BusinessReport.com

It’s tough enough just keeping the Hummer fed these days—imagine having an entire fleet of gas-swillers.

Paul Ferachi doesn’t have to imagine. As managing partner of Capitol City Produce, he heads a company with 55 bobtail delivery trucks and a few 18-wheelers. All told, they burn up roughly 2 million miles a year and 31,000 gallons of fuel a month. The big trucks go out to California to pick up produce and return to Baton Rouge, where the bobtails distribute it throughout south Louisiana.

Ferachi watched in disbelief as diesel prices surged more than $2—to more than $4 per gallon—in just a year. Since he can’t just absorb the extra $60,000-plus a month, he’s having to make some adjustments. Ferachi has no choice but to pass along the additional cost, which is why the price of bananas has gone up. He’s having a hard time understanding why diesel is now more expensive than gasoline, since it used to be the other way around.

Capitol City Produce is encouraging some of its accounts to cut back deliveries to three or four times a week instead of every day. That increases the size of the client’s “drop,” gives them a break on fuel surcharges and allows Ferachi’s trucks to drive fewer miles.

“We’ve absorbed as long as we could, but now we’re trying to enforce more of our minimums for delivery,” he says.

Of course, prices have gone up across the board. And it’s not just the price of fuel. Cardboard, plastic wrap and every other thing the company buys has gotten more expensive because of crude oil’s rocket-like ascent. Sure, fuel spikes aren’t new, but this time it’s less of a roller-coaster ride than a space elevator.

“Generally you have fluctuations up and down, and it would always come back down to a reasonable price, or close to where it was, and you’d just ride the ups and downs,” Ferachi says. “But when you talk about this type of increase, you can only do it for so long.”

High fuel prices are driving research and development into hybrid trucks and more efficient refrigeration systems, he notes, but those things aren’t here yet. One innovation that has arrived is a special system—essentially a mini-generator—that lets big-rig drivers maintain climate control overnight without having to keep the engine idling.

Ferachi predicts incomes will eventually rise to compensate for the new normal in energy prices, though it won’t happen soon. Businesses and households aren’t so different when it comes to the fuel crunch, he says.

“It’s the same thing for them,” Ferachi says. “The family that doesn’t respond to it is the family that winds up in trouble.”

David Heroman, chief financial officer for Heroman’s Florist, doesn’t have as many trucks to worry about as Ferachi. Heroman’s pain at the pump is just as palpable; he operates a fleet of three Ford Econoline vans, which get about 15 miles per gallon in the city and 19 on the highway. Five years ago, the company spent $1,800 to $2,000 on fuel. Now the bill is up to $3,500 to $4,000 a month.

Other than keeping the tires properly inflated and the engines in tune, there’s little that will make the aging vehicle more fuel efficient, so Heroman’s is planning a switch to the stripped-down panel van version of the Chevrolet HHR, essentially a minivan with a 1940s retro look. The mileage is better, and the insurance is a lot cheaper. Heroman says they’ll keep an Econoline for big loads. He’s also keeping a closer eye on delivery routes.

“I do what’s called our delivery analysis report,” Heroman says. “Before, I used to do it quarterly, and I really wasn’t worried about it when gas was $1.50 a gallon—even $2 a gallon. Now I’m doing it monthly. It’s making me look harder at ways I can cut costs.”

That includes the cost of flowers, plants and other items Heroman’s sells. Buying from fewer suppliers means bigger individual shipments and thus a break on shipping rates and fuel surcharges, which are everywhere these days. The florist is paying double the fuel surcharges it was paying in early 2007.

“They have fuel surcharges on every box from Colombia to Miami, and then from Miami to Baton Rouge,” Heroman says.

So far, the company has resisted raising its prices on products or delivery, though that could change now that Heroman has picked nearly all the low-hanging fruit in terms of cost-cutting. Delivery is vital to the business but isn’t a money-maker. If fuel prices rise much higher, it’ll start costing the company money.

“The math kind of works out that the $3.50 mark is when I’m going to start losing money on delivery,” Heroman says. “I’m going to have to add a quarter or 50 cents or something. I just want it to break even.”

Even fuel distributors are miserable: Johnny Milazzo, president of Lard Oil Company, which has nine tanker transports and 20-plus bobtails, says things have never been worse for his business. Lard Oil is a units-based business, which means its margins are on a per-gallon basis. It’s about the same whether gas is $3.59 a gallon or $1.59. While the profit margin is the same, investment and accounts receivable are down, with Lard’s customers less able to pay their bills. Plus, like everybody else with a fleet, they’re getting killed on transportation costs right now.

“We would certainly prefer to see fuel a lot more economical,” Milazzo says. “I think our economy works a lot better. Obviously high crude prices are good for the state of Louisiana, but I don’t know that it’s good for rest of the economy.”

While oil producers and perhaps explorers are among the few smiling faces nowadays with crude at $118 a barrel, Milazzo thinks the price surges have less to do with oil companies and more with financial markets jumping into oil like never before, creating a significant degree of market volatility in the process. Then there’s burgeoning global demand from India and China, plus OPEC’s policy of holding the line on new production lest a sudden drop in demand send prices crashing to earth.

“It’s almost like the perfect storm,” Milazzo says. “I’m not blaming Big Oil for the challenge we have today.”