Since deregulation of Canadian oil prices in 1985, oil prices in Canada have been determined by international market conditions. With gasoline prices directly linked to the volatile price of crude oil, consumers are at the mercy of the Organization of Petroleum Exporting Companies (OPEC) each time they stop at the pumps. By the end of May, the highest gasoline in Ontario was 96.6 cents/litre in Thunder Bay. High fuel prices were constantly in the news, web sites that track gas stations with the lowest gasoline prices sprung up and most freight companies instituted fuel surcharges.

Not buying gasoline or diesel fuel isn’t an option for a service-based industry, so how are companies responding to the significant increase in fuel prices? Horticulture Review took to the telephone, tracking down business owners during their most hectic time of year to ask how the high cost of gas, insurance and labour was affecting their business.

The price of service For the most part, companies that deal with homeowners have absorbed the increased costs, since many have signed fixed contracts and some customers are fed up with being nickeled and dimed to death.

Wholesale companies are more likely to be able to pass along the increased cost of gas to their suppliers.

Jim Monk of Markham Property Services in Markham explained that, “a great percentage of our work is fixed contracts, which we negotiate only twice a year. We have not added a fuel surcharge – as of yet. We begin to renew our contracts for snow removal next, and high insurance costs remain a concern. It has to stabilize, since I notice all the big insurance companies are still announcing multi-million dollar profits.”

Randy Tumber of Tumber and Associates in Orangeville shares his own insurance experience: “For 27 years, I’ve never done snow removal – my pick-up truck doesn’t even have a hitch for the snowplow – but I had to sign an affidavit stating that my own personal pick-up truck would not be used for snow removal before my insurance company would insure me. I can’t imagine how contractors who perform winter services will fare.”

In a moment of proactive business planning Monk says “we switched a lot of our trucks to diesel, which has a much more stable price. I have no problem taking credit for the foresight.”

Wayne Venhuizen of Koala Landscaping Services in London agrees. “We responded the last time gas prices peaked, and now we run everything diesel. We like the 20-cent spread between diesel and gas.”

It’s not just the small to mid-sized companies that made the switch to diesel. Aldershot Landscape Contractors’ fleet of trucks and equipment all use diesel. Only the small pick-up trucks used by Aldershot’s sales staff use gasoline, says Iain Souter of the Burlington-based landscape design/build firm. With work across Ontario, it’s easy to see how travel expenses can get out of hand, but Souter says, the company is quick to monitor how much is spent on fuel.

Like Monk, Souter notes it’s hard to pass along the fuel costs to customers, most of which have signed a set contract. “It’s a competitive business, and if our prices keep increasing as fuel and insurance rates increase, customers would look at other contractors,” he says.

Tumber has an even grimmer outlook, and says he will not drop his prices anymore as it would jeopardize the landscape desing-build firm. “I’d rather sell off equipment and downsize than drop my prices. People already perceive landscaping as very expensive and squawk when you try to raise the rates. They look for the same rates as three years ago, but the economic situation has changed,” says Tumber, who tried to add a fuel surcharge previously but did away with the charge when he got too many complaints. “It’s a catch-22. We need the equipment to get the projects, yet we can’t charge back our distance and fuel charges to the client or we risk losing them.”

Venhuizen, whose accounts are mostly commercial, says this about fuel prices: “it hurts.” “The repercussions haven’t hit yet. This comes at a time when we are so busy we haven’t had time to look at our fuel bills. This will really squeeze the guys who don’t have the margins to begin with. It won’t hit us so hard. However, it’s a compounding effect: the three big cost increases are insurance, labour and fuel, and I am most concerned about insurance and labour.”

Gas prices and insurance rates have affected the way irrigation companies do business, but the sky is not falling, according to Harry Hutten of Select Sprinklers in Waterdown. Hutten takes overhead costs very seriously and doesn’t leave much to chance when it comes to cost recovery.

“We use the Estimating Workbook from the Irrigation Association, and it takes all of your overhead costs and divides them out by your billable hours, so you always know what costs you need to recover,” Hutten explains. Hutten knows exactly what to charge out for his trucks when they go out to a job, and the same can be said for the PT Cruiser he uses for his sales calls.

Cost comparisons
“Cost is a simple reality of doing business and I think that customers understand how things work,” says Hutten, who is always willing to explain things to a client who may not understand why they should have to pay for transportation to the job site. “I can ask them if they would prefer to come down to my office and load up all the equipment and drive my employees back to the job site – then they start to understand,” he says.

Whether indoors or out, the effect of rising overhead costs cannot be escaped, says Eric Endersby, owner of Key West Tropicals. Interiorscape companies must drive to the client’s site just like other landscape contractors, and according to Endersby, the cost of doing so “is getting ridiculous.”

With several service technicians driving from client to client, Key West Tropicals has seen a sharp increase in the monthly fuel bill. Where the company vehicles are concerned, the company saves with a corporate account at Esso. However, Key West Tropicals has had to increase the amount paid for mileage when contractors use their own vehicles. “We had to raise our per-kilometre rate about six months ago to keep pace with the rising gas prices,” Endersby explains.

Many others share Venhuizen’s concern about the high cost of insurance. John Wright of Wright Lawn Care Service Ltd. says: “Vehicle insurance has been another increased cost of doing business. We are going with higher deductibles, and have taken collision off the older trucks. Bottom line: we are assuming more risk.”

“We are about to sit down and take a serious look at our insurance costs as well, “says Endersby. Insurance rates on the company cube van and service vehicles have also risen steadily over the past few years, he says. “We’ll take a look at it and see if there is a way to save some money.”

The bulging prices don’t end once Endersby receives his shipment of tropicals. Without access to natural gas at his location in Waterford, he must heat his greenhouse with propane. “It’s not an economical way of doing things. And every time the price of natural gas goes up, so does the price of propane.”

“Fuel price increases are affecting everybody, and we will have to pass it along to customers,” Wright adds. “We are building in a zone charge for standalone jobs, emergency jobs, jobs not along a normal route, especially tree spraying, which you can’t schedule ahead. The rate zone charges are built in, not shown as a separate line item – we haven’t programmed that into our computers yet. Our customers are accepting the higher costs.”

The minority report
Wright and Select Sprinkler’s Hutten are in the minority – most of the companies we contacted are not passing along the increase in fuel charges. Janet Anderson of Janet Anderson Perennials in Strathroy says that, “By the time we got plans for a fuel surcharge in place the last time fuel prices increased like this, gasoline prices had dropped and stabilized. So, for now we are riding it out and absorbing the increased shipping costs. We contract with a trucking company for our deliveries and set our delivery prices earlier this year. “We charge for trucking over and above the prices on our plant lists and put our delivery costs up a couple of years ago when insurance prices spiked. But for now we are hoping there is room within our pricing structure to absorb this increase in fuel prices,” she adds.

“It is extremely difficult,” says Endersby of passing along the increases to the client. “In the client’s mind, the technicians aren’t on the clock until they are on the job site – and they are done once they have walked out the door. It’s not easy to suddenly raise your rates in the service business without losing clients.”

While passing along these costs can be difficult, Hutten believes that honesty is the best policy. “Customers can see that things cost what they cost and that our rates are in line with the industry’s rates. It’s just taking care of business,” he says.

It’s all business
Aldershot’s Souter looks to increased costs as just a part of doing business, and says it’s just a matter of a careful eye on the bottom line and assessing whether your rates are adequate. “Gas prices fluctuate and they will come back down again, but I’m more concerned with the insurance prices – they are here to stay.”

Staff at Terra Greenhouses Ltd. in Burlington plan their season’s advertising well in advance, so a lot of print material and promotions are already scheduled with set prices. “We are keeping an eye on things and monitoring prices, but when you are selling product with set prices, like bagged products, mulches and soils, it is difficult to raise prices in the middle of the season, ” says Jason Pepetone.

“Right now we are absorbing the price increases imposed by suppliers – anything coming from Quebec has a fuel surcharge attached. Sometime there is room in our margins to make allowances for unexpected increases, but for the moment, we will bear with the increases and perhaps look to make adjustments to our pricing next year.”

With a rural location between London and Stratford, Marty Klomp of Klomp’s Plantscape in St. Mary’s is pragmatic. “Increased costs are part and parcel of the cost of doing business. There is always the idea that you can sell more volume to recoup some costs, but that doesn’t always work out.” “Many of our truckloads of bagged goods and plants arrive with fuel surcharges attached now and we are passing some price increases on to a certain degree. Our home delivery charges have gone up as well.”

Increased insurance costs are more of a concern to Klomp’s brother who runs Klomp’s Landscaping. “We (the garden centre) don’t have as many trucks on the road, so the rising insurance is less of a concern to us,” Klomp explains. “A bigger concern for us is increased wages. We have to pay more to getand keep good staff.”

These increased costs do affect the industry and any company’s profit level, but as Hutten points out, the real issue remains the lack of skilled labour. Where would we be if we had no one to run the equipment?

Irrigation material costs are still holding steady but labour rate increases are more than just inflationary. “If you only give employees inflationary increases, they don’t get anywhere,” Hutten explains.

The outlook
It’s hard not to point fingers at the cause of these hikes. Tumber looks to 9/11 and corporate greed as the culprit, as insurance and fuel companies cash in on the tragedy. “I breezed through the recessions in the early 80s and 90s because you could read the waves and adjust. Today’s climate is unpredictable and volatile. It’s rather unsettling. It was like someone flipped a switch in the Fall of 2002.

“The effects are now filtering down to the average person. It’s not a buyer’s market anymore,” says Tumber, adding that it was work from the middle class that filled in the gaps between the larger, higher profile jobs.

According to Key West’s Endersby, there is a silver lining in that the plants coming in from Florida are not costing nearly as much as they used to, thanks to the improved performance of the Canadian dollar.

Always looking at the big picture however, Endersby realizes that the state of the Canadian dollar probably doesn’t bode well for the Ontario growers exporting to U.S. markets.

So what can the horticulture industry expect in the coming months? God only knows, but they certainly will look at all means possible to keep buoyant. Whether this translates into raising prices remains to be seen, but it’s guaranteed we will all feel the pinch.