Chauffeured Car Suppliers Assessing Fuel Surcharges

Ground transportation companies continue to closely monitor the amount of fuel surcharges they assess to balance the rising cost of gasoline with a desire to maintain profit levels in a competitive market landscape. The higher costs they incur continue to be rolled into the contracts of their corporate clients.

"We would have no hesitation at all about calling a CFO to inform him and his company about the need to increase the fuel surcharge if that becomes necessary," said Scott Solombrino, CEO of Boston-based Dav El Chauffeured Transportation Network. "Our company hasn't had to go back to renegotiate our existing contracts yet, as we're much more focused at this time on new contracts, keeping a close eye on what may happen three to five months down the line and until Dec. 31, 2007. I'm not optimistic that prices will go down by very much," he said.

AAA's national average for a gallon of regular gasoline was $2.62 on March 29. Some industry observers expect that figure to exceed $3 per gallon as summer nears. "Simply put, fuel has become the single biggest issue for ground transportation companies, replacing insurance instability, in the post-Sept. 11 structure," according to Solombrino.

"In my view, high fuel prices are here to stay for some time to come, so in all new contracts our fuel and insurance surcharges, which were instituted in 2001, are being reexamined and will be reworked as necessary to ensure that costs are covered," he said.

However, Dav El is waiting until the end of this month, at least, to assess what fuel costs might do for the summer, Solombrino said.

Norwood, N.J.-based EmpireCLS' fuel surcharges are based on federal Department of Transportation data, said executive vice president Bob Lockett. "On all new contracts, information about the DOT fuel grid is included. The grid on the DOT Web site is updated every Monday and shows the latest gasoline prices. Pre-surcharge contracts include the grid as they expire and are renegotiated," he said.

The question of fuel is not a complicated one to Lockett. "Fuel is no longer an issue for us—and it will not impact earnings—because we have it built into our contracts. For every 50 cents in fuel, $2 per trip is added, and there is no cap," he said. "The company's customer base knows we can't continue to run for fewer dollars."

Many other businesses, such as large courier firms and airlines, assess fuel surcharges, said EmpireCLS vice president of business development Marissa Natsikostas. "No corporate client has balked at the surcharge," she noted.

"Any company that doesn't have fuel costs as part of a contract will be eaten alive," Lockett said.

Bruce Mainzer, senior vice president of marketing for Carey International in Washington, D.C., said the company has had a fuel surcharge in place since 2004. "It was modified to $7 in the fall of 2005, and, as such, goes directly to our independent chauffeurs, who, in our business model, own the vehicles we use," he said.

While the surcharge has increased, "there is no change for us right now in the way we do business," he said, "because, as refineries switch from a winter to summer mix, we see the recent rise in fuel prices as a seasonal spike. The same thing happened last year and it happens every year at this time, although, of course, we are watching the fuel situation very carefully. We will keep a close watch on our preferred pricing, which varies, with each of our corporate clients."

U.K.-based Tristar Worldwide Chauffeur Services has restructured an initial 3 percent to 10 percent fuel surcharge to a 5 percent across-the-board fuel assessment in all major markets, said U.S. CEO Mike Fogarty.

"Our contracts contain a clause that automatically covers fuel increases. Not until the price hits $3 or more across the country will that be readdressed," said Fogarty, who launched the company's U.S. operations in Beverly, Mass., in January 2006. "At this time, prices are much higher on the West Coast—where they're up 44.3 percent over a year ago this month—but up only 5.6 percent this year over last on the East Coast."

Greening Ground Transport

To combat rising fuel costs and demonstrate its "green social consciousness," Solombrino said Dav El plans to add more fuel-efficient hybrids to its owned and leased worldwide fleet of 15,600 vehicles system, 99 percent of which are still gasoline-fueled. "I've had discussions with all of the major manufacturers, including Mercedes, about the need for such vehicles. They recognize that it's good business for them, too, since some very wealthy people wind up being chauffeured in their cars, people who will buy them for themselves," he said.

The fuel-economy trend already is underway in the United Kingdom, Tristar's Fogarty said, where diesel technology is in place on many of the 550 vehicles in use there.

"Here in the United States, we'll start small in that direction with 10 to 15 vehicles to begin with," he said.

EmpireCLS' fleet of 800 owned vehicles is going green to conserve fuel and lower costs, and adding a number of Lexus RX Hybrids, Lockett said. "Limousine and luxury-vehicle makers are contacting us, actually," he said. "Even though there is no long-term way of knowing how the vehicles will perform on the day-in, day-out basis of demanding continual use, 20 to 25 percent of EmpireCLS' fleet will be green in three to five years."