC-Greensboro economics professor, calls the increased gas prices a "big tax" on everyone that is curbing consumer spending. And Fancourt's restaurant is only one example.

A war-time benefit

"Consumers are more hesitant and cautious with their money, and that's true with any (expendable) activity," said Paul Stone, president of the North Carolina Restaurant Association in Raleigh.

People often eat out when they are in a celebratory mood, and these are not good times to do so, he said.

In Winston-Salem, Dino Cortesis is dealing with a 15 percent drop in business at Cloverdale Kitchen. He said war talk and the soft economy have affected his largest customer base — retirees on fixed incomes.

"They've seen their retirement portfolios drop 25 (percent) to 30 percent, and that's affected their spending habits," he said.

The news isn't all bad in the Triad. Textile companies such as Glen Raven Inc., which are supplying the fabric needed to make parachutes, are actually expanding working hours to meet demands.

David Noer, a business professor at Elon University, said textiles, which have been much maligned in the last few years, should see an immediate boost as they supply the military with war-time materiel.

Glen Raven has increased production to seven days a week, four shifts per day at its Burnsville plant, said Gary Zumstein, vice president of sales for the Glen Raven-based company. Glen Raven is producing the yarn for an Asheville-based company to produce the actual cargo parachutes used to drop equipment.

"From a military standpoint, yes, this is good," Zumstein said. "The government has found some money for purchasing that has been tight."

Textile companies are not the only ones supplying the military.

Antenna Mast Solutions Inc., which has an office in Eden, is enjoying a 300 percent increase in business due to war- related efforts.

The company creates portable masts designed to hold a combination of devices, including weather sensors and cameras. The masts are built with carbon alloy designed to allow military personnel to dissemble the masts quickly.

Business is also booming at the Winston-Salem Industries for the Blind. The nonprofit organization has completed an order of about 2,000 mattresses for an aircraft carrier, said Larry Colbourne, director of development.

Industries of the Blind has also completed a Department of Defense order for about 22,000 plastic pouches to hold gas masks. Those work orders should help Industries for the Blind reach about $40 million in sales for 2003, which will then be reinvested into the organization.

Reach Boris Hartl at (336) 370-2917 or bhartl@bizjournals.com.