Businesses Brace for Pain as Gas Prices Soar: “No Margin Left”

Standing outside her Portland, Oregon, clothing store, Paloma Clothing co-owner Mike Roach eyes one of the city’s most expensive gas stations, just across the street and to the right. The price displayed is visible to his customers: $4.85 per gallon.

“People are going to be shocked when it goes over $5,” Roach said. Consumers are weary, and raising prices is not a viable option for American retailers. They are doing everything they can to avoid it.

CNN spoke with four business owners – a clothing store owner, a baker, a trucker, and a manufacturer – about how they plan to cope with the rapidly increasing cost of fuel.

“We have no control over consumer confidence; we only have control over the price we sell to them,” said Roach, who has co-owned Paloma with his wife, Kim Osgood, for 50 years. “So, we’d rather make less money per item than raise prices.”

Roach anticipates higher fuel surcharges hitting him at any moment. His plan is to absorb those increases, offsetting the growing transportation costs from his own profit margin. Approximately half of the clothing Paloma sells is imported, arriving from ports on the East or West coasts and then transported along the coast or across the country by UPS truck. These shipping costs typically represent a modest expense covered by the “keystone markup” – a common retail strategy where wholesale prices are doubled at the register, with overhead covered by that difference.

However, if the surge in gasoline prices mirrors the 2022 spike – when diesel soared to a record $5.82 a gallon following Russia’s invasion of Ukraine – Roach expects fuel surcharges to soon consume a significant portion of his revenue. He is unwilling to pass that cost on to product price tags, fearing the impact on overall sales volume.

“Customers need to have some level of confidence in the future to walk through our door, be tempted, and buy something,” Roach said. “I studied economics, but you don’t need a degree to understand that fewer products will be sold at higher prices.”

Paloma has spent five decades building customer trust, including a long-standing no-questions-asked return policy. However, foot traffic has declined, and return rates have increased. Roach believes his customers have limited room to maneuver. “We’re going to do everything we can to avoid raising our prices,” he stated.

If retailers are unwilling to raise prices, it puts wholesalers in a difficult position. “There was a time when supermarkets would absorb price changes, but those days are over,” said Nels Leader, CEO of Bread Alone Bakery, an organic sourdough bread company. “There’s no margin left.” This leaves small businesses, like Bread Alone, caught between difficult choices: absorb the cost, charge more to retailers, or make cuts.

Wholesalers and manufacturers are in a particularly challenging position, facing increased costs on both ends: raw materials are more expensive coming in, and finished products are more expensive going out. If diesel prices remain high, Leader anticipates applying a temporary transportation surcharge to supermarkets, which Bread Alone will remove as conditions allow. Maintaining strong relationships with customers and suppliers can support businesses navigate difficult times, such as this price surge.

Bread Alone has cultivated close relationships with local farmers and built a regional supply chain that has buffered it against rising transportation costs during price spikes. However, this strategy comes with its own challenges: more expensive ingredients that limit the range of products they can profitably produce. “In times like these, effort pays off,” Leader said. He added that consumers can benefit from a similar strategy. “Local offers more stability than global, and we don’t need oil to grow organic food.”

Shirley Modlin spent Thursday in meetings, searching for expense items to cut. Her small manufacturing plant in Powhatan, Virginia, relies on tungsten carbide tools for high-precision cuts. However, tungsten prices are particularly volatile during wartime, as it is used in armor-piercing artillery shells. The price of carbide tools has more than doubled in the last two weeks, Modlin said.

There is nothing Modlin can do about it. “My customers will not tolerate me raising my prices to cover the increase in our tooling costs,” said Modlin, owner of 3D Design and Manufacturing. “They don’t understand; they want the product. They say, ‘If you can’t give it to us, we’ll find someone else.’”

“Now, with the rise in gas prices, costs are higher for me, which cuts into my profits and makes it very, very difficult to stay in business,” she added. Modlin offers her staff competitive benefits and annual raises to retain and attract workers. However, last year, tariffs shook the American manufacturing industry, causing a surge in the cost of imported raw materials: Modlin’s aluminum and steel costs jumped 65%. She was unable to give raises last year. And on Thursday, facing another wave of rising costs, Modlin had to reduce one administrative employee’s hours from full-time to part-time, without benefits. “He has a mortgage to pay; he has bills to settle. It’s just terrible,” Modlin said. “We have to do something. We can’t retain cutting supplies from the break room indefinitely.”

Strong Pact Trucking hauls freight assigned to them by other companies, essentially taking on pre-existing contracts on an “ad hoc” basis. However, as fuel surcharges are a separate line item in the contracts trucking companies sign with their customers (the recipients of the goods), owner Kareem Miller does not receive any of that additional revenue for his Chicago-based trucking company. This means he receives no compensation for the increase in diesel prices. “You have to do the math and see if the operation is profitable,” Miller said. “Sometimes, you just have to park the truck until things get better.” This puts his workers in a difficult position, he said. “We make good money, but the problem is the fuel,” he acknowledged. “That’s why a lot of trucking companies like mine don’t survive in the long run.”