National price averages for regular gasoline are up more than 75 cents a gallon from last year; diesel prices are nearly a dollar higher from 2010 as well. The U.S. Energy Information Administration (EIA) predicts an average price of $3.56 per gallon in 2011, which will be 77 cents higher than the 2010 average. EIA also suggests a 25 percent probability that gas prices will exceed $4 a gallon during summer.  The rising prices have distributors concerned, especially since they’ve just started to see product sales pick up.

“It’s definitely something on our mind, to say the least,” says Chris Nolan, president, HT Berry Co., Canton, Mass.

Average fuel prices are still a ways off from their record highs in 2008 when regular gasoline hit $4.114 a gallon and diesel rose to $4.845 a gallon. During that time many distributors added delivery or fuel surcharges to their invoices to help offset the new costs.

Surcharges, however, are a short-term solution, say distributors. Customers believe that once the situation improves, the extra charges will go away.

“It’s a quick fix and an effective quick fix,” says George Abiaad, president, Royal Corp., Santa Fe Springs, Calif. “It looks like a third-party element, it doesn’t look like the distributor’s doing it, but someone else is doing it to them and passing it along.”

Even though fuel surcharges are a “lesser evil” than raising prices, according to Abiaad, he still avoids them because they don’t help cover costs if the problem continues long-term.

To offset gas prices but still avoid fuel or delivery charges, Abiaad expands the minimum order requirement to cut down on the number of deliveries.

“The entire shipping cost becomes minimized when you have a healthy drop,” says Abiaad.

Some customers need encouragement to increase their orders, but once they understand that the larger order sizes helps keep operating costs down because trucks are on the road less, clients often accept it.

Nolan doesn’t believe in fuel or delivery charges either, and feels they hurt business.

“We do see clients and potential customers get offended by it,” says Nolan. “They view delivery as part of the cost of the product, not something to charge extra for.”

When gas prices spiked in 2008 Nolan took action and installed automatic fuel shut off valves. If drivers get delayed while making a delivery, the truck will automatically turn off after idling for five minutes.

Nolan also utilizes routing software to plan the most efficient delivery route. His software also identifies fuel efficient roadways to take.
During this time of rising gas prices and economic uncertainty, distributors should be in constant communication with customers, helping them plan for future purchases. Keep them informed of the pricing situation and offer alternative product choices if conditions don’t improve. If distributors aren’t collaborating with clients, it looks like they’re trying to add in extra margins when prices do increase, says Abiaad.