August 19, 2005 4:00 AM PDT

Rising gas prices fuel e-tailer anxieties

Online retailers are starting to worry about spiking oil prices, which briefly reached $67 a barrel last week and are elevating shipping costs for some companies.

Peapod, the Skokie, Ill.-based online service that trucks groceries to customers, has held off on raising delivery fees, but is paying close attention to the trend in oil prices. "For now, we're riding it out," said Elana Margolis, a company spokeswoman.

Oil prices

Brief spikes in oil prices don't always translate into higher pump prices, of course. But by-the-barrel prices have been inching relentlessly upward for five years, with a big jump last fall, and shipping companies used by e-commerce sites have responded by charging more. UPS, for instance, says its fuel costs leaped 45.3 percent between the second quarter of 2004 and the same time this year.

Both FedEx and UPS have imposed special fuel surcharges on top of normal delivery fees. "It's a monthly adjustment that we do based on a rounded average of the U.S. Gulf Coast spot price for a gallon of kerosene jet fuel," FedEx spokeswoman Darcie Goodwin said. "It's to help customers respond to the changes in the fuel price so that they can forecast and plan."

Each company currently levies a 2.75 percent fuel surcharge on ground shipments. For airborne packages, FedEx's rate is 12.5 percent. UPS has capped its air surcharge at 9.5 percent and says it does not expect to increase it in the near future.

Larger retailers may have the muscle to negotiate for lower surcharges. "We haven't seen a change in either our customer traffic or in our expenses in terms of what it's costing us to acquire merchandise and deliver merchandise to customers," said Henry Posner, director of corporate communications for B&H Photo-Video, a photography and electronics retailer in New York.

Because B&H has made UPS its preferred shipper, "they treat us very kindly," Posner said.

J&R Music World, another large New York retailer, also has managed to avoid rate increases, said sales manager Kenny Scott.

Big business not immune
But even some of the largest companies are facing the squeeze. Wal-Mart Stores, the world's largest retailer, this week blamed higher oil costs when warning that its third-quarter results would be weaker than expected. In April, Best Buy attributed dipping customer visits to higher fuel costs.

Drugstore.com also sounded a note of caution in a March filing with the U.S. Securities and Exchange Commission. "Shipping costs, which are included in cost of sales, continue to exceed the amount we charge customers for shipping," the company said. "We expect to continue to subsidize a portion of our...shipping costs for the foreseeable future, through free shipping on nonprescription orders of $49 or more, as a strategy to attract and retain customers."

In addition, a U.S. Postal Service rate increase is in the works. The Postal Rate Commission is weighing an across-the-board 5.4 percent hike for domestic mailings, which, if approved, could take effect in January 2006, spokesman Jim Quirk said.

"For every penny increase in fuel, it adds about $8 million in expense," Quirk said.

Newegg.com, a La Puente, Calif.-based computer gear retailer, says it has held off on passing along fuel levies to its customers. Referring to the company's relationships with its shippers, marketing director Stuart Wallock, said, "We're very good negotiators."

For consumers, prices at the pump have more than doubled in the last decade, according to Energy Department statistics. This week, a gallon of premium gas averaged $2.74--still less than half what heavily taxed European drivers must pay, but 75 cents higher than at the beginning of the year.

High pump prices are prompting shippers to find ways to save money. FedEx recently announced plans to add up to 75 diesel-electric hybrid vehicles to its fleet, with fuel costs estimated to be more than a third less than for comparable nonhybrid vehicles.

UPS plans to roll out a technology system by 2007 that tells drivers the number of packages that need to be delivered at a single stop. The system is intended to prevent return visits to the same neighborhood, which is a problem now.

"They'll just double back (from the other side of town), and you have the additional fuel, additional time, additional wear and tear on the vehicle," said UPS spokeswoman Susan Rosenberg. She estimated the planned system could save 100 million miles on the road, or 14 million gallons of fuel per year.

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It sucks. I'm not interested in blogs or the rest of that computer nerd crap.
Posted by (1 comment )
Reply Link Flag
why no one will ever ask
why it takes 3-6 months for low oil prices to filter through to the pumps, but high oil prices are reflected the following day...

You watch, the next time oil prices fall dramatically, the oil companies will come out with that tired excuse as to why gas prices don't fall correspondingly.

Then we move on to why they charge so much in the first place.

Their excuse is this.

Because after we drill it out the ground, we are forced to sell it to commodity brokers on Wall Street for $60 a barrel, that means after we refine it, we must also sell it for high prices at the pump.

After all it wouldn't be fair not to make equal profits both on the stock market and at the gas station.

And before anyone says these are two different business, explain to me why Exxon, Mobile, Phillips Connoco, BP etc are two different business when it comes to selling oil to one market and the same oil to another.

There is absolutely no reason why the same oil companies that drill for oil on the Arctic Slope, can't sell the refined product at their own gas stations at whatever price they choose.

No doubt $7-8 billion per quarter (per large oil company) is too little profit, and reducing the price of gas by 50% would devastate a business that has such tight margins.

How would corporate oil executives be expected to live off a mere $12-16 billion in profits per year?
Posted by ajbright (447 comments )
Reply Link Flag
total agreement with Bright
Apparently the oil companies do not think the little people of the US matter much. I am one of those little people. The gas prices are hurting us all.

I have worked all my life. I am a consumer; I am a parent and a grandparent. I am watching my children struggle to get by while gas prices skyrocket. It won't be long before they will not be able to afford to continue their education. Do you think they will be able to afford to get a job? In this area people have to drive 60 to 100 miles round trip to get to school or work. What kind of job will they get without a college degree? After paying for gas just to get to work, then paying taxes, there really won't be much left over to buy food, pay for rent & utilities. Just the basic needs will be more than their paychecks. Where is all this leading? It is not too hard to figure out.

The oil companies should sit down and ponder some on the affect of oil prices on the little people of the US. They should ponder really hard for there are a lot of little people in the US and the little people are really starting to get upset!
Posted by (1 comment )
Link Flag
gas price rise
bush has control
Posted by hoopcough (4 comments )
Link Flag
gas price rise
the head of our gov. has control
Posted by hoopcough (4 comments )
Link Flag
gas price rise
you ,america knows who has control.
Posted by hoopcough (4 comments )
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