Diesel spike means rough times for seafood prices

Tag : passing link chain

Down in Panama City, Greg Abrams is taking fish from about 30 boatsrun by his seafood company, toting up a bill for fuel thatincreasingly washes away his earnings.
"Diesel fell to $3.91 last Friday and we got excited, but now it'sback to $4.43," he said last week. "There is no stability. It justmakes your margins so unpredictable."
Even a decent haul of fish can mean a loss, once fuel is paid forand the crew gets its share. Raising the price of the fish barelysoftens the blow. Even a 29 percent boost falls short of the spikein fuel prices.
Last year, Abrams was selling red snapper for $4.25 a pound. Now,he gets $5.50 a pound. "That is not even coming close to our costs,but you can't keep on (raising prices) because people will just eatsomething else."
He paused. "We need to be getting $6 a pound for that snapper."
From docks to highway to store — each link in the chain meansa mark-up in the product's price. Yet the increase is still farshort of the price hikes in fuel.
So consumers see higher prices even while some of the people whobring them the food are going out of business. And that will onlymean still-higher prices.
Shrimp comes from a shrinking fleet, Abrams said. "There were 450boats dragging the Gulf a year ago. There are 58 now."
Fishing for profits
The fewer the boats, the fewer fish there are for the market andthe higher the prices, said Hal Ambos, whose family has been infishing for five generations.
As president of Savannah-based Ambos Seafoods Inc., a $15million-a-year sales and marketing company, he is increasinglyworried that supplies are undependable.
"We don't even know if the guys are even going to go out," he said."It is simply because the fuel costs are rising and the value ofthe shrimp is not keeping up."
Fuel costs are roughly 85 percent higher than a year ago, he said.
That means that a typical shrimper, a boat of about 80 feet usingupward of 300 gallons of fuel a day, will cost more than $1,300 tooperate.
Back on the docks, the going price for the shrimp is $5.70 perpound, Ambos said: A boat that returns with 300 pounds of shrimpgets $1,710. Because the crew generally takes 35 percent off thetop, the owner is left with $1,100.
"The owner just lost money," Ambos said.
Cold, hard math
On the roads, there is a similar subtraction.
About 935 trucking companies went out of business in the firstmonths of this year, idling 42,000 trucks, according to a recentreport by Nashville-based analyst Donald Broughton.
Thinning the ranks will give more power to those that are left,said Howard, owner and president of $35 million-a-year RWH Truckingin Oakwood.
Nearly all of his cargo is food — including Pilgrims Pride,the nation's largest poultry company, Wrigley Co., Hershey FoodsCorp. and Dreyer's Grand Ice Cream, which includes Edy's,Haagen-Dazs and Nestle brands.
Diesel drives the trucks, and the price of diesel has climbed $1.89cents a gallon in the past 12 months, according to the EnergyInformation Administration.
That outpaces revenues — even with the surcharges Howard hasadded.
It's not just engine fuel. A lot of what is transported —like fish and ice cream and meat — needs refrigeration.
In May 2007, RWH bought fuel at an average of $2.71 a gallon. Thecompany that month spent $748,000 on diesel for the engines and$61,000 to fuel refrigeration units.
This May, fuel had spiked to an average of $4.38 a gallon. Howardspent $1.12 million to run the trucks and $105,000 for theircooling units.
In May, his income fell $225,000 short of his costs — evenafter fuel surcharges.
"That is a dead loss," Howard said. "That is money I am losingevery month. I can't keep absorbing $200,000 losses. The cash flowpart is just horrendous."
Howard has raised fuel surcharges 67 percent in the past year."That is still nowhere near the increase in costs."
Howard would like to raise his surcharges more than he has, but hefears what would happen if he does. Whenever he pushes too hard,the big food companies balk, threatening to take their businesselsewhere. Still, the more competitors who go out of business, thestronger his hand.
"Eventually there will be an extreme shortage of trucks available,"he said. "And then we'll be able to name our price."
That means continued pressure to push prices up all along thesupply chain to the consumer.
Of course, fuel is not the only rising cost, just the one with thehighest profile and the broadest reach. Prices of food commoditieshave been climbing all by themselves.
But food climbed 46 percent in the 12 months ending in April, whileoil prices jumped 68 percent in that same period — and hasclimbed even faster since, according to the U.S. Department ofAgriculture.
Many experts have shaken their heads in dismay and pronounced oil"a bubble," with prices lifted more by speculation than thefundamentals of supply and demand.
Only they have been saying so since 2004 while oil prices just keptclimbing.
Only so many options
All along the food chain are companies that have been squeezedbetween the rise of costs and the need to hold their prices down,said Dexter Manning, head of the national food and beverage groupfor tax and business consultant Grant Thornton.
"The environment is still competitive, so they are forced to takelower margins. And some of these producers are losing money rightnow."
Perhaps only one-third of the price hikes have reached consumers,he said. "We haven't seen the full impact yet."
The impact so far has left Atlanta-area markets scrambling to findways to manage higher costs of all kinds: they try to become moreefficient and they accept smaller profit margins.
And sometimes they raise their prices.
"Fuel costs are directly associated with our ability to go tomarket," said Brenda Reid, spokeswoman for Publix, which has 155stores in metro Atlanta. "That doesn't mean that every time thatprices go up, that we go up, too. Only after we have absorbed it aslong as we could."
Bowler, the seafood buyer for the 18 Whole Foods stores in theSoutheast, knows that truckers may not be passing through all theircosts. But what they do pass along hurts badly enough.
Last week, a truck arrived from Boston with nearly 5,000 pounds offish and a $350 fuel surcharge. Bowler was hesitant to challengethe trucking company.
"I want to make sure I get the product, and I don't want to burnany bridges," he said. "If that surcharge gets up to $500 to $600per truck, I'll reach out and have a discussion."
At the end of the pipeline are consumers. And the store isdepending on him and her at a time when the economy is shaky andmany Americans are looking for ways to trim their spending.
As food prices climb, the first impulse is to swallow hard and takeit.
"It's a struggle," Bowler said. "This comes off my profit margin inthe end. I am certainly not making the margin that I need to make." Wholesale seafood prices per pound (representative amount)