business

The high price of oil is hitting consumers' wallets with each trip to the gas station or grocery store.

But the effect of $110 per barrel of crude oil doesn't stop there. Take a look around and chances are that many of the items in the room are partially made of petroleum -- from carpet fibers, synthetic fabrics, lubricants and mattress foam to most anything plastic.

Unlike the prices on necessities such as food and fuel, manufacturers and retailers are loath to pass on the increasing cost of discretionary goods to consumers. But energy and retail analysts say 2008 could be the turning point, when companies facing shrinking profit margins and soft consumer spending will have no choice but to raise prices and hope customers keep buying despite the unsteady economy.

To cope with squeezed profit margins and slower sales, companies will try logistics, sourcing, and shipping changes before price increases.

For instance, to ease the pain from the spike in diesel fuel used by trains and trucks, retailers might ship less frequently or source closer to home, said Piper Jaffray retail analyst Jeff Klinefelter.

"Everything moves by truck, rail, or jet," said Tom Kloza of the Oil Price Information Service. He said high diesel prices get lost in the consumer-focused fuel debate, but they're four to five times higher than in 2002 and $1 higher than in 2007. He doesn't think consumers have felt those increases yet.

Fuel surcharges are becoming the norm for companies and for individual travelers, said Thrivent energy analyst John Groton. Delta Air Lines recently increased its fuel surcharge by $5 each way. As jet-fuel prices have soared, Northwest and other major carriers also have imposed fuel surcharges on certain routes.

Manufacturers also are changing designs and packaging to reduce costs. For example, water and pop bottles are being made with thinner plastic, said Frank Esposito, a reporter for the trade publication Plastics News. Some manufacturers are using substitute materials such as waxboard for ice cream cartons, he said.

Since late 2002, the price of high density polyethylene used to make milk bottles is up 144 percent, according to Plastics News. In that same span, the price of plastic used for pop and water bottles is up 65 percent. PVC used to make plumbing and sewer pipes is now 111 percent more expensive. Esposito pointed out that plastic prices have been high since Hurricane Katrina, which hit the epicenter of the nation's plastics manufacturing industry along the Gulf Coast in 2005.

For others, squeezed profit margins mean leaving the business. Last year, General Electric sold all its plastic businesses and Dow Chemical unloaded some it owned to Middle Eastern companies with cheaper, easier access to oil and natural gas.

"Fewer and fewer plastics will be produced here long-term," Esposito predicted. Those that are sticking with the business are considering natural alternatives -- plastic made from crops such as soybeans and corn. Those alternatives would appeal to a consumer set that is saying no to plastic bags at grocery stores and to disposable diapers with plastic linings, citing geopolitical and environmental concerns, not cost.

If he were a betting man, said Kloza of the Oil Price Information Services, he'd bet crude oil, jet fuel, and diesel would decline in price shortly, but he expects gasoline prices at the pump to rise as high as $3.75 a gallon.

Kara McGuire • 612-673-7293