Fueling change in the economy

There could be some leaner times ahead in the pizza business. It's not because the price of pepperoni and cheese has risen, even though shipping them has. It's because of the price of crude.

As the prices on barrels of crude oil constantly reach new ceilings, the bottom lines of companies drop -- including pizza joints.

"We always give our drivers gas money," said Eric Bergmann, a manager at Pagliai's Pizza in Cape Girardeau. "That money used to be over the amount they would spend on making deliveries. Now it's right at the amount they spend. We haven't discussed anything about it yet, but the delivery guys have started to ask questions."

Bergmann said Pagliai's may be faced with a tough choice if gas prices go much higher -- higher prices for menu items or delivery charges. And the price of gasoline isn't just hurting the pizza joint in terms of deliveries, it also rears its ugly head in the cost of supplies.

"There's an added cost on the products we order in terms of shipping," Bergmann said. "We get our cheese from Wisconsin, and prices on that have gone up."

Mazzio's in Jackson is feeling the pinch too. General manager John Friedrich said his restaurant hasn't had to raise prices or charge delivery fees yet, but the future is uncertain.

"We're just kind of riding it out right now," said Friedrich.

Even though gas prices took a slight dip in Cape Girardeau on Thursday -- Rhodes 101 on William Street was advertising regular unleaded for $1.94 -- that's not the beginning of a trend. National prices are projected to peak in May at over $2.30 per gallon, with an average price of $2.28 from the period of April through September, the summer driving season, according to the U.S. Department of Energy.

What's driving those high summer prices is none other than the fuel consumer, which in the United States covers almost everybody. Higher demand pushes up the price of crude oil, which is the determining factor in the price of gasoline, making up 54 percent of the at-the-pump cost, according to the Department of Energy.

"There's a pretty direct relationship between the cost of oil and the cost of gasoline," said Dr. Bruce Domazlicky, a professor of economics and finance at Southeast Missouri State University. "Right now most of the factors that are influencing price are on the demand side. Countries like China that are growing rapidly are rapidly increasing their demand for oil, and that has put a lot of pressure on the world market."

As the demand goes up, the U.S. supply doesn't rise very much, as refineries in this country are already operating almost to full capacity, Domazlicky said. And as the most basic economics teaches, high demand and low supply leads to price increases on the open market.

An illustration of the power of demand: Just this Tuesday, reports of lower demand due to high costs caused the price of oil to actually drop by $1.85 a barrel on the New York Mercantile Exchange. The drop was probably responsible for the drop in gas prices locally.

Regional benefit

People who buy their gas in Missouri, and especially Southeast Missouri, are relatively lucky when it comes to gas prices. Transportation costs are just slightly lower in Southeast Missouri thanks in very small part to a gas pipeline in Scott City and proximity to the Gulf Coast, and taxes are lower than in many other states at about 17 cents per gallon.

But gas prices are still going to be at record-high levels this summer without adjusting for inflation, and those prices are still putting a dent in the pocketbooks of businesses and consumers.

When gas prices climb, even retail gas sellers take a big hit.

"We would love to have a good margin on gasoline, but those days are gone," said Scott Blank, owner of Bi-State convenience stores. "Our gas is at break-even at best anymore."

Blank said as the price of wholesale gasoline goes up, retailers have little choice but to take small profit margins on fuel due to market factors. So gasoline becomes mainly an extra enticement to bring people into the store to buy other goods.

Jim Maurer, co-owner of Rhodes 101 Stops, said his company isn't making more money from high gasoline prices, either. "From our standpoint, we'd rather sell at 50 cents per gallon, because we'd make as much off a gallon as we do at $2."

The company's normal mark-up of gas is only 10 cents per gallon. And like so many other companies, Rhodes also has to deal with its own transportation costs, including delivery trucks, vans and maintenance vehicles.

"We'd like nothing more than to see costs go down just like everybody else," Maurer said.

Trucking troubles

Of course, trucking companies and their customers really feel the pinch. Stan Elfrink with Elfrink Transportation Company in Cape Girardeau said that rising fuel costs have forced the company to charge a fuel surcharge on deliveries. But if prices keep rising, more and more of that cost may have to be paid by the trucking company.

"There's only so much a consumer can pay for," Elfrink said.

The surcharge is variable, said Elfrink. Right now it stands at 13 percent of the net revenue for a job, but that could rise or fall with fluctuations in fuel price. And sometimes those charges can't even be passed along, such as when a customer signed a long-term contract at a time when those surcharges weren't needed.

Like trucking companies, taxicab companies' profits are also directly related to fuel costs. A source at the Kelley Transportation Co. in Cape Girardeau said that rates have been raised due to fuel costs, but declined to say how much. That's similar to the situation in other parts of the country.

The Chicago City Council voted earlier this month to raise fares in that city, the Associated Press reports, due in part to higher gas prices. In Baltimore, cabbies are clamoring for fare increases, says the Baltimore Sun, and in Washington, D.C., all fares are set to increase by $1 on May 1 reports The Common Denominator.

Schools are also very reliant on fuel.

"It's major when the change is as significant as it had been in the past few months," said Jackson superintendent Dr. Ron Anderson. "It definitely impacts the budget and next year we'll have to adjust. Every dollar that goes to fuel can't be used somewhere else."

Of course, consumer reaction to the prices has also changed the automobile business. Reports have showed declines in sales of large vehicles for Ford Motors, a trend that David Likens, a manager at Ford Groves in Cape Girardeau, said he's seen locally.

"More people are focusing on better gas mileage -- smaller cars and small sport utilities," said Likens.

He said he's also seen a slight increase in trade-ins of larger vehicles and a rush toward hybrid vehicles.

As oil prices continue to rise they'll have huge impacts on all sectors of the economy, from transportation down to construction -- oil is a key ingredient in asphalt.

But this summer there's at least one sector of the Missouri economy that could benefit from higher gas prices: tourism.

"Because the price is so high people tend to stay in Missouri on their summer vacations more often," said Paul Sloca, spokesman with the Missouri Department of Economic Development. "And a lot of neighboring states have higher taxes on fuel, so Missouri will draw people who want cheap gas."

Sloca said last year saw record numbers of people visiting the state, and that's expected again this year.

At least the rising numbers at the pump are good news for somebody.

msanders@semissourian.com

335-6611, extension 182