High prices not only at the pump
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BY NATE JENKINS / Lincoln Journal Star
High gas prices can burn up more than your transportation budget, and it doesn’t take an economics degree to understand why. Not all crude oil is converted into gasoline.
Much of the oil that doesn’t wind up in engines goes to everything from the tires on your gas-eating car to the plastic bags that line trash cans — and the plastic trash cans themselves.
Some nonfuel uses of petroleum, according to the National Energy Information Center, include:
* Solvents used in paints and printing inks.
* Lubricating oils for machinery.
* Wax used in candles, polishes and candy making.
* Asphalt used for everything from road-building to making shingles.
* Synthetic rubber.
Of course, there are myriad services for sale that rely heavily on gasoline; when transportation costs rise, so too can the price of the goods being moved.
Here are some items you already are paying more for, or could in the future, because of high gas prices.
Food
For now, Lincoln food wholesalers and retailers report holding their prices fairly steady. That could be at least partially due to some companies eating the extra cost at points along the food-supply chain.
But if high transportation and other costs remain, expect companies to stop eating those costs and start passing them on — to consumers.
“We’re trying to deliver the goods and services our customers demand as efficiently as we can right now so those increased costs aren’t being passed down,” said Kim Brown, president of Lincoln Poultry, which has an inventory of 10,000 items in all food categories, sold mainly to restaurants. “But at some point,” he said, “we may have to look at the bottom line and say, ‘This doesn’t make sense.’ ”
On the retail side, freight costs also have gone up, but not yet enough to increase the prices of what is sold in grocery stores, said Pat Raybould, president of B&R Stores, which operates Russ’s Markets and Super Savers.
“I think manufacturers are absorbing some of the costs,” he added.
At least one company that sells canned fruits and vegetables, he said, has begun offering fewer cost-cutting deals.
Tires
A double-whammy of higher prices for petroleum and steel — both used in the manufacture of tires — has spiked the cost of putting new rubber on your car.
Consider this, said Brian Dillon of Cross-Dillon Tire in Lincoln:
Major tire makers normally boost the price of their products just once a year.
“Now there’s several,” a year, he said, adding that about five gallons of oil are used in the production of one semi-trailer tire.
Just this year, Goodyear Tire and Rubber Co. has announced three price hikes, with the most recent — a 5 percent to 8 percent increase, depending on models — taking effect earlier this month.
Expect more and bigger hikes as the year progresses.
“They’re to come,” Dillon said of higher prices post-Hurricane Katrina. “Right now, the manufacturers are eating their costs, but they won’t for long.”
“I don’t know where the end is.”
Fertilizer
Don’t expect the cost of feeding your lawn to jump substantially— it’s farmers who are getting drilled by higher fertilizer costs.
A few years ago, a ton of nitrogen-based anhydrous ammonia, a popular farm fertilizer, cost about $150.
Now it’s more than $400 a ton, according to Harold Hummel, general manager of Farmers Co-op. The high-rising cost of natural gas — a primary ingredient of nitrogen fertilizers — is the primary culprit. Katrina won’t help matters. A lot of natural gas is produced in the Gulf Coast.
High fuel prices are exacerbating the problem because of the long distances that must be traveled to deliver fertilizer to far-flung farms.
Fuel prices have caused a $40 to $60 increase in the per-ton cost of anhydrous ammonia, Hummel said. The co-op’s trucking costs are up $150,000 this year over last.
Plastics
Greg Little read the letter with a somber, incriminating tone, like a judge sentencing a criminal.
It was from a manufacturer of plastic trash-can liners.
“There was a 6-cent-a-pound increase September first, there will be a 7-cent increase the middle of the month, another in October . . . the price will have gone up 24 cents since August,” said Little, with Rochester Midland Corp. in Omaha. The company distributes janitorial products, among other things.
Plastics are made from petroleum and, like fertilizers, also require increasingly expensive natural gas to make. Instead of an ingredient in plastic products, natural gas is often used to heat pellets of plastic so they can be molded into thousands of consumer products.
It’s difficult to quantify the overall impact on consumers by increasing plastics prices, but the cost of individual products such as plastic bags is already on the rise. For the year, said Little, the cost of plastic bags is up 20 percent.
The bluntly worded letter from the plastics manufacturer indicates a market nearing crisis.
“As the panic sets in over the next several weeks,” the letter, dated Sept. 9, says, “. . . we are anticipating inventory levels for some types of PE (polyethylene) to tighten significantly . . . These past several weeks have proven that we are truly experiencing unprecedented times within our industry.”
Roofing
Like other companies, ABC Supply in Lincoln is facing a choice: Weather the storm and not pass higher costs on to consumers, or forecast a future where decreasing costs are not likely.
Oil is used to make many brands of shingles. So far this month, their costs have risen 5 percent to 7 percent, said Corey Sorensen with ABC Supply.
“As far as ABC, we haven’t decided if we’ll pass those costs along to customers,” Sorensen said.
Assume it eventually has to and homeowners have to pay 5 percent to 7 percent more to have their homes roofed. The cost of shingles for a typical residential job is between $900 and $1,350.
A 7-percent hike could increase prices between about $60 and $90.
Lawn care
Not long ago, it cost Wade Leming of C&L Lawn Care $10 to fill up each of his 48-inch walk-behind mowers. Now it’s closer to $22.
“We had to add a $1 surcharge on every $10 of service,” Leming said. “So a $50 job now costs $55.”
Other companies have taken similar steps.
Customers of Ray’s Lawn and Home Care got a $2 surcharge added to their Sept. 1 bills for work done in August. City Councilman Ken Svoboda, whose family owns the business, said there was concern the surcharge would cause an uproar, but it didn’t.
Reach Nate Jenkins at 473-7223 or njenkins@journalstar.com
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