Panel data provided by Madison's Canadian Lumber Reporter.

Fuel costs are up, why should you care?

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Whether we are talking about the log haulers around Prince George, container haulers in the Vancouver area, or anyone else who uses fuel during their day-to-day business operations, surging fuel prices will have an impact on those operations.

Why should you care? You have a contract and it’s up to the supplier or contractor to deal with the increased costs. You reduced your exposure to rising fuel costs by ensuring someone else absorbed the risk. Isn’t that why you entered into a contract or agreement?

While that was the “right thing” to do, it may not be beneficial to ignore the issue. There is certainly a possibility that those rising fuel costs are still going to have an impact on your business.

As a business owner, you should be taking a proactive approach by asking yourself the following question. “What impact could the higher fuel costs have on my business?”

The most likely scenario your business will face, is the possibility of your supplier or contractor being forced to close their business. If this is a key supplier or a major contractor, there is certainly a risk that your business will also be forced to close. Losing a key supplier or contractor will definitely have at the very least, a short-term impact on your business. As a business operator, you need to be concerned with the financial viability of your key suppliers and contractors. Your livelihood is directly related to those businesses.

The key here is that you need those suppliers and contractors as much as they need you. Thus, it might be prudent of you to work with your “partners” and ensure they are still operating financially stable businesses. While you may be under no obligation to pay for their extra fuel costs, you may want to absorb a portion of the costs or find some other way to help alleviate the financial burden. While the extra costs will certainly affect your profitability, they will undoubtedly be better than having to close your business.

Who cares about those other businesses? You can hire other firms to haul your goods or purchase your supplies from someone else. This is a great idea in theory, but the great parts ends as soon as you start talking pricing with the new firms. Any business entering into a new contract is going to ensure they are covering the current fuel costs, as well as any future increases that they predict the industry will have to absorb. In other words, going this route will cost you more money, not to mention the time it will take to search out and come to agreement with any new firms. This is not the prudent way to run a business.

If you undertake agreements with new suppliers and contractors, you may find other issues will come to the forefront. While you may have been able to secure a competitive price, the contractor or supplier may have to cut corners or take chances to remain financially viable. They may try to get another trip out of each truck before replacing the tires, or hire inexperienced drivers or workers for less money. What this means to your business is that you are likely to see a reduction in quality, issues with timeliness of shipping, as well as possible safety issues. All of these will result in added costs to your business. Again, not exactly the best ways to ensure you remain profitable and viable as a business.

One other scenario is also likely to occur. Your competition might decide to take a proactive approach to the issue. Thus, they step up and offer to absorb some of those rising fuels costs for their suppliers and contractors. By doing so they achieve a competitive advantage over you. This could mean that not only are your suppliers and contractors going to service the most profitable business first, but also they may end up dropping you as a customer.

Any businesses which is feeling a direct impact from rising fuel costs can help protect themselves from some of the effects by proactively working with their suppliers and contractors to ensure all are remaining financially viable throughout this “crisis.”

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