Businesses say gas costs not passed on

Posted by click at 3:44 AM in Oil embargo

The Capitol By NOI MAHONEY Business Writer

As gasoline prices soar toward all-time highs, Ron Stewart said the higher gas prices are slowly eating into his profits.

With everything from lawn mowers, trucks, tractors and other equipment, the owner of Ron Stewart Landscaping in Annapolis said his company depends on gasoline. But he said he hasn't really thought of passing the costs on to his customers. Instead, he said he will weather the storm and wait for gas prices to drop. "I haven't raised prices," Mr. Stewart said. "I don't think you can raise prices in this market, it's too competitive." Like Mr. Stewart, business owners burdened with record costs for gas said raising their prices to compensate is not a likely option. The problem lies in the ultra-competitive nature of the Annapolis-area market. "High gas prices cut into margins and generally this is passed onto consumers," said Bob Burdon, president of the Annapolis and Anne Arundel Chamber of Commerce. "But we are in a very competitive market, and many local retailers don't want to price themselves out." Gasoline costs about 47 cents a gallon more than a year ago. Self-serve regular gasoline averages a $1.65 a gallon at area gas stations. About two weeks ago, gas prices topped $1.70 for regular. In February, gas prices hovered around $1.66 as compared to $1.55 in January. Mr. Burdon said companies which could be affected by higher gas prices include anyone with sales forces, service technicians, or companies that need to move heavy equipment. "The challenge is not just gas, the war will effect spending habits as well," Mr. Burdon said. Gas price increases reflect the tight inventories and high price of crude oil, caused by falling imports from Venezuela and fears that the war in Iraq could last for a long duration of time. Anirban Basu of Baltimore-based economic research consulting firm Optimal Solutions Group, said the increased gas prices is another hardship on local businesses, which will eventually have an impact on consumers. Mr. Basu said when a company is forced to absorb losses from higher gas prices, it will lead to lower profitability, less hiring, less bonuses and less expansion. "Every recession in recent times was preceded by a spike in energy prices, like the kind we just experienced," Mr. Basu said. Nationwide, economists worry companies will increase their prices to make up for the gas prices. Alan Gin, an economics professor at the University of San Diego, estimated local consumer spending declines $5 million a month for every 10-cent increase in the price of a gallon of gas. "The price of gasoline will take buying power out of the hands of consumers," Mr. Gin said. But in the Annapolis area, which is buoyed by the boating and tourism industry, companies said raising prices could do irreparable damage. The price of marine fuel varies, but is floating around $2.19 for premium and $1.49 for diesel. Larry Kety, manager of the Annapolis City Marina, keeps a close eye on wholesale prices. "It is tough with our market," Mr. Kety said. "We are a big company, but we try to be the nice guy in town. We don't want to take advantage of our customers."