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Energy Costs - AZ Business Magazine September 2008

Higher Energy Costs Are Forcing Valley Companies To Look For Alternatives

From the neighborhood car wash to a corporate behemoth such as US Airways, rising energy costs are forcing Valley businesses to search for alternatives to relieve the pressure on their bottom lines.


On a warm weekend morning in the Phoenix area, a bored but concerned car wash attendant asks the only motorist who pulls up for a cleaning: “Where is everybody?” He then answers his own question: “People aren’t driving as much and their cars aren’t getting as dirty.”

From airlines to car washes to supermarket chains, record-high gas prices are taking their toll, causing businesses to implement strategies aimed at trimming expenses and saving energy.

Alternatives, ranging from solar to wind to biodiesel, are becoming more attractive and cost-effective as utility bills and prices at the pump continue to squeeze the bottom line.

While US Airways made major news when it announced a broad range of steps to cut costs and generate revenue, the airline is by no means alone in its actions. Bashas’ Family of Stores is an example of supermarkets that are feeling the pinch of higher diesel fuel prices, and the trucking industry reports some haulers are considering dropping customers who are in outlying areas.

Even car washes, which depend entirely on customers’ driving habits, are seeing a decline in business. Brian O’Connor, owner of Arizona Auto Wash, with operations throughout the Valley and in Sedona, says his customers are coming in less frequently.

“Instead of once a week, maybe we see them every other week,” O’Connor says. “People are so sick of putting money into their cars. They’re changing oil every 10,000 miles instead of 3,000 miles.”

O’Connor and other gas retailers are victims of what he calls a double whammy. Retailers get 8-to-10-cents per gallon, regardless of the price. Back when gas was $1 a gallon, that was a 10 percent profit. At $4 a gallon, that’s only 2.5 percent.

In addition to hiking the air-conditioning a degree or so, O’Connor has employees check equipment regularly for leaky hose bibs and broken sprinkler heads to conserve water.

Conservation, whether of water, fuel or energy, comes in many forms. For example, there’s solar power. Leah Bushman of Dependable Solar Products in Tempe, acknowledges that businesses, in particular home builders, don’t opt for solar units because of the cost.

“They want to know how is it going to affect their pocketbook, what is the return on investment,” she says.

She tells of a California builder who found that equipping homes with solar units added $18,000 to the cost, even after rebates and incentives. But, those solar homes sold much faster than others in the development.

In addition, a “green” architect in the Valley is seeing more interest in solar energy, Bushman says. “Why? Because more people are aware that we have an energy crisis on our hands,” she says. “We don’t have cheap oil anymore, but we do have the solar technology and the sunshine.”

At Southwest Windpower in Flagstaff, Miriam Robbins, marketing director, says any business could benefit from the company’s system, which is installed directly into the electric grid and does not need batteries or additional backup. The cost of most systems, including installation, ranges from $12,000 to $18,000. Rebates are available.

“The amount of power you get depends on wind speed,” she says. “Larger retailers may be interested to not only help offset electric costs, but also to make it more of a green statement. It can be installed on top of a light pole in a parking lot.”

Rick Katt, an owner of AZ BioDiesel in the Valley, says any business with a large fleet of trucks that runs on diesel should consider biofuel.

“No modification to your vehicle is needed,” he says. “It’s 80 percent vegetable oil, your motor runs cooler in hot weather and it’s cheaper than regular diesel by about 50 to 75 cents a gallon. And it’s better for the environment.”

Kristy Nied, director of communications for Bashas’, says the soaring price of diesel fuel has made it even more difficult for the company to operate in a cost-efficient manner.

“We rely on diesel fuel for our fleet of 97, over-the-road, 18-wheelers that deliver groceries to our stores throughout the state,” she says.

Recently, Bashas’ installed a device on its diesel trucks and eight other trucks that reduces fuel consumption and emissions.

“We’re saving enough fuel to run our entire fleet for a week,” Nied says. “We’ve also achieved a 32 percent reduction in particulate emissions.”

Bashas’ is testing a work-at-home program for certain employees, rewarding those who carpool with gifts ranging from duffel bags to vacations, and giving employees who ride public buses for two months a $25 gift card for store items.

“We’ve seen the number of bus riders go up because of gas prices,” Nied says.

A business decision closely related to the price of gas was the discontinuation of Bashas’ “Groceries on the Go” service.

“The cost of fuel made it extremely difficult for us to offer delivery service at a reasonable fee,” Nied says.

During the hot summer months, Bashas’ encouraged stores to set thermostats 2 degrees higher than normal. The grocery chain also placed nightshades on open freezer cases to reduce energy consumption, and installed energy-efficient lighting in more than one-third of the stores. The goal is to retrofit the remaining stores by the end of next year, Nied says.

To cope with rising fuel costs, US Airways has plans to cut as many as 2,000 jobs and started charging passengers more for items such as drinks, choice seats and checked bags. In the second quarter, the carrier lost $567 million, even though revenue rose 3 percent to $3.26 billion. But that revenue was eaten up by fuel costs. A year ago, the company reported a profit of $263 million.

In announcing US Airways’ second quarter earnings, company Chairman and CEO Doug Parker said he expects the new fees to add $500 million to the airline’s coffers. However, that’s less than half of the $1.1 billion the company paid for fuel in the second quarter.

Industry sources estimate fuel costs for airlines have increased 80 percent over a year ago. Valerie Wunder, associate manager of media relations for US Airways, says the airline is estimating its fuel costs to be $2 billion more than last year.

She explains other moves to save fuel. They include replacing all service carts with ones that are 12 pounds lighter and, in the cockpits, replacing paper manuals with electronic flight bags and maintenance logbooks to remove about 100 pounds of weight on each flight.

“Our fuel-hedging program and fuel-conservation measures such as single-engine taxi, which saves an estimated 5.2 million gallons of fuel annually, and fuel-conserving winglets, which reduces drag and saves approximately 1 million gallons of jet fuel, also help us conserve fuel,” Wunder says.

Karen Rasmussen, president and CEO of the Arizona Trucking Association, says fuel prices led to a record number of trucker bankruptcies nationally in the first quarter of the year. The association has 353 members, including UPS, Bashas’ and Safeway.

“Truckers are struggling,” she says. “They’re doing everything in their power to reduce fuel consumption, such as limiting idle time and keeping tires properly inflated. But, when it’s 113 degrees and they’re in their sleeper cab taking a required break, they have to keep the A/C going.”

In many cases, truckers are installing governors to limit speed or have instituted a companywide policy of keeping speeds between 58 and 62 mph.

“Reducing speed reduces fuel use,” Rasmussen says. “Many companies are looking at markets or customers they won’t serve as part of an overall business plan. They’re sticking with their best customers, the ones that pay their bills on time.”

Fuel formerly was the second highest cost of doing business next to labor.

“Now, it’s the highest in many cases,” Rasmussen says.

The outlook?

“There’s not much to indicate we will get an improvement in fuel prices,” Rasmussen says.

“There are too many things on the global horizon indicating we will continue to have shortages of distillate, which is what diesel fuel is made from. There is a huge increase in demand overseas.”

Part of the problem is the weak dollar. U.S. firms are exporting more diesel fuel than ever.

“They can sell it for more overseas,” Rasmussen says. “Wouldn’t you?”

For more information about how Valley companies are combating high energy costs, visit the following websites:

bashas.com
usairways.com

dependablesolarproducts.com

windenergy.com
azbiodiesel.com

arizonatrucking.com

Arizona Business Magazine September 2008

B2B collection agencies help companies recoup on unpaid bills, 2008

B2B Collection Agencies Help Companies Recoup On Unpaid Bills

Derailing Debtors

B2B collection agencies help companies recoup on unpaid bills

By Don Harris

Far too many business owners and operators don’t realize that a sale is not a sale until they see the money. They put plenty of emphasis on the front end of their business — development, marketing and selling — but often the back end, getting paid, doesn’t get the attention or resources needed to make a company truly successful.

After three months, the probability of collecting on a debt drops to about 70 percent, according to the New Jersey-based Commercial Collection Agency Association. After six months, the likelihood declines to 52 percent, and after a year, the chances of collecting on a delinquent account drop to less than 23 percent, the association estimates.

That’s where professional commercial collectors come in. They recoup untold millions of dollars for businesses, helping the bottom line in today’s troubled economy. Rates for doing the collection deed are pegged to a percentage of the amount recovered, and many don’t charge anything if they come up empty.

Don’t confuse these collection agencies with the ones that send employees tiptoeing into someone’s house to repossess a refrigerator or jump-start a car in the middle of the night. They’re involved in what insiders refer to as B2B collections — business to business. For the most part, they steer clear of consumer debtors. They do, however, repossess heavy equipment or machinery for which the buyer failed to pay.

Rich Hollerbach, CEO of Singer, Bach & Associates, with operations in Scottsdale and Tucson, says his firm has two paths to debt collection — the soft approach in the early stages of delinquency and more aggressive tactics for troublesome situations.

Hollerbach, who has more than 20 years of B2B debt collection experience, says the key in either scenario is to try to maintain a good business relationship between his client and the debtor.

“We try to find out the reason for non-payment,” he says. “It’s more of an audit-type approach. We become an extension of their in-house collections procedures. A lot of times we find out there was some type of miscommunication, or maybe there was a potential problem with the products or services that were delivered. Retention is the key thing. We want to make sure they will continue to do business with our clients.”

In more difficult collection situations, Singer, Bach & Associates conducts investigations to determine the ability of an indebted company to pay.

“We might go to their business for a face-to-face meeting,” Hollerbach says. “There are several reasons for non-payment. Maybe it’s a cash flow problem in their own business — they didn’t get paid for whatever they’re re-selling — or their industry has taken a hit or it could be a seasonal issue.

“We’re going to want to know who else they owe, how much they owe, do they have any tangible assets, and how well their business is doing. And, we want banking and tax information. We gather all of this so we can make an intelligent decision if we can’t come to a voluntary resolution,” Hollerbach continues. “We do this so we’re better educated and we actually collect from a position of strength.”

Hollerbach recalls instances in which a debtor claimed he couldn’t pay.

“I might say that we found an opportunity for (the debtor) to liquidate this particular asset to take care of (an) obligation to my client,” he says.

Litigation is usually a last resort, depending, of course, on the amount owed. It’s often a case of throwing more money at a bad debt, especially if the debtor is about to go out of business.

Singer, Bach & Associates, which only gets paid if it collects for its client, tape records its phone conversations to protect against unwarranted claims.

“We deal on the negative side of business, and emotions get involved,” Hollerbach says. “A lot of times we’ll find out with this process that we weren’t out of line. The customer just got upset and they’re complaining to a regulatory commission or to our clients themselves. It’s a good control to have in place to make sure everyone’s doing what they’re supposed to be doing.”

The recordings also enable supervisors to critique collection staff members.Cover July 2008

“It’s a great training tool for us,” he says.

Clients include transportation companies, insurance, media, lenders, and commercial leasing.

With baby boomers aging, there likely will be a greater need for wheelchairs, walkers and medical beds. Commercial debt collectors might go after doctors who fail to pay for equipment and products manufactured by a collection firm’sclients. But they don’t try to collect from patients who owe doctors.

“The bottom line in our B2B world, first and foremost, is dispute resolution,” Hollerbach says. “We take the emotion out of the transaction, and we allow each party to understand the importance of resolution. From a client’s perspective, it is obviously to get paid. From a debtor’s perspective, there was something that went wrong. We have to bring both sides together to figure out what went wrong and how we’re going to get past it.”

www.sbacollect.com

 

AZ Business Magazine July 2008 |