As I write, the cost of a gallon of diesel fuel had just topped $4.25 and crude oil is $130 per barrel, reflecting double-digit price spikes during some weeks in June and April. The rising cost of fuel has prompted the American Trucking Associations (ATA) to project a record high diesel fuel bill in 2008, with expenditures of $135 billion on fuel in 2008, up from the $112.6 billion spent by the industry in 2007. God knows what the price of fuel will be in July when you’re reading this, but at the current rate of increase, petroleum-based fuels are rising at about 92 times the national inflation rate. The people who move the industry around the map have noticed. So far, tour operators have coped with the rising costs by simply passing them on to their clients. But how long they will be able to do this remains anyone’s guess.
“It’s raising prices of services across the board,” says Loren Haas, president and CEO of Stage Call, based in Apache Junction, Ariz., which provides transportation and logistical support for concert, theatrical and corporate events. Hass says his company has been able to pass along most of the higher fuel costs in the form of increased prices for service and that it has not impacted his business. “So far, people are taking it fairly well. We’re all in the same boat and they know where the increases are coming from. But there will be a breaking point. If it gets much higher, we may start seeing business slowing down.”
That will probably take the form of lower production budgets for a range of event types, though there is a consensus that suggests that music and entertainment-related events might ride the recession out better than other client sectors, such as corporate and association events. Many U.S. corporate travel departments are already cutting back employee travel due to transportation costs and it’s expected that that will eventually work its way back into the event domain.
ATA data show that the trucking industry is experiencing the highest prolonged fuel prices in history. Historically, fuel represented the second-highest operating expense for motor carriers, accounting for as much as 25 percent of total operating costs. For some carriers, however, fuel is beginning to surpass labor as their largest expense. The cost to fill the fuel tanks on a typical tractor-trailer has increased 116 percent, by $615, in just five years. Rising fuel costs are increasing the cost of everything transported by truck, and independent truckers descended upon the streets of Washington, D.C. in April in a horn-honking protest over the price of diesel fuel.
The soaring costs of oil are being driven by any number of global factors, ranging from rampant market speculation to the demand by emerging markets on the side of the globe as economies expand in India and China. Strategically, the event transportation business, like every one else, is subject to forces well outside its control. But there are some tactics companies are employing to mitigate the damage caused by fuel costs.
Paul Klimson, a project manager at Masque Sound, which services the Broadway theatre market among others, says the cost of a standard delivery within a 150-mile radius recently went from $65 to $75 and he expects that it will get close to $100 by the summer. That still won’t offset the costs incurred by driving into Manhattan, where the tolls for the bridge and tunnels have just increased as well. Klimson’s solution is to pack the three trucks the company owns as carefully as possible, positioning gear so the delivery route is the most efficient. He is also increasing the use of hired semi trucks. “For deliveries that can wait a week, we can do fewer runs with bigger loads, which does save money,” he explains, an approach they used for New York’s rock concert-scaled Fashion Week event.
That’s a tactic he’s also seeing their sound system clients using. Well-financed acts like Van Halen may be able to afford to tour with a V-Dosc sound system and a full stage and lights in a convoy of 15 semi trailers. Mid-market artists with smaller entourages like Jill Scott are hitting the road with only two semis, hauling a sound system that’s been lightened by choosing self-powered speakers and in-ear monitors only. New bands like Ministry are taking only a sound console, relying on venue sound and lighting systems and touring with a single truck.
Another tactic to keep fuel costs in check is to avoid using corporate credit cards when possible. The cards charge gas stations merchant fees in the form of a percentage of sales, and those fees eat into the fixed per-gallon sum that gas retailers tack onto pump prices, often forcing station owners to add that on top of the fuel increases themselves. An alternative is to purchase prepaid fuel cards from distributors like Exxon and Pilot. The “shorter distance” feature on Internet finders like Mapquest and Google Maps can also offset rising fuel expenses by a notch or two.
Event staging transportation companies are hoping for the best, but preparing to hunker down for an extended recession. While Loren Haas remains cautiously optimistic that the old saying that when people run out of money they’ll spend what little they have left on something that makes them feel better, like entertainment, he also notes the ominous signs that make this time around different from the 2001 recession. “In 2001, we didn’t have a bad housing market and millions of home foreclosures,” he says. “That makes it personal.”
