U.S.-Iran war ‘tax’ begins to hit American businesses and consumers

Nick Friedman, co-founder of Tampa-based College Hunks Hauling Junk and Moving, says his business has been facing multiple headwinds. High mortgage rates have dampened the real estate market, while rising insurance premiums are eating into operating costs. Now there’s the U.S.-Iran war and a surge in diesel fuel prices that is eating into profit margins. Yet, he doesn’t feel like he can raise prices. 

“We are in a bit of a Catch-22,” said Friedman. “Our fear would be if we start raising prices it will hurt our customers.”

Bigger companies, he says, can probably get away with adding fees. As rapidly rising fuel costs are cascading across the American economy, that is exactly what some are doing.

United Airlines and JetBlue both raised prices on baggage this week. Amazon announced a 3.5% “fuel surcharge” on sellers.

Amazon described the surcharge as “meaningfully lower” than levies applied by other major carriers in a statement to CNBC. JetBlue said as operating costs rise, it “regularly evaluates how to manage those costs while keeping base fares competitive and continuing to invest in the experience our customers value.”

For Friedman, that evaluation isn’t easy. “If you have to fly, you have to fly,” he said.

But as Friedman’s moving company considers whether to raise prices, “I don’t know that we have that luxury,” he said. Customers can choose to trade down to a moving service that is cheaper and maybe less protected, or even assemble some buddies with pickup trucks to help with a move, leaving Hunks’ 2,000-truck fleet increasingly idle. But filling up the trucks with gas is also an expensive proposition. 

Friedman says that historically, fuel has taken 3 to 5 percent of revenue as an expense line item, but has doubled to 6 to 10 percent since the war started. “It is very difficult from a business perspective,” Friedman says. Hunks runs on a franchise model with over 200 locations, putting many franchisees in precarious positions. 

While Friedman’s business is uniquely exposed to the war with its reliance on trucking, higher diesel and jet fuel prices are about to hit a lot more businesses. 

“Discretionary spending is typically where the cycle starts. Consumers pull back from items which are discretionary first,” said MassMutual Wealth chief investment officer Daken Vanderburg. 

Vanderburg says higher energy prices act as a tax on consumers because they ripple across so many goods and services. If the war and its disruption is short, consumers will dip into savings and weather the higher costs. But a longer-duration conflict will cause consumers to cut back. “That slows growth and hits spending, and does it quite quickly,” Vanderburg said. 

While many in the market were expecting