US Perspectives: Profits driven down by rising fuel costs
Fuel in the US might be comparatively cheap compared to many parts of Europe at a relatively meagre €0.73/litre, but its rising cost is still having a profound effect on the industry, as Ken Kerschbaumer reports.
The spike in gasoline prices has garnered plenty of coverage in the mainstream press. But, for the TV-sports–production community, the cost of diesel fuel has eclipsed gasoline prices and is undercutting profits for remote-production–service providers and driving up costs related to shipping equipment, sets, and other gear via shippers like SOS Global.
“The surcharges are the highest they have ever been, both on the ground and in the air,” says SOS Global VP Stephen O’Connell. “Most people think of the increase in gasoline prices, but aviation-fuel prices have jumped even more.”
He points out that fuel surcharges are set by the airlines and are industry-wide. “Right now, they are about $1.05 per kilogram, and that doesn’t matter where you are going.” And the situation is currently so volatile that surcharges are updated weekly instead of monthly.
According to Bloomberg, jet fuel has become airlines’ biggest operating expense, surpassing labor and climbing to an average $2.96 a gallon from January through March, up 41% from a year ago. And airlines are now reporting $420 in fuel surcharges to round-trip European fares.
Cost of Highway Diesel
For U.S. sports networks and their providers, the cost of diesel fuel is causing the biggest headaches. On Monday, the average price for a gallon of highway diesel was $4.09, according to the Energy Information Administration, which posts fuel prices every week based on a survey of outlets around the country. The current averages are in the highest range since 2008, when prices peaked at $4.76 on July 14, and more than a dollar higher than in 2010.
In California, the price is now $4.43, making pumps in the state something to be avoided.
“We try to never buy fuel in California,” says O’Connell, adding that “other areas like New England and the Chicago area are also unbelievably high.”
Game Creek Video President Pat Sullivan says that, although it would be great to be able to wait until remote units leave California before fueling up, the reality is, aggressive broadcast schedules don’t always make that practical. Getting trucks from city to city for events like NBA or NHL playoff games often requires double-teaming drivers, and waiting to fuel up in the interest of finding the best price is not part of the equation.
“Grabbing 300 gallons of fuel takes some time,” he points out.
With respect to passing on surcharges to clients, Sullivan points out that the goal is to have straightforward, long-term contracts that don’t need to be reviewed at times like this.
“Most of our contracts have mileage provisions with escalators tied to length of the contract, not fuel prices,” he says. “It’s not killing us, but it is definitely denting profitability as we don’t pass on the cost of a gallon of fuel dollar for dollar to our clients.
While Game Creek is not looking at fuel surcharges, Corplex sees them as an option, depending on whether a client needs the vehicles to travel more than 500 miles. The company won’t revisit current policies because the situation could settle down.
“We need to wait this out a little, as the last time there was a spike [in 2008], things settled down within a few months,” says Corplex President/partner Scott West. “And most broadcast partners are open to sharing in any pain.”
Truck companies are also helping each other. Corplex has opened its parking lot to competitors that don’t want to waste fuel returning home only to quickly get back on the road.
“They can park in our lot if they don’t want to travel across the country,” says West.
In terms of the big shows, for summer 2011, there is none bigger than the NASCAR circuit. Approximately 150 truck trailers move from race to race, hauling everything from the TV-production facilities to the cars, crews, and merchandise.
For Steve Stum, managing director for NASCAR Media Group, the biggest issue is pumping upwards of 6,000 gallons of diesel fuel into generators every weekend.
“When we have deliveries in the morning and afternoon, there can be a change in price of 10¢ a gallon from 8 a.m. to 8 p.m.,” he says. “And we can build those costs into our budgets a little bit, but now there is a push to do more green stuff.”
Going Green To Reduce Costs
One step in the green direction will take place in a couple of weeks when a new Featherlite office trailer hits the road.
“We will have some solar panels to run laptops and monitors and those sorts of things,” says Stum. “You can move about 50% of the power needs to solar, but you can’t get enough out of them for the air-conditioning.”
West says Corplex is also looking into ways to take advantage of new “green” technologies to cut costs. “The electric power to our field shop is now from wind farms, and it is transmitted through the same conduit. So we are going to give that a shot, and we think we will see some savings.”
For nearly everyone, the current situation brings back memories of the summer of 2008. Near-term solutions involve everything from cutting back travel to making use of local resources and even to cutting catering costs.
“This is our second time around with increased gas prices, and we’re in a much better place with regard to forecasting budgets with our mobile-unit vendors,” says Jodi Markley, VP of operations and international production for ESPN. “And increased gas cost, airline costs, generator fuel, and shipping costs all sting us financially. As the cost of fuel increases, we have to find efficiencies to balance the increases.”
O’Connell says broadcasters like ESPN and others will always do what they have to do for the show. For those dealing with overseas events, shipping by sea is one way to dramatically cut costs more than 75%, and, he says, the differential continues to change in the favor of shipping via boat. But even the ocean carriers are being affected.
“There are a lot of companies looking at alternatives; companies like UPS are beginning to put some electric trucks into their fleets,” he points out. “But, right now, we’re stuck with gasoline and diesel.”