[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
HIGH FUEL PRICES: THE IMPACT ON ILLINOIS SMALL BUSINESS AND JOB
CREATION
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HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JUNE 25, 2012
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 112-074
Available via the GPO Website: www.fdsys.gov
_____
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76-481 WASHINGTON : 2012
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
ROBERT SCHILLING, Illinois
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
JANICE HAHN, California
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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OPENING STATEMENT
Page
Hon. Joe Walsh.................................................. 1
WITNESSES
James Zuber, Owner, Jc3 Trucking, Inc., Newton, IL............... 2
Phil Kerr, President, Home Medical Express, Inc., Elmhurst, IL... 4
Larry Smith, General Manager, Lurvey Landscape Supply, Des
Plaines, IL.................................................... 6
Richard B. Sade, Vice-President, S&S Hinge Company, Bloomingdale,
IL............................................................. 8
APPENDIX
Prepared Statements:
Larry Smith, General Manager, Lurvey Landscape Supply, Des
Plaines, IL................................................ 16
Phil Kerr, President, Home Medical Express, Inc., Elmhurst,
IL......................................................... 19
James Zuber, Owner, Jc3 Trucking, Inc., Newton, IL........... 23
Richard B. Sade, Vice-President, S&S Hinge Company,
Bloomingdale, IL........................................... 34
Questions for the Record:
None.
Answers for the Record:
None.
Additional Materials for the Record:
None.
HIGH FUEL PRICES: THE IMPACT ON ILLINOIS SMALL BUSINESSES AND JOB
CREATION
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MONDAY, JUNE 25, 2012
House of Representatives,
Subcommittee on Economic Growth,
Tax and Capital Access,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:10 a.m., in
Hoffman Estates Village Hall, 1900 Hassell Road, Hoffman
Estates, Illinois, Hon. Joe Walsh (chairman of the
Subcommittee) presiding.
Present: Representative Walsh.
Chairman Walsh. Good morning, everyone.
Am I on? There, I am on.
Thank you for joining us.
Boy, that is on, isn't it?
The Small Business Committee, Subcommittee on Economic
Growth and Capital Access, is now and will come to order.
I want to thank the witnesses for appearing today and for
agreeing to testify on an issue that is so important to small
businesses and consumers, high fuel prices.
Few things have such broad effects on consumers, the
economy and small businesses as high fuel prices. While fuel
prices have moderated somewhat from their recent highs, the
price of a gallon of regular gasoline and diesel fuel is still
29 percent and 28 percent higher than two years ago. Overall,
Americans are paying 93 percent more for gasoline than when
President Obama took office in January of 2009.
The price of gasoline often determines where and when
consumers will shop, what it costs a small business to deliver
products and services, and the cost of purchasing materials and
other inputs necessary for business operations.
When consumers have less money to spend and small
businesses are forced to shift resources to fuel purchases, or
pay higher prices for inputs, weak economic growth and anemic
job creation are often the results. High fuel prices also
increase economic uncertainty for both small businesses and
their consumers.
Small businesses have repeatedly testified before this
Committee about their need for certainty in order to grow their
businesses and create jobs. Last year, I chaired a Subcommittee
field hearing just like this in Woodstock, Illinois. At that
hearing, a number of small businesses testified about how
uncertainties created by policy actions in Washington inhibit
their ability to grow and operate their businesses. These
uncertainties can include new Federal regulations, Federal
mandates on employers, and the direction of tax and spending
policies.
In addition to your views on the effects of high fuel
prices on small businesses, the Committee will certainly be
interested in learning how these additional uncertainties
affect you as well.
Other Subcommittee members may have opening statements.
They will be submitted for the record.
Let me take a moment, witnesses, and explain our terribly
complicated timing system for each of you. You will have 5
minutes. The light will start out as green. When you have 1
minute remaining, the light will turn yellow. Try to stick to
your 5 minutes. If you go over, we will be flexible. Do the
best you can.
I would like to introduce, in no particular order, our
witnesses and give them each 5 minutes to testify. We will
begin with James Zuber, a lifelong resident of Illinois, with
more than 25 years experience in the commercial trucking
industry. During those 25 years of operation, Mr. Zuber has
logged over 3 million miles without an at-fault accident.
He is testifying today on behalf of the Owner-Operator
Independent Drivers Association.
Mr. Zuber, you may deliver your testimony.
STATEMENTS OF JAMES ZUBER, OWNER, Jc3 TRUCKING, INC., NEWTON,
ILLINOIS; PHIL KERR, PRESIDENT, HOME MEDICAL EXPRESS, INC.,
ELMHURST, ILLINOIS; LARRY SMITH, GENERAL MANAGER, LURVEY
LANDSCAPE SUPPLY, DES PLAINES, ILLINOIS; AND RICHARD SADE, VICE
PRESIDENT, S&S HINGE COMPANY, BLOOMINGDALE, ILLINOIS
STATEMENT OF JAMES ZUBER
Mr. Zuber. Thank you. Good morning. My name is James Zuber.
I am from Newton, Illinois, and I have been a professional
truck driver for over 25 years.
Chairman Walsh. Did you press that? Why don't you move it a
little closer to you?
Mr. Zuber. One way or the other. There, okay.
Good morning. My name is James Zuber. I am from Newton,
Illinois, and I have been a professional truck driver for over
25 years. I own my truck and haul construction goods and
general cargo while leased to a motor carrier. I am here on
behalf of the Owner-Operator Independent Drivers Association,
commonly known as OOIDA. OOIDA's approximately 150,000 members
are small business truckers from all 50 states.
The majority of trucking in this country is small business.
Ninety-three percent of our nation's motor carriers own 20 or
fewer trucks. My testimony will focus on the impact that energy
prices have on small business truckers. These impacts are very
real, especially when you consider them alongside the cost of
regulations coming out of agencies like DOT and EPA.
While today's diesel prices are around 17 cents below last
year, they are still very much on the high side. The fuel
prices are still subject to short-term price spikes, which are
devastating to small business truckers.
To give you a perspective, last year I drove 122,000 miles
at $3.90 a gallon. My fuel costs were just under $80,000. When
the price of a gallon of diesel increases by a nickel, my
annual costs increase by $1,000. Trucking is a hyper-
competitive business, and each of us operates on extremely thin
margins. So any cost increase, especially those related to fuel
or regulatory mandates, has an impact. An extra dollar spent on
fuel means fewer dollars available to put back into my
business.
Countless truckers have felt the pain of high fuel prices
on their businesses and have had to put off buying new
equipment, or worse. For me, this hits home when I need to pay
for work on my truck and face higher prices for parts, labor,
or even something as basic as tires, all without an increase in
pay.
Further, for many truckers, business and family incomes are
basically one and the same. Money isn't available to put
towards the basic necessities like payments, like mortgage
payments and medical expenses. And just as prices for repairs
on the truck increase with high fuel prices, so do prices for
household expenses like gas and food.
OOIDA has long supported an approach to energy policy that
combines increased domestic energy production with efforts
including greater marketing transparency, increase in focus on
natural gas as a future energy source, and passing a new
highway bill. In the past, the U.S. production has served as a
relief valve, helping to mitigate price spikes. However, the
strength of relief has been decreased as regulatory roadblocks
have reduced domestic production on Federal lands and waters.
Impeding domestic production with red tape is something
truckers find very difficult to understand. Resources are
available here at home.
Like most truckers, fuel is my largest annual operating
expense. Trust me when I tell you, no government agency is more
motivated than I am to make certain I am running my vehicles as
efficient as possible. I do not need regulations telling me how
to operate efficiently or forcing me to buy a truck that places
some prescribed government efficiency standard ahead of what I
need for my business.
Unfortunately, that is what has just happened with the
EPA's new first-ever fuel efficiency rule for heavy-duty
trucks. The regulations impose technologies that work for
certain types of trucking operations on every one of our
nation's trucking companies. It will add an additional $6,200
to the price of a new truck despite the older truck that I use
today operates more efficiently than many of the trucks that
are coming off the assembly line.
EPA is not the only agency driving up costs for truckers.
The Department of Transportation's proposed rule requiring
electronic on-board recorders, electronic stability control and
speed limiters is using the veil of improved highway safety to
one-size-fits-all regulatory mandates across the industry.
These not only add significant costs to small business
truckers, but also they will make a sizeable change to the
industry, all with negative impacts to truckers who already
have economic incentives to drive safely.
Further, one only has to look at significant improvement
across the trucking industry over the past decade to question
why such costly mandates are needed. The trucking industry
faces significant economic and regulatory pressures on small
business truckers like myself, especially impacted by the high
fuel price spikes and costly mandates. Congress and the
administration need to work to improve the domestic energy
while resisting the urge to impose new mandates solely for the
sake of imposing mandates.
Mr. Chairman, I thank you for the opportunity to testify,
and I look forward to answering any questions.
Chairman Walsh. Mr. Zuber, thank you. Thank you very much.
I am now going to turn to Phil Kerr, our next witness from
Elmhurst, Illinois. He is President of Home Medical Express,
Inc., a small business home health services provider. Since its
inception more than 6 years ago, Mr. Kerr's business has served
more than 70,000 patients. He currently serves more than 7,000
patients across 10 counties in Illinois.
Mr. Kerr, you may deliver your testimony, and thanks for
coming.
STATEMENT OF PHIL KERR
Mr. Kerr. Thank you, Congressman Walsh and Ranking Member
Schrader and members of the Small Business Subcommittee on
Economic Growth, Tax and Capital Access, for the opportunity to
provide testimony today on high fuel prices and the impact they
have on small businesses.
As you mentioned, my name is Phil Kerr, and I am the
President of Home Medical Express. We are located in Elmhurst,
and we are a proud member of the American Association of
Homecare.
Essentially, we are a provider of home oxygen therapy
services, home nutrition therapy services, therapy for
obstructive sleep apnea, and everything from hospital beds to
wheelchairs. On a daily basis, we send about 23 people out in
the field each day to distribute products and services from
medical technicians to respiratory therapists and registered
dieticians.
The American Association of Homecare is a trade
association, a national trade association for all the
providers, equipment manufacturers and other organizations of
the homecare community.
I guess it was recently published that every $10 rise in
the price of a barrel of oil translates to a 25-cent increase
in gas prices, which tears more than $25 billion from our
economy yearly. As a small business owner, I can tell you
firsthand how it affects my business.
For our particular industry, it particularly has an impact
on us. In other industries, a company will actually pass along
additional costs to their customers. In our particular
industry, we are dealing largely with Medicare and Medicaid,
Blue Cross and other private insurance companies. About 75
percent of our business is dealing with the government with
Medicare and Medicaid patients, and those patients we get a
fixed payment for the services that we provide regardless of
the costs that we have. So any cost that comes along, we are
not able to pass that cost on to the actual customers.
The fact of the matter is that over the last 6 years, since
we opened our business through the government regulations
regarding medical equipment, there has actually been a 33
percent reduction in fees as it is, while fuel costs have gone
up.
I have been in the field for 32 years. My two partners and
I started our business in 2006, as you mentioned. We started
from scratch with no employees in 2006, and last year we
finished with a little over $8 million in revenues, and we
currently have 80 employees.
As you mentioned, we service over 50,000 patients and 7,000
active. We service about a 60-mile radius from the Elmhurst
area. As I mentioned, 70 percent of the patients are Medicare
and Medicaid, and our costs essentially get fixed.
Fuel costs now represent 3 percent of our revenues, the
cost of our revenues, which is up 1 percent over the last 2
years. By itself, that may not seem like a lot of money. For
our business, though, that has taken us from $126,000 in fuel
costs in 2009 to this past year we surpassed or are at about
$250,000. A $120,000 increase is significant. Our business
during that time grew 43 percent, but our fuel costs grew 95
percent, so more than double the pace.
As I said earlier, other industries can pass that on. We
are not able to pass those costs on.
One alternative that we have been forced to look at in
providing services to the patients that we provide is having to
drop-ship certain services. We are required by our insurance
companies to provide the services to the patients in their
home, deliver to the patients in their home. Certain items like
tube-feeding therapy, people who drink things like Ensure at
home for tube-feeding purposes, weigh about 13 pounds per box.
Some patients get 10 boxes of those per month. We deliver those
today inside their house. We bring it inside to their family
room, their kitchen, pantry, what have you. Our costs to go to
each house are about $50 per visit.
We can go through drop shipping and get down to about $37
per visit, but the implications of that are that 60 percent of
these cases, as I mentioned earlier, are Medicare. We are going
to have to bring products that weigh up to 130 pounds--if FedEx
or UPS brings them, they bring it to the doorstep. They don't
bring them inside. That will force consumers to actually bring
those products inside themselves.
High gas prices have compounded a problem that home medical
group providers have had with a new government program known as
competitive bidding. This program is competitive in name only.
In fact, in Round 1 of competitive bidding, 87 percent of the
companies in the first nine states were eliminated from the
marketplace.
It is a program that was poorly conceived, fundamentally
flawed. It is now exhibiting many serious breakdowns that are
predictable based upon its failure to recognize and account for
the true nature of the way home medical equipment is provided
to Medicare beneficiaries. These breakdowns have been evident
since the start in 2007.
Round 2 of competitive bidding started this year. In March,
we had to submit our bids for those things. We will find out
later this year. The biggest problem that we have is that we
were forced to provide a bid for four years. So that means that
any increase in fuel prices over the next four years, no matter
what they are, are built into the price we have had to commit
to today. So it has made it very difficult for us.
We have included more detailed information about the
problems with the bidding program in our testimony. Business
closures and employee reductions have significantly impacted
the industry.
In conclusion, I would like to thank you again for the
opportunity to provide the testimony today. I regard this as an
important issue and look forward to the Subcommittee to protect
patients' access to homecare, as well as small businesses that
provide the equipment that they need.
Chairman Walsh. Thank you. Thanks.
Our third witness is Larry Smith. He is General Manager of
Lurvey Landscape Supply Company, located in Des Plaines. Lurvey
is a diversified wholesale supply distribution business with 35
full-time employees and as many as 125 temporary seasonal
employees.
Mr. Smith, welcome. You have the mic.
STATEMENT OF LARRY SMITH
Mr. Smith. Chairman Walsh, distinguished members of the
Subcommittee, and guests, thank you for the opportunity to
testify today on how high fuel prices and price uncertainty
affect my company and my industry.
I am Larry Smith of Lurvey Landscape Supply in Des Plaines.
My company distributes a wide range of products used by
landscapers, builders, and homeowners, from all types of green
goods to paving materials to nonstructural stone building
veneers to accessory products. All of the products we
distribute are purchased from others.
We employ 35 people year-round and 120-plus during peak
seasons. We actively participate in our national association,
the American Nursery and Landscape Association, and its state
partner, the Illinois Green Industry Association, as well as
other trade organizations related to the products we
distribute.
Our company is part of the vertically integrated nursery
and landscape industry, often referred to as the green
industry. All but a few of the very largest businesses in the
industry are classified as small businesses. Most are family
owned and operated, and many are multi-generational.
The plant production part of the business is considered
agriculture, and in production value, its crops are valued at
$16.7 billion at farm gate. Nationally, the industry
contributes over $175 billion in economic output and sustains
1.95 million full- and part-time jobs.
Here in the Land of Lincoln, the most recent numbers show
that the green industry has an impact of $5.2 billion on the
Illinois economy, employs 200,000 people full- and part-time,
and generates $1.9 billion in payroll.
Our company currently operates three locations in the
Chicago area, serving about 1,200 landscape and construction
businesses, as well as retailing to homeowners from our Des
Plaines location. During a busy spring day, our wholesale
locations will produce over 600 invoices. Lurvey Landscape
Supply owns three 20-foot flatbed straight trucks and two small
dump trucks for local deliveries of from a few miles to 150
miles or more. We can do well over 20 deliveries a day to the
local market.
For the first time in our history, we have begun adding a
fuel surcharge to our own local deliveries just to try to
recoup some of the added expenses of high fuel prices.
The Great Recession has hit our industry hard, given the
fact that residential construction, commercial property
development and municipal investments in green infrastructure
all declined sharply as the economy took a sharp turn for the
worse. The ensuing credit crunch further destabilized
businesses in our industry.
So against this backdrop, record high fuel prices and price
volatility have added insult to injury. I would like to list a
few of the impacts all of this has had on our business and many
in the green industry.
Our customers need a stable price for products for extended
periods of time in order to bid on work that is often six
months to a year away. Fuel surcharges have ranged this spring
from 15 percent to as high as 37 percent. In real numbers, a
load from Pennsylvania this spring cost $925, and the fuel
surcharge was $351.50 extra. Locally, we pay $310 for a load of
concrete pavers, with an additional $62 in fuel surcharges.
These surcharges were not part of the cost a few short years
ago. This equates to significant increases in cost.
With that in mind, can we ask the growers that we buy
plants from to absorb those costs when other economic
conditions have forced their profit margins to near zero
percent? Or can we absorb those costs?
Our net margins are less than half of pre-recession
numbers, and a significant portion of the reduction is due
directly to high fuel costs. That impacts our ability to
reinvest in our business by updating or replacing delivery
vehicles, and our employees by increasing wages or adding staff
where and when it is needed.
These increased costs also impact how our suppliers operate
and their ability to invest in employees and equipment.
Before the recession, prices were determined yearly for
much of our inventory based on product cost without a
significant weight placed on freight costs. Current practice
requires us to weigh freight costs heavily in our pricing
equations. This has caused us to significantly reduce the
inventory we carry and necessitated quoting prices on a per-job
basis, which in turn increases lead times and creates
frustration and inefficiencies on the job if product can't
arrive on time.
So while I am far more expert in running a business than I
am in telling this Committee exactly how to take the knife edge
off high fuel prices and price volatility, which leads to
business uncertainty, I can speak to the troubling impacts we
have faced. I do believe we as a nation must roll up our
sleeves and get to work on any and every strategy to develop
both traditional and non-traditional energy sources. There is
no question that recent high fuel prices and price uncertainty
have dramatically impacted our profit margins and our ability
to take risks investing in new employees and equipment. We
would welcome the actions that bring some relief.
Thank you again for this opportunity to testify.
Chairman Walsh. Thank you, Mr. Smith.
Our final witness is Richard Sade. Richard is Vice
President of S&S Hinge Company, located in Bloomingdale,
Illinois. S&S Hinge has been in operation for more than 80
years manufacturing specialized hinges used in a variety of
applications.
Thank you for being here. You have the floor.
STATEMENT OF RICHARD SADE
Mr. Sade. Chairman Walsh, members of the Committee, thank
you for the opportunity to testify before you today on this
most important issue that impacts manufacturers of all sizes,
especially small businesses like ours.
My name is Richard Sade, as you indicated, Vice President
of S&S Hinge, based in Bloomingdale, Illinois, a third-
generation continuous hinge manufacturer about 27 miles
northwest of downtown Chicago. We manufacture parts for
industries and products, including tool storage, marine,
electrical, attic stairs, fixtures, emergency vehicles, and
industrial distribution.
S&S Hinge is a family-owned business with 38 employees, and
we are now looking to expand our business by increasing our
exports and developing new products and technologies.
Like all Americans, at S&S we have felt the pain at the
pump, not just when we want to take our families on summer
vacations, but the pain is greatest on small businesses. Fuel
impacts our company in several ways, the obvious one being our
sales team stops at the gas station before visiting customers.
We also have seen increases in the price we pay for raw
materials through transportation and other surcharges. In some
cases, our increased fuel costs are built into the sales price
we provide to our customers, but even when we are successful in
recovering some of these costs, it still makes our products
more expensive on the global market and makes us less
attractive to exports and new customers.
As a small business, we often are trapped between much
larger customers who may not anticipate a price increase on raw
materials, and suppliers who are also seeing increasing costs.
A challenge we face is our suppliers typically add a surcharge
based on the weight and how much steel we buy, not on how many
miles they travel to deliver goods to us, and steel is very
heavy, obviously, as we all know.
Obviously, as we try to grow our business and add
employees, the amount of steel we buy will increase along the
way, which comes with higher fuel surcharges. We must factor
these surcharges in when deciding whether or not to explore new
business opportunities and if we can afford to purchase raw
materials we need to make more parts for our customers.
S&S Hinge has already seen a 20 percent increase in fuel
costs over the last year. Our employees, including our sales
team, traveled respectively 475,000 miles a year in 2011. As we
try to sustain and grow our business, this creates a Catch-22
for us. While we know the cost to make money, a 20 percent
increase in fuel surcharges is significant for a small business
like ours trying to grow and add jobs.
In part, as a result of these increases in fuel costs, our
sales team is traveling less and relying more on the Internet
to pursue new business opportunities. We know we must adapt to
changing times, as any business. However, we seek to grow our
company and add jobs. We cannot afford to miss new
opportunities because of the increase in fuel costs.
Prior to joining S&S, I worked for several Fortune 400
companies, and while they also are dealing with significant
fuel costs, economies of scale show how much more that increase
can impact a small business in Illinois. A 20 percent increase
in our transportation costs is an additional 28 percent annual
increase in fuel use for our overall production costs in oils
and lubricants. In any other industry like ours, where profit
margins are low, single digits, any increase to cost puts a
significant disadvantage to our bottom line.
A lack of a comprehensive energy policy also further puts
American manufacturers at a global disadvantage, especially
small businesses like S&S. Our business has taken advantage of
tax credits and incentives in the past, such as the one-time
ComEd Smart Idea program for our plant lighting, which gave us
a one-time savings of $12,760.
As with anything in life, one size does not fit all. But
this is certain, the U.S. must become more self-reliant on fuel
sources. This will improve the market sustainability and help
small businesses plan for the future.
To support manufacturers, the government should explore
domestic options available that will mean real fuel cost
reductions. Especially in an election year, politics can trump
good policy, and manufacturers cannot afford politicians
playing politics with their lives and their livelihoods.
Federal programs intended to foster new energy-efficient
technologies are often directed at large manufacturers and lack
a small business requirement. The government should work with
the private sector to authorize and support investments in
domestic energy sources and alternative fuels.
Thank you for the opportunity to present my testimony
today. Small businesses are the backbone of this country, and
manufacturers are the driver of the recovering economy. But
manufacturing can't drive us to better times without a fuel
policy that makes sense for small businesses like ours. I look
forward to continuing to work with you on this most important
issue in the future and answering any questions you may have.
Chairman Walsh. Thank you. Thank you.
Politicians playing politics? That doesn't happen. Come on.
Thank you, everybody.
First, a thank-you to all of you in the audience. You know,
if we were in Washington right now, this is what you would be
doing. Virtually every committee in Washington holds hearings
darn near every week or every other week. Every now and then,
committees and the subcommittees, like this Subcommittee that I
chair, were able to go into the field to bring witnesses from
real life in front of us so we can listen to them, and this is
a way for you all to actually come see a hearing because you
can't get to Washington every week or two, and that's a good
thing.
So thank you all for coming. Let me ask some questions of
our witnesses, and I want to thank you each for taking some
time.
You said it. You are the backbone of this country, small
businesses, small businesses, small businesses. You are the job
creators. You are the ones that eventually will get this
economy back up on its feet. We in Washington tend to make life
too difficult for you, and we have really done that over the
course of the last three or four years.
And it is not just the uncertainty coming out of
Washington. Uncertainty is a problem, but very certain over-
regulations are a problem as well. So I hear you and I
empathize with you, and I will tell you, when I am out a lot
doing town halls or talking to folks out there, there is a real
``big against small'' feeling in this country. Big businesses,
big banks seem to be doing just fine. Small businesses,
community banks, are struggling.
When it comes to this issue in particular, high fuel
prices, big businesses can take advantage of sophisticated
financial tools to try to leverage or hedge against rising fuel
prices. I don't think our small businesses have the same
ability. So big businesses have tools that they can use to try
to combat these.
What do you all do? If you can't use fancy derivatives and
hedge against rising fuel prices, what strategies do you use to
try to combat high fuel prices?
And that is for all of you. Does anybody have a short,
quick, interesting answer?
Mr. Sade. Yes. I would like to answer that, Joe. It really
is, as I testified, a Catch-22 because, for an example, for us
to hedge on surcharges, we will go buy more raw materials--for
example, trucking. We will get a truckload of steel versus a
half a truck, which I have to go borrow money to do that.
Chairman Walsh. Yes.
Mr. Sade. And the lending in this country for small
businesses is terrible. So we are constantly chasing that tail
of trying to balance our business, working with the banks, and
then adjusting for these fuel prices, because a lot of my
customers are big corporations, and I have contracts with them.
I can't raise prices. I can't pass that through on a yearly
contract. Therefore, we eat it, and we can't continue to do
that. We just--you know, the margins aren't there.
Chairman Walsh. Mr. Kerr, because of your unique client
base----
Mr. Kerr. For us, the additional costs that we had, what it
ended up meaning for us was although we grew 80 employees over
this 5-year period, there are five to ten more people we could
have hired that could have had health insurance who would have
purchased more vehicles. Down the road, it has forced us to
hold back on some of those investments. As a result, what could
have been even greater employee growth was stymied.
Chairman Walsh. Mr. Zuber, Mr. Smith, again, you are not a
big old sophisticated corporation. That's a good thing. They
can hedge and do different things. What sort of tools do you
all have to try to combat and leverage against this?
Mr. Zuber. The only option I have is I am a one-truck
operation leased to a carrier, and all I can do is work on the
truck myself instead of having it worked on. I try to cut costs
like that. I work on my truck to turn it more fuel efficient.
Chairman Walsh. And if you have to work on that truck
yourself, what does that take you away from?
Mr. Zuber. It takes me away from my family life, and my
wife gives up, my kids give up. Health insurance is hard to
come by, that you can use. I mean, yes, it is very hard,
especially the family life and the extra added work that I put
into it, and then the compensation is not there.
Chairman Walsh. Mr. Smith.
Mr. Smith. Lower margins, reduced labor don't pay raises.
Chairman Walsh. Yes. It has to give somewhere.
We mentioned how fuel prices have increased roughly 93
percent since President Obama got elected. They have begun to
come down a bit. Are we still on the high end?
Mr. Zuber. Yes, they are.
Chairman Walsh. Don't you love it when I ask easy
questions?
Mr. Zuber. Was that rhetorical?
Chairman Walsh. Well, that was whatever you want to call
it.
We are still up there, aren't we?
Mr. Zuber. Yes, we are, very high. I think we need to
depend more on domestic drilling. I think we need to cut some
regulatory red tape to try to get more domestic drilling, and
not only rely on oil and diesel but maybe in the small, the in-
town communities, like the landscapers that deliver, don't
force it on them. I don't want any mandates. But use maybe
natural compressed gas. They are getting a lot of those around
the area, but they are starting to put them in. They are not
able to be used over the road very well for a lot of drivers,
but cut it that way, and cut the regulatory red tape to build
refineries, invest some of our money off the domestic oil that
we capture to invest in alternate fuels, and try to get the
price down, become self-reliant again in this country.
Chairman Walsh. You will never work in Washington. You are
making much too much sense.
Gentlemen, $3.60, $3.70, $3.80 a gallon, this is still
hugely difficult for your companies, your businesses?
Mr. Sade. It is not only difficult just from the fuel, but
you have got to understand, any time there is this fluctuation
with a barrel of oil, it affects our production costs because
we use oils in our manufacturing process, and that is the other
part of the equation that affects small businesses like mine,
that we use oils and lubricants and cleaning solutions and that
type of thing.
When oil gets to $100 a barrel, we see significant
increases, 50 percent sometimes, in just oils that we use in
production, lubricants.
Chairman Walsh. Mr. Smith, historically for you, this is
high end right now, this is on the high end?
Mr. Smith. Yes. We are currently, I think this week, the
fuel surcharge for one of the companies that we deal with a lot
is 15 percent. So that is still, that is $150 on a $1,000 load.
That money comes out of somebody's pocket, and generally
speaking it can't come out of our customers' pockets because
they don't have any more money to pull out of their pockets.
Chairman Walsh. Maybe I didn't hear you right. Did you
testify that this is the first time ever you've had to put a
fuel surcharge on your deliveries?
Mr. Smith. This is the first time that we have done it as a
company for our own local deliveries that we do with our
trucks.
Chairman Walsh. Okay. Mr. Zuber, answer me one question
about the trucking industry in general. Has it become more
consolidated? Is it tough for the one, two, three, four truck
shops to make a go of it? What's happening to the smaller,
smaller, smaller companies in the trucking industry?
Mr. Zuber. Well, it is very tough for even the 100-truck
operations. The problem is the fuel surcharge is not able to be
passed on, and the operators eat it, and the problem is we are
giving tax breaks, grants to the bigger companies that have the
legal departments to swoop in and grab those grants that we
know nothing about.
Chairman Walsh. What is--educate me--a 100-truck operation?
Is that considered small? Medium?
Mr. Zuber. That is small.
Chairman Walsh. That is small. Okay.
Mr. Zuber. Yes. But, you know, we just do not have the--if
we pass it on, we pass it on to everybody in this room. We have
to pass it on to the consumers. They can't afford it. We can't
afford it. But with the breaks that they are getting, they are
not only getting breaks with grants and stuff like that. I pay
a certain price for a gallon of diesel, whatever is on the sign
out there. They may get 20 to 30 cents off of that as a big
corporation. Tires are the same way, so on and so on,
everything they use. They get such big breaks, it is hard for
us to compete as owner-operators.
Chairman Walsh. And we hear that across industry.
Mr. Zuber. Could I say one more thing?
Chairman Walsh. Oh, you have got the mic.
Mr. Zuber. It is funny. I started in the early 80's as a
truck driver. I made almost--I actually took home more money.
But back then, you could buy diesel for 89 cents a gallon.
Today it is $3.90. I made 95 cents to $1.00 a mile back then. I
make an average of $1.02 a mile, plus fuel.
Chairman Walsh. Wow.
Mr. Zuber. It doesn't come out. It is hard to raise three
kids, a wife, and be happy.
Chairman Walsh. Wow, wow.
Mr. Kerr, again, you are unique at this table because of
what you do and who you are working with. Seventy-some percent,
as you said, is Medicare and Medicaid. Is it true that home
health care and ambulances are the last health professions
still making house calls?
Mr. Kerr. Largely, that is true. I mean, there are still
small physician groups that do that, but they are the exception
rather than the rule.
Chairman Walsh. And home health care has experienced
Medicaid reimbursement cuts?
Mr. Kerr. Medicaid and Medicare.
Chairman Walsh. Medicare?
Mr. Kerr. Medicare has been significant, and this
competitive bidding that I spoke about, just to take a minute
or so on that subject. Right now, there are approximately 35
million people in the United States that have Medicare. The
Obamacare plan is going to take that number to about 70 million
people on those government rolls. The costs associated with
this program of competitive bidding where in the first nine
cities they eliminated 87 percent of the competition--and, by
the way, that 87 percent that was eliminated were small
businesses----
Chairman Walsh. Right.
Mr. Kerr. If you take that going forward, it seems counter-
intuitive. You are going to take double the demand, and you
have reduced the supply by 87 percent. So your area that you
live in, McHenry, we service that area from our place. So in
metropolitan Chicago, there are about 100 companies that do
what my company does. Take that down to 13, and it exacerbates
the fuel situation. We now have to drive--we have broadened the
geographic density, and we now end up having to drive farther
to provide those services. So the amount of fuel that we are
going to consume becomes grossly inefficient.
Chairman Walsh. Now, health care and Obamacare will
probably be a fairly interesting topic this week. But with
these Medicare cuts, and with these rising fuel costs, in your
mind, what is this going to do to folks' access to health care,
especially home health care?
Mr. Kerr. Well, certainly a lot of the extra services that
personal service companies provide are going to be diminished,
like one of the examples I talked about. We are just going to
have to eliminate any possibility of being customer or senior
citizen friendly. If the option is to go out of business or
stay in business and reduce some of those services, that is
another rhetorical question I suppose.
Chairman Walsh. Oh, we are full of them.
Mr. Kerr. Right.
Chairman Walsh. Isn't it fascinating to everyone this
pattern here of big versus small? You can almost go down every
industry, and big businesses and big corporations generally
have capital, generally are sitting on capital. Generally,
government tends to create rules to take care of them, and it
is the smaller businesses that take the hit.
A couple of general questions for everybody, and then we
will call it a morning.
Actually, Mr. S&S Hinge, I want to ask you one quick
specific. Do you compete against foreign imports?
Mr. Sade. Yes.
Chairman Walsh. Okay. What are fuel prices, how are they
helping you in this competitive environment, or hurting you?
Try to just take 30 seconds.
Mr. Sade. One of the issues is that, as you well know--you
have been to my plant. Over the years we have tried to, what we
call, China-proof ourselves with technology and innovation.
However, the big-box guys do buy quite a bit of hardware from
Asia. The good news there is that some of this is coming back
to the States, and when it comes to manufacturing, because of
the higher transportation costs and fuel costs, I can't go and
sell my product in China anymore just for the fact of shipping
it there outweighs the cost of manufacturing costs. So
exporting has become more difficult. But again, on the flip
side, we are seeing more activity come back.
Chairman Walsh. Two quick general questions, and then we
will wrap. The price of gas at the pump has moderated a bit the
last couple of months. Demand for gas is down. I mean,
Americans are hurting. So on the demand side, there is not as
much demand. We are not driving around as much. The economy is
struggling out there. Folks are struggling.
Give me your quick take right now on where you see things
in this country economically. Let's start here and go down the
row quickly.
Mr. Zuber. Where are we at now?
Chairman Walsh. Yes, where are we at right now.
Mr. Zuber. We are at a point where jobs are being lost. If
there are no consumers to buy my products--well, not my
products but the products I haul, that means less loads for my
truck to haul. That means more trucks trying to haul the same
load. The prices are going down. The fuel is still up. You
know, only so many can live on that top tier when you have got
the bottom tier working and supporting the top tier. If we
don't do something, I look for it to crumble.
Chairman Walsh. Mr. Kerr, what do you think? You are out
there. Where do you think we are at economically right now?
Mr. Kerr. I think it is kind of the--you are familiar with
Atlas Shrugged? It is much like that. The idea of innovation
kind of goes by the wayside. People that were formerly in
businesses where you had very thin margins to begin with,
margins continue to erode. There becomes no more motivation to
be involved in that business. In Atlas Shrugged, people just
start disappearing, and I think we will see that, at least in
that microcosm.
Chairman Walsh. Mr. Smith, where are we at right now
economically?
Mr. Smith. We are still on the bottom and treading water. I
see glimpses of hope, and then they go away just as quickly as
they show up.
Chairman Walsh. Yes. Where are we at right now?
Mr. Sade. Oh, boy, good question.
Chairman Walsh. Thirty seconds.
Mr. Sade. Washington has got us stifled. The economy is
just--you know, the leadership and what is going on. As you
well know, I am very much active in some other politics, and I
think that there are trillions of dollars on the sidelines.
Everybody is waiting to see what happens, obviously, with the
election, and regulation has been killing us. So it is very,
very slow.
Chairman Walsh. Okay, last quick question, bullet answers.
Anything you advise me to do? Let's pretend that I can take to
Washington, when I go back tomorrow, and we will turn it into
law. When it comes to high fuel prices, what is one thing you
would like to see your government do to improve the situation?
One thing. Start with Mr. Zuber.
Mr. Zuber. Cut the regulatory red tape and start becoming
more dependent on our own oil and resources in this country.
Chairman Walsh. Mr. Kerr.
Mr. Kerr. Increase supply in whatever way that we can do
that, whether that is additional drilling or what have you.
Chairman Walsh. Additional drilling.
Mr. Smith.
Mr. Smith. Same thing, additional drilling, more supply.
Chairman Walsh. Mr. Sade.
Mr. Sade. Approve the pipeline.
Chairman Walsh. Approve the pipeline. You did that in three
words.
Thank you. Thank you all. My closing thought is we are
treading water right now. We are barely treading water. Things
out there are so much worse than people in Washington realize.
Our unemployment rate is not 8.2 percent. It is higher than
that. Every quarter we have adjusted our growth numbers down.
It is difficult to say we are even limping along. We are--you
used Atlas Shrugged. The metaphor, and I think it is an apt
one, the metaphor I use is, look, this is the most innovative,
entrepreneurial, go-get-'em, energetic country that men and
women have ever created, and right now it is like Gulliver's
Travels. It is like we are laying down on our back, this great
American engine and this great American economy, and we are all
tied up. We are all tied up by all these regulations, by all
this red tape, by all these taxes, by all this new big health
care thing that was thrown on us, and the American ingenuity
can't get up. It is like we are on our backs, and this isn't
rocket science.
We try to complicate things in Washington all the time. You
create jobs. All you want Washington to do, I think, is lay
down some simple rules and then get out of the way and let you
do your thing. Unfortunately, that is not at all what we, what
Washington has done the last three to four years.
As I say every time I am with you all, with small business
heads, my first and only instinct is to apologize. I think, Mr.
Zuber, Mr. Kerr, Mr. Smith, Mr. Sade, I apologize for
Washington because you all have a target on your back. For some
reason this administration, for some reason too much of
Washington wants to just go at you and make your lives
miserable, and for that I apologize.
I want to thank you all for being here today. If it were up
to me, I would hold 10 field hearings for every hearing we hold
in Washington. We would get people out of Washington, coming
out here in this great country talking to people as well, so
that folks who don't ordinarily get to Washington can listen.
But we learn more when we listen to you and hear from you.
So thank you all for coming. You have, I believe, provided
great insight into this issue of high fuel prices. Your written
testimony will go to the committee and we will study and
continue to work on the things that you all are concerned
about.
I ask unanimous consent that members of this committee have
5 legislative days to submit statements and supporting
materials for the record.
Hearing no objection, so ordered.
Chairman Walsh. Without objection, then, this hearing is
now adjourned. Thank you for coming.
[Whereupon, at 11 a.m., the Subcommittee was adjourned.]
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