Gas costs invading, inflating prices
Surcharges 'a diplomatic way of raising prices.'
NEW YORK (CNNMoney.com) - Consumers aren't just feeling high gas prices at the pump ... increasingly, costs are inching higher on everything from the cost of delivering a package to the cost of delivering a pizza. Michael Pazzaneze, owner of Marlborough, MA-based limousine service of CTG Worldwide, said his company is adding an 8 percent to 10 percent surcharge ... that can mean extra eight bucks on a standard $80 fare. Pazzaneze, who is also President Elect of the New England Livery Association, says many business owners get emotional about prices, worrying they'll lose business. "But it's a business decision," he says, counseling members, "don't be afraid to [add surcharges] because you have to do it." Pazzaneze lets his clients know it's temporary. "If [gas prices] go below a certain level, we remove it." Cab drivers in Anne Arundel County, Maryland, are seeking approval for a emergency $2 gas surcharge as well as biannual $1 raises tied to the increase in the cost of gas. "It's terrible. Gas is killing us," said Tivis McElroy, Manager of Veterans Cab, in Millersville, Maryland. "There are a lot of cab drivers quitting because they can't make any money. We need a raise." The structure of the increase is at issue, as well. Shabbir Hussion, owner of Blueline Taxi, also of Millersville, says, "When you explain there's a gas surcharge to the customers, they say 'It's your cab. We're not paying for your gas.'" Some customers get angry at the price difference and refuse to pay, according to Hussion. For this reason, some area taxi operators are pushing the Anne Arundel County Commission for a larger meter increase instead of surcharges. Area cabbies have been told by the County Commission not to expect a change until later in the summer. For airlines, the costs of gas aren't broken out separately in the ticket cost but included in the total. And those prices are rising. Simon Bramley, Vice President of Flights for Web-travel site Travelocity, says ticket prices are increasing 10 percent to 20 percent year over year. "We haven't seen pricing this high since pre-Sept. 11," Bramley added. Surcharges in place for years
Surcharges are nothing new to either UPS or Fed-Ex, which have both imposed them since 2000 and 2001, respectively. The companies calculate them based on the cost of fuel published monthly by the Department of Energy. Sending a small package from state to state via ground on UPS costs $15.13, with an addition 67 cents tacked on for a fuel surcharge. International and air shipments for both companies are based on the U.S. Gulf Coast prices for kerosene-type jet fuel. Shipping a five pound package from New York to Los Angeles priority overnight with Fed Ex costs $47.85, with an additional $7.66 in gas surcharges. The companies' rate tables indicate it would stop charging surcharges if jet fuel falls below 82 cents per gallon, a 61 percent decline from the current $2.10, or gasoline below $1.50 per gallon. If it walks like a duck...
Even if the cost passed along is not called a "surcharge" it often functions as one. Pizza Hut of Arizona, which operates 30 locations in the state, charges a delivery fee to help reimburse drivers for operating costs of the vehicle. That fee has risen from 50 cents in the 1990s to $2 today. Pat McConaughey, president of the company cites the cost of gas as driving up the fee. "Most of the costs of operating a car are fixed," says McConaughey. "It's the price of gas that fluctuates." Whether it's called a "gas surcharge" or "delivery fee" the separate cost functions the same as any other price increase. Economist Dr. Farrokh Hormozi, of Pace University, says, consumers today all more willing to accept price increases than they were in the past, and that those prices can sometimes stick. "Surcharges are a diplomatic way of raising prices," he says. "The producer is telling the consumer this price rise is temporary. It has a psychological effect on consumers who won't look to change their habits because they'll get used to it." -------------------------------- Rising costs mean rising wages. Learn how workers are targeting states for minimum wage increase. |
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