Businesses here say theyre scrambling to find ways to offset escalating fuel prices, and some say their livelihoods might soon be running on empty.


Although rising fuel prices affect almost everyone, energy-intensive users such as farmers, delivery services, airlines, and heavy-equipment companies particularly feel the squeeze.


Ive been a farmer my whole life and I have never, ever, seen conditions like this, says David Babb, a fourth-generation farmer on land in south Spokane County his family has owned since around 1880. Its absolutely the worst its ever been, and the whole industry looks pretty grim.


As of Oct. 25, the average price of gasoline in the U.S. was $2.60 a gallon, up 57 cents a gallon from last year, according to the U.S. Energy Information Administration. On the West Coast, the average price of gasoline was $2.80, up nearly 51 cents from last year. Diesel fuel averaged $3.16 in the U.S., up nearly 95 cents; on the West Coast, it averaged $3.14, up 76 cents.


Farmers typically use off-road diesel to operate their machinery, and those costs have shot up as well. Off-road diesel is dyed red, used in off-road equipment, and isnt subject to Washington states fuel tax. Yet it averaged $2.80 a gallon in August, up from 80 cents a gallon three years ago, Babb says. He says those costs, combined with a recent jump in the cost of fertilizer due to rising natural gas prices, have combined with falling wheat prices to create a dire situation for the agriculture industry here.


Babb says he recently consulted with his banker, who predicted that based on current trends, 25 percent of farmers in this region will go out of business within the next five months, and 50 percent of those remaining will be at great risk of insolvency in the next year.


Ive planted wheat, dry peas, and barley, but I dont know why, because the profit is gone, Babb says. If fuel prices continue to rise, Im probably going to shut the operation down, because I cant continue to operate at a loss.


Babb farms about 1,000 acres of land and spends $8,000 to $10,000 a year on fuel, or about 10 percent of his operating expenses, up from about 7 percent of his expenses in 2002.


Meanwhile, fertilizer prices have jumped 55 percent in the last three years because natural gas, which also has shot up, is used in the manufacture of nitrogen fertilizer, Babb says. In addition, shipping costs have risen by about 20 percent in the last three years, causing the costs of transporting wheat to Portland to increase to 57 cents a bushel in 2005 from 47 cents in 2002, he says. Meanwhile, the price of wheat currently is $3.49, down from $3.70 in 2002, he says.


Basically, I lost a dollar a bushel last year on my winter crops, and my spring crops were circling (spiraling down) the drain, he says.


Other farmers also are feeling the pinch. A standing-room-only crowd attended an agricultural roundtable held in Spangle recently by U.S. Sen. Patty Murrays office.


Hal Johnson, a third-generation white wheat, barley, and mustard farmer in Davenport, Wash., says he bought fuel earlier in the summer in anticipation of rising prices, but those reserves are diminishing rapidly. He says that although everyone is really in a pinch because of rising fuel prices, farmers have been hit particularly hard because they cant pass their costs on to the market through higher food prices.


Its the biggest, most detrimental impact that Ive seen since I started farming 25 years ago, Johnson says. Ive done most of what I can do to save fuel, and I guess I dont want to face the reality of what will happen if fuel prices continue to rise.


Johnson buys roughly 20,000 gallons of fuel a year. In 2004, his fuel costs rose by 37 percent, and in 2005 they went up an additional 31 percent, a lower number because he bought fuel in advance.


Every farmer that Ive talked to says were facing what will make our business unsustainable in the very near future if something doesnt change, he says. Ive never seen growers more pessimistic and hopeless than they have been in the past couple of months.


Delivery services


Truckers also say theyre worried about the impact of rising fuel costs. For instance, Trans-System Inc., of Spokane, which has about 900 trucks in its Spokane fleet and about 1,200 employees, says it raised its fuel surcharges recently to help offset fuel costs.


We just wouldnt be able to absorb these increases otherwise, says Don Piontek, the companys fuel and license manager.


While shippers arent happy with the rising surcharges, they either have to pay more or not ship by truck, because trucking companies cant absorb the rising fuel costs, Piontek says. Trans-System buys about 1 million gallons of diesel a month, at a cost of about $4 million, or 40 percent of its overall expenses, Piontek says.


Jim Thurber, president and owner of City Parcel Delivery Inc., of Spokane, says his biggest challenge is persuading customers, who bear the brunt of fuel costs through surcharges, that the price of City Parcels service has to go up to cover for the rising cost of fuel.


Fuel prices have affected us pretty significantly, Thurber says. All of the delivery companies are doing it (raising surcharges). You have to.


So far this year, City Parcels fuel costs have risen to 13 percent, or a total of $238,000, of the companys budgetup from just 3 percent of the budget last year.


Other companies that deliver products to customers, ranging in everything from pizza to diapers, say theyre getting hit by fuel prices on multiple fronts.


The Pizza Pipeline Inc., of Spokane, which has franchise outlets elsewhere in the country, says it hasnt raised prices yet, but probably will soon to cover increases in costs to ship pizza ingredients to its locations and to deliver pizzas to customers, says Mike Kight, the companys president and CEO.


Our big push is free delivery, Kight says. Were trying to do the best we can to keep product prices low, but its going to go to the consumer eventually.


Kight says the company is getting nailed by ingredient and supply vendors who are raising their fuel surcharges. It also raised drivers mileage reimbursement rates by 1 percentage point of product costs last month. Some of its franchisees in other states have started using hybrid (gas-electric) cars for their delivery services, and he expects more stores will use those vehicles in the future.


Ive never seen numbers this bad, Kight says. Im very concerned about rising fuel prices, but we cant predict the future, so we just have to keep plugging away.


Dan Anderson, owner of Babyland Diaper Service, of Spokane, says hes worried that his business, which has served Spokane since 1938, might not survive if fuel prices continue to rise.


We have to increase the cost of our delivery service, and unfortunately, when things get tight, services that are considered luxuries are the first ones customers stop using, Anderson says.


Babyland has bought a new delivery van that burns diesel and gets 24 mpg, but now that diesel prices have gone up, that vehicle costs just as much to operate as the old gas-powered one. He says rising natural gas prices also are a concern, because the business uses natural gas to operate its diaper dryers.


It seems no matter what we do, its never enough, he says. If all these increases continue, it will probably kill us.


Airlines have been trying to keep fuel costs down for several years to avoid raising prices for flights, and Seattle-based Alaska Airlines says its ramping up those efforts even more as fuel prices escalate.


The rising cost of fuel has been a significant concern for Alaska and the airline industry as a whole, spokeswoman Amanda Tobin says. One of our largest single costs is fuel.


The company says it has used hedging, which means it bought fuel when prices were lower and locked in reduced prices for a time. It currently is buying 50 percent of its fuel at $30 a barrel, less than half the market price. Hedging is expected to save the airline about $100 million this year.


Yet, each 1-cent increase in jet fuel adds about $3.5 million to Alaskas annual operating costs, and since current prices are about $1 per gallon more than the average of the past five years, even with hedging, the company says that increases in fuel costs still will add more than $250 million to its expenses in 2005.


A few other steps Alaska says it has taken to cut down fuel-related costs include using more fuel-efficient aircraft, minimizing aerodynamic drag, and reducing aircraft weight.


Alaska says its flying more Boeing Co. Next Generation 737-700, -800, and -900 jetliners, which burn about $900 less fuel per average flight than the smaller 737-200.


Next Generations jets comprise 34 percent of the companys fleet, compared to 14 percent in 2000.


The airline also is installing wingletsshark-like fins on the end of each wingon aircraft to reduce drag, which cuts fuel consumption by 3.5 percent and saving an estimated $100,000 per aircraft each year.


Aircraft technicians also now are instructed to buff out chipped paint on the exterior of planes to reduce drag.


Alaska spends about $33 in fuel to carry each pound of weight on a plane for a year. To cut those costs, Alaska recently has removed paper manuals from its aircraft and reduced the weight of its catering supplies, saving more than $300,000 a year.


Tobin says the airline so far hasnt increased its fuel surcharges to passengers, and will try to avoid doing so.


Mass transit


As for ground transportation here, Spokane Transit Authority says it doesnt plan to increase passenger fares in the 2006 budget it currently is completing. Instead, its focusing on increasing the number of riders by opening more park-and-ride lots, creating new routes, and increasing bus frequency, says spokeswoman Molly Myers.


STAs fuel costs have risen by an average of 3 percent a month this year, but the agency has been able to absorb those increases in its 2005 fuel budget. This year, STA has spent $2.4 million for diesel fuel, and tentatively has budgeted $3.9 million for next year, she says.


Weve tried to budget appropriately for anticipated increases, Myers says. There are a few resources we can tap into for revenue, but we dont have a lot of options so were doing our best to stay on top of it.


Contractors here also are considering ways to increase the fuel efficiency of their trucks and heavy equipment to cut fuel costs, says Frank Etter, vice president of Garco Construction Inc., of Spokane.


Etter says the costs of sending trucks and equipment back and forth to projects has to be accounted for in bids, and those costs are rising. Garco is considering using more fuel-efficient trucks and is minimizing the number of trips to project sites.


It operates more than 100 vehicles, half of which are cranes and other heavy equipment.


We have concerns, definitely, he says. Its everybody in the industrys problem, not just ours, and the one whos really paying the price is the end user.