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Business Copes as Higher Fuel Costs Affect Many Firms

August 25, 1990|JESUS SANCHEZ | TIMES STAFF WRITER

The impact of soaring crude oil prices has begun to flow to a wide variety of businesses, ranging from Marina Del Rey roofers to Pittsburgh glass and paint makers.

In many cases, manufacturing and service companies have not yet raised prices but are poised to do so if energy costs remain at current levels--still above $30 a barrel--or climb even higher as a result of the turmoil in the Mideast. Other businesses--faced with stiff competition--have changed their operations to cut energy use in hopes of avoiding hiking prices.

Companies that use petrochemicals to make a wide range of consumer and industrial products have been stung by oil price rises. For example, Dow Chemical Co., based in Midland, Mich., uses large amounts of ethane and propane to make plastics. "When the price of oil rises, so does the price of ethane and propane," said company spokesman Gordon Butte.

Dow has raised the price it charges for one plastic--polyethylene, used in packaging materials or grocery sacks--by 5 cents a pound, or about 10%. Butte said Dow normally raises polyethylene prices only 1 or 2 cents per pound when its costs increase.

"If oil prices stay at a high level, it will have a dramatic effect on manufacturing costs and . . . you're probably going to see prices going up," Butte said.

At Pittsburgh-based PPG Industries, makers of paint and glass products, the cost of some oil-based solvents has risen, said spokesman John Ruch. The company has also seen a rise in the cost of transporting its products, but PPG has not yet been forced to raise prices, Ruch said.

"It's really too early for us to define the effects of the (new) costs," he said.

Tire makers also have watched rising fuel prices with concern. "Our raw materials are going up, and if things keep going up, we will definitely be raising prices," said Hank Ruppel of Goodyear Tire & Rubber Co., which uses petrochemicals to make synthetic rubber for its tires.

Southern California roofers are feeling the strain of rising prices for oil-based tar and asphalt roofing materials. Mike Jones of United Roofing in Los Angeles said his company has had to raise prices 7% and will honor the prices in its estimates for only two weeks instead of the normal two months.

"It's just a daily thing," Jones said of rising prices for roofing materials. "Now suppliers are not telling me what (the price increase) is going to be. They just raise it."

Roofer Al Ayala in Marina Del Rey faces the prospect of raising prices when he restocks supplies. "The supplies are OK this month," said Ayala, who purchased his current inventory of materials before prices began rising two weeks ago. But "the next time I load up on material, I will probably have to raise my prices 10%. We couldn't eat that increase."

Airlines, trucking companies, railroads and steamship lines have also raised prices to help cover higher fuel costs.

Steamship lines have been hardest hit, as a doubling in the price of fuel oil has wiped out any profit for August. "I talked to one executive who said it cost $1 million to fuel his ships during the first two weeks of August. That is a huge number," said Ron Gottshall, executive director of the Transpacific Westbound Rate Agreement, a price-setting body whose members include the largest steamship lines.

The transpacific shippers, including Oakland-based American President Lines, have announced a 10% fuel surcharge effective Sept. 7 to help compensate for the rapid increase in costs.

The railroads and the trucking firms also have announced fuel surcharges ranging from 1.5% to 4% of their rates to cover a 50% jump in the cost of diesel fuel.

Air cargo firms also have raised prices to cover spiraling jet fuel costs, which have risen 20 cents a gallon since the end of July for some air carriers. Burlington Air Express of Irvine raised its rates by 6 cents a pound, and United Airlines will add a 5.3% surcharge on domestic freight beginning Oct. 1.

Some firms have changed operations to cut costs rather than raise prices in the face of competition.

Dispatchers for Airport Flyer Express, an L.A. airport shuttle service, have tried to make sure the company's 25 vans run fully loaded to deal with a 10-cent-a-gallon rise in gasoline. Said manager Dave Manfull: "If (fuel costs) continued to go up this way, we obviously will have to increase our prices or place a surcharge. That would be the last resort."

Many businesses have become more energy-efficient over the years and are better prepared to weather high fuel prices. During the 1973-74 oil embargo, for example, attendance at Disney World and Disneyland declined nearly 6.5%, according to Jessica Reif, an entertainment industry analyst.

Now, Walt Disney Co. more heavily promotes its theme parks to local residents, said a Disneyland spokesman. Disneyland also uses vehicles powered by natural gas.

Similarly, petroleum costs have declined for many record companies because compact discs require fewer oil-based products than vinyl LPs, according to Jim Frische, president of Digital Audio Disc Corp. of Terre Haute, Ind., a Sony Corp. unit that is the nation's largest producer of compact discs.

Times staff writers Denise Gellene, Anne Michaud, Jube Shiver Jr. and George White contributed to this story.

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