How Might Rising Gas Prices Affect Your Business?

Elevated fuel costs are affecting everything from manufacturing to employee commutes. Learn how these business owners are offsetting rising gas prices.

By Julie Bawden-Davis

With rising gas prices currently sweeping across much of the U.S., there’s a good chance that your company will experience the effects in one way or another. Rising gas prices have a trickle-down effect on the price of many goods and services in a wide variety of industries.

“When fuel costs rise, producers tend to increase their sale prices,” says Brian McHugh, owner of McHugh Construction. He and his crew use half-ton or larger trucks that burn a significant amount of fuel.

“Our margins are better than businesses like retail, so we don’t currently have to raise our prices. If the increase gets dramatic enough, we would consider wrapping those expenses into the final sale price,” says McHugh. “In order to stay profitable, businesses with lower margins and price points are finding it necessary to increase prices or establish better purchasing terms.”

Effect of Rising Gas Prices

Michael Black is president of Goliath Trucking, a long-haul trucking company. Rising gas prices have had a profound effect on his business.

“Since our company is a direct consumer of high volumes of fuel, rising gas prices have caused a need for increased operating capital,” says Black. “The additional cash required to operate adds up quickly.”

It’s hard for businesses to escape the effects of rising gas prices, adds James Cassel, chairman and co-founder of investment banking firm Cassel Salpeter & Co.

“If your company produces or uses petroleum-based products, such as plastic, costs will increase,” Cassel says. “Freight costs will also rise as many carriers add a fuel surcharge.”

Rising gas prices also make it more difficult for employees to commute to work, believes Robert Sadow, co-founder and CEO of Scoop. (The company works with businesses to create managed carpool programs.)

“Your employees have the onus of finding alternative, more affordable methods of transportation,” Sadow says.

Kamil Faizi, owner of Challenge Coins 4 U, which creates custom military challenge coins, agrees.

“Commuting eats into employee paychecks, which can affect your company’s bottom line,” says Faizi. “You may need to pay employees more to offset rising fuel costs.”

Rising Gas Prices Lead to Increased Operational Costs

As fuel prices increase, it’s likely your business will have to absorb the added costs.

“Many companies will need to compensate for rising fuel costs by raising prices, especially if the increased gas prices continue,” says Hanna.

Increasing costs to the consumer will be necessary for Black.

“The margins in the trucking industry are too tight and competitive to take on the added fuel cost,” he says. “Increases must be passed along on the freight bill, which ultimately leads to the consumer paying more for products.”

To minimize the cost of rising gas prices, here are several countermeasures you may want to use at your company.

Adopt a work-from-home program.

At Challenge Coins 4 U, rather than spend more on employee compensation to offset rising gas prices, the company implemented a work-from-home program two days a week.

“As a way of handling rising gas prices and employee commutes, we allow employees to complete their work at home,” says Faizi. “As long as their work is being completed in a timely manner, there is no problem. I have found this to be an effective strategy that has never let me down.”

Start a managed carpool program.

“Managed carpool programs help consumers save on gas costs and offer the added benefit of improving employee-to-employee relationships and limiting employee attrition,” says Sadow of Scoop. “For instance, carpools can introduce people who ordinarily might not interact at work, which creates an increased sense of community in the office.”

Sadow suggests implementing an employee carpool system to offset rising gas prices sooner than later.

“Get something going as soon as possible so that the program can grow and scale,” he says. “It’s much better to add people to an existing program than to build one from scratch when you have hundreds of employees.”

If you don’t have many employees interested in carpooling, Sadow suggests pairing up with companies in your area.

“If a handful of companies get together and implement a solution across their organizations versus simply their own, they’ll better use existing resources and won’t compete for parking,” he says.

Examine fuel efficiency.

If your business involves transportation, you can help minimize the effects of rising gas prices by taking a close look at the various elements that affect fuel efficiency.

For instance, consider streamlining routing and dispatch. The shorter the routes and better informed the drivers, the less fuel your company vehicles will use. Dispatchers that track traffic in real-time can reroute drivers for better fuel efficiency.

“Ensure that the route is planned in the most efficient way possible and that the trucks are packed full for shipping,” says David Lecko, CEO of DealMachine, an app for real estate investors interested in off-market properties. His company uses drivers who report potential properties.

Other factors that affect fuel efficiency include vehicle speed, how often and for how long a vehicle idles and how well-maintained the vehicle is. Regular maintenance can improve fuel efficiency.

Plan ahead.

“Proactively manage the risk of rising gas prices by taking into consideration the effect of price changes during the budgeting process,” says Hanna. “When developing budgets, complete sensitivity analyses to identify how changes in key inputs or outputs impact the bottom line.

“Use these analyses to develop action plans,” continues Hanna. “By proactively developing a plan, business owners will be better equipped to manage fuel increases and other changes that might impact their bottom lines.”

It’s also possible to offset rising prices by increasing the purchase of products or raw materials now that are used by your company, believes Cassel.

“Try to hedge or buy futures, if available,” he says.

How to protect your company from the trade wars whack-a-mole game

By James S. Cassel

Are the trade wars a game of whack-a-mole? It certainly seems like it. You knock one down and another unpredictably pops up. What’s next? The EU? Japan? Australia?

It’s anyone’s guess, but just because farmers were partially bailed out of a multibillion-dollar problem caused by the current trade war with China, doesn’t mean you or your business will be so lucky.

The time has come to evaluate how your company will be affected by the escalation of disputes with two of our biggest trading partners, China and possibly Mexico. As it pertains to Mexico, we have a reprieve for now, but in the game of whack-a-mole you never know what’s going to pop up next.

So, here’s what you should be doing to ride out the disputes:

First, take a hard look at your business to determine where you are exposed. Ask yourself tough questions. Will these trade wars affect your supply chain or customer base? Do your company’s products use technology developed by Chinese companies, and if so, can that technology be used against your company to steal trade secrets or surveil your customers? Do you own or control a factory in China or Mexico and what will these trade disputes mean for those operations?

If you’re selling to China or other countries, this is a good time to determine if tariffs will mean your prices will increase to the point that you are no longer competitive. Will increasing prices affect your volume and margins?
You should monitor the changes to learn what your company can endure and what it can’t.

You must drill down and evaluate what issues might arise for your business. If you depend on Chinese business partners, or even employees, it’s time to reconsider how dependent you are on them, and whether there are any viable alternatives in the short term, and maybe even for the long term. If you are primarily doing business with Mexican partners and a tariff is instated, alternatives may prove scarce.

Another issue to consider is one that so many U.S. companies already know. The price of doing business in China will many times mean giving up or compromising your intellectual property. So, in deciding if and how to cut ties with China, you must be careful to ensure you are not creating your own competitor in the process by figuring out how best to protect your intellectual property.

Mexico presents a different challenge. Its proximity to the U.S. and lower labor costs will be hard to replicate elsewhere. It might only be possible to move manufacturing back to the U.S. and suffer increased costs and capacity issues in the short term. Though some of those expenses may be partially offset by lower shipping costs.

If you do have a factory in China, now may be the time to consider moving it to Vietnam or another part of the region. You will have to calculate the viability of moving that factory, as well as the time it will take to move your operation. You may even wish to take it a step further and consider that now might be the right time to replace your workforce altogether by investing in robotics to streamline operations and reduce the number of employees.

You may also want to renegotiate existing relationships to lower costs, modify your business model by increasing your prices, or get suppliers to absorb the added costs that come with tariff increases. Do some research to find out if there are any suitable substitute suppliers. Try and find businesses that offer similar costs and capabilities that you can work with.

Some say the trade wars will go on until the next election; some predict it will last even longer. Whatever the outcome, your work begins now. Those who get caught in the crossfire later may find themselves with surprise competitors built on stolen intellectual property, sagging sales or increased costs that will simply price you out of competition.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies.

When It’s Time to Fire a Customer

By Phil Britt
June 12, 2019

Companies pour a lot of resources into customer experience, customer acquisition and customer retention efforts. Yet there are times when a particular customer is no longer worth the investment.

Customer Is too Costly
Some businesses will take on a customer who is initially unprofitable in the hopes that the relationship will change in the future. For example, some financial institutions will have very low fee accounts for college students, with the idea of building a relationship with someone who will need loans and other products and services down the line, or a business may offer a large initial discount to get a customer “in the door,” yet the relationship may never become profitable.

“Sometimes you may have customers who love you and your products — to death,” said Linda Popky, president of Leverage2Market Associates, Inc . “While your support model allows for occasional customer interactions, these customers may contact your support team on a daily basis with questions and requests. They may expect upgrades or customization that you aren’t prepared to support, given the margins you have on those product lines.”

Other times, the customer may be devoted to an older, legacy version of your product line — one that you can’t afford to continue supporting as you transition to newer offerings, according to Popky. This is why companies like Microsoft and Apple stop supporting older releases of their products. They can’t make newer features and functionality backwards compatible with older versions, and it’s too costly to continue to support multiple product streams.

“If customer behavior leads to lower profits — say a client runs an architect ragged with irrational changes during the building time of a custom house, yet the contract is based on a set percentage, and they refuse to pay excessive change order fees, yes — firing the client may be in order, along with a stronger contract next time,” said Baron Christopher Hanson, owner of RedBaron Consulting, LLC . “We’ve worked with a few clients such as high-end art galleries whereby the profit in the sale is somewhat set — 50% split between artist and gallery. However, each sale and delivery cycle can either be easy and quick (highly profitable) or lengthy and excruciatingly not as profitable.”

However, the reason to fire a customer isn’t always financial.

Too Much Tension
“The time has come to fire a client when there are clear signs of an escalating pattern of tension. At that point the client relationship becomes increasingly less beneficial, and more problematic,” said James Cassel, co-founder of the Miami-based investment banking firm Cassel Salpeter & Co . “Most business owners know when such a relationship is not a good one, or working well, but are hesitant to fire the client. And yet, more often than not, firing a client turns out to be for the best because you end up concentrating on expanding and improving relationships with existing clients, or on spending time and resources to find new clients.”

The tension can arise from several sources, Cassel said. There could be ethical issues about the way they do business, or you may have knowledge of the customer operating at the margins of the law, or even breaking it. The customer’s “risk profile” may prove problematic, which could hurt an organization’s own reputation.

No Longer a Fit
As companies grow and business environments change, they often have the need to pivot, said Popky. “IBM has reinvented itself numerous times — from offering big mainframes to PCs to software to services. Western Union transitioned from sending telegrams in the 19th century to providing money transfer services to 200 countries across the globe. Apple moved from personal computers to iPods to iPads to iPhones. Along the way, each of these companies had to shed customers that didn’t need the new product offerings or didn’t want to make the switch. There may be a short-term business hit, but the longer-term upside makes the decision to fire these customers worthwhile.”

Popky adds that sometimes there isn’t one clear, definitive reason as to why a customer is no longer a good fit for your organization. It could be there’s a change in management at the customer’s organization and they’re now looking for a different relationship with their suppliers. It could be that a change in economic conditions is driving them to a low pricing model, while you offer a more premium product that no longer fits their strategy.

The Right Way to Terminate
Some companies will quietly fire certain customers through pricing policies — like banks that raise minimums for checking accounts. They’ve determined the customers that don’t meet the minimum are no longer the type of customer that it makes the most sense to serve. Other times, the “firing” action is a little less subtle. But even though the organization is cutting ties, there is still a CX element to ending the relationship.

“When firing a client, above all, you want to be respectful and professional, and careful to avoid burning bridges,” Cassel said. “This is not a time for carelessly venting your pent-up frustration. The business landscape and marketplace are dynamic, and you never know when, or how things might change. Sometimes it is better to terminate the client by phone, or even in person, rather than by email or text, since a sensitive customer could mistakenly read their own tone into the words you’ve written.”

From GoPro to Lenovo, Trump tariffs would have raised prices on tech from Mexico

By Ed Oswald

President Donald Trump’s now-scrapped plan to impose a 5% tariff on Mexico starting Monday could have made a major impact on the cars and tech Americans love.

The impacts may seem less obvious than the tariffs the Trump administration imposed on China in early 2018. Americans depend on Chinese manufacturing for products like iPhones, computers, and TVs, as well as the components inside. But Mexico is a major producer of cars sold in the U.S., along with computers and electronic parts.

Mexico is second to only China in the number of computers it exports: GoPro will manufacture U.S.-bound devices in Guadalajara later this year. Foxconn, which manufactures a ton of brand-name tech products, has multiple factories in the country, and Universal Electronics will soon move remote control manufacturing from Mexico to China.

Tech manufacturers are likely happy that the tariffs aren’t going to happen (for now). Trump tweeted Friday that the U.S. had reached an agreement with Mexico in order to stop the tariffs, though he did not give specifics on the deal.

Trump initially said he’d increase the tariff by 5% a month, to a maximum of 25% by October 1. Such punitive measures would have had far-reaching effects and American consumers would likely foot the bill on a variety of tech products.

That said, deals like this are fickle and tariffs could still come in the future. Here’s how an escalating U.S.-Mexico trade war would impact tech:

THE BIGGEST LOSER: AUTOMAKERS

Mexico’s largest export to the U.S. is in automobiles and auto parts. At $116 billion annually, a third of its exports are U.S. bound, according to Census Bureau statistics. Cars are where American businesses and consumers could feel the most pain. Thanks to free trade, automobile manufacturing often spans North America.

Take the modern Volkswagen Passat. Manufactured in Chattanooga, Tennessee, the engine is built at the automaker’s Silao, Mexico plant, but contains parts manufactured by partners across all three North American countries, as well as China and elsewhere. It’s incredibly difficult to find a car in the U.S. that’s completely manufactured here.

It’s important to mention that the level of exposure varies manufacturer to manufacturer. Volkswagen stands to lose the most because it imports nearly half of its automobiles sold in the U.S. from Mexico, Cars.com executive editor Joe Wiesenfelder told Digital Trends. But U.S.-based automakers have plenty to worry about too: Ford, GM, and Fiat Chrysler also import significant numbers of fully-manufactured cars back into the U.S.

This may be the biggest threat of Mexican tariffs. “Though the Chinese tariffs are a full 25%, they affect only two major models, SUVs from Buick and Volvo,” Wiesenfelder explained. “If the proposed Mexico tariffs happen, they’ll start at 5% but will encompass both many assembled vehicles and countless auto parts.”

Wiesenfelder noted that all automakers with plants in the U.S. source parts from Mexican factories, so the effects could be much further reaching than some might expect.

If a deal falls through and tariffs eventually do take effect, the end result might be higher prices for new cars, but it’s hard to say if prices could rise in time for the 2020 model year. “If it turns into a standoff, however, I think it’s likely we’d see prices increase. Because so many brands are affected, it’s more likely the automakers will pass on some of the cost rather than absorb it indefinitely,” Wiesenfelder said.

Not good news for an industry with an already difficult market thanks to higher interest rates for many borrowers.

A U.S. TECH MANUFACTURER SOUNDS THE ALARM

It’s not just automakers that are concerned. Illinois-based component and accessory manufacturer OWC says it has focused on bringing its manufacturing back to North America, but the threat of new tariffs poses a real threat to its business.

OWC manufacturers around 3,000 different products, ranging from hard drives to solid state drives, PC docks, memory kits, and even smartphone cases. With annual sales of $125 million, the company has done well by pairing its offices in Austin and Brownsville, Texas with its manufacturing facilities in Matamoros. But tariffs would threaten the future of this strategy, and he says both sides of the border will be affected — and people could lose their jobs.

While CEO Larry O’Connor told DigitalTrends that OWC could weather a short term 5% percent tariff on Mexican imports without an effect on its workforce or prices to the end consumer, the threat of higher tariffs is unacceptable.

“A longer-term 25% tariff on Mexican imports could be devastating to our business, our customers, and the hundreds of team members in Mexico,” he said. O’Connor lamented the uncertainty caused by the Trump Administration’s trade strategy, arguing businesses need ” a level of consistency and predictability to operate successfully,” and that a long-term tariff battle could spell trouble for his company’s plans.

“If the proposed tariff situation regarding Mexican imports is not resolved quickly, OWC will have no choice but to reconsider our overall North American manufacturing strategy,” he warned.
But it’s not just OWC that will be affected. Much larger companies stand to lose as well. Dell and HP manufacture their computers and other peripherals in Mexico: Cisco uses a Mexico-based partner for components. Apple uses at least three component suppliers with ties to Mexico, while Lenovo has multiple production lines in the country.

‘IT’S POSSIBLE FOR THEM TO GET HIT TWICE’

Trump’s insistence on tariffs as a method of trade negotiation will have a compounding effect, say economic experts. James Cassel, co-founder and investment banker with Cassel Salpeter & Co says that some tech companies may find themselves dealing with new costs they hadn’t planned for, in multiple aspects of their business.

“With tech companies using an international supply chain, it is possible for them to get hit twice,” Cassel said. It’s common for components to be sourced from multiple regions — so your tech gadget might have a circuit board or other parts from China, but assembled in Mexico. It’s the nature of the globalized economy we live in. And it’s not like these companies can make major shifts overnight.

“I do not believe that companies, whether manufacturing tech gadgets or anything else, have had sufficient time to shift production to Mexico from China, if they did not already have production in Mexico prior to the tariffs,” he argued. In the short term, those costs are going to be eaten by these companies, and more likely passed along in the form of higher prices for a wide variety of products in the longer term as the trade war ravages on.

Like O’Connor, Cassel also took the Trump Administration to task over its seemingly haphazard trade policies, and the unpredictability it brings.

“What is really of concern is that we are being forced to play whack-a-mole where companies that produce tech components need to be ready to respond at any moment to another challenge that pops up,” Cassel said

That’s the issue that many tech manufacturers seem to not have an solution for, and has many of them scrambling to contain the damage.