How Might Rising Gas Prices Affect Your Business?
Elevated fuel costs are affecting everything from manufacturing to employee commutes. Learn how these business owners are offsetting rising gas prices.
By Julie Bawden-Davis
With rising gas prices currently sweeping across much of the U.S., there’s a good chance that your company will experience the effects in one way or another. Rising gas prices have a trickle-down effect on the price of many goods and services in a wide variety of industries.
“When fuel costs rise, producers tend to increase their sale prices,” says Brian McHugh, owner of McHugh Construction. He and his crew use half-ton or larger trucks that burn a significant amount of fuel.
“Our margins are better than businesses like retail, so we don’t currently have to raise our prices. If the increase gets dramatic enough, we would consider wrapping those expenses into the final sale price,” says McHugh. “In order to stay profitable, businesses with lower margins and price points are finding it necessary to increase prices or establish better purchasing terms.”
Effect of Rising Gas Prices
Michael Black is president of Goliath Trucking, a long-haul trucking company. Rising gas prices have had a profound effect on his business.
“Since our company is a direct consumer of high volumes of fuel, rising gas prices have caused a need for increased operating capital,” says Black. “The additional cash required to operate adds up quickly.”
It’s hard for businesses to escape the effects of rising gas prices, adds James Cassel, chairman and co-founder of investment banking firm Cassel Salpeter & Co.
“If your company produces or uses petroleum-based products, such as plastic, costs will increase,” Cassel says. “Freight costs will also rise as many carriers add a fuel surcharge.”
Rising gas prices also make it more difficult for employees to commute to work, believes Robert Sadow, co-founder and CEO of Scoop. (The company works with businesses to create managed carpool programs.)
“Your employees have the onus of finding alternative, more affordable methods of transportation,” Sadow says.
Kamil Faizi, owner of Challenge Coins 4 U, which creates custom military challenge coins, agrees.
“Commuting eats into employee paychecks, which can affect your company’s bottom line,” says Faizi. “You may need to pay employees more to offset rising fuel costs.”
Rising Gas Prices Lead to Increased Operational Costs
As fuel prices increase, it’s likely your business will have to absorb the added costs.
“Many companies will need to compensate for rising fuel costs by raising prices, especially if the increased gas prices continue,” says Hanna.
Increasing costs to the consumer will be necessary for Black.
“The margins in the trucking industry are too tight and competitive to take on the added fuel cost,” he says. “Increases must be passed along on the freight bill, which ultimately leads to the consumer paying more for products.”
To minimize the cost of rising gas prices, here are several countermeasures you may want to use at your company.
Adopt a work-from-home program.
At Challenge Coins 4 U, rather than spend more on employee compensation to offset rising gas prices, the company implemented a work-from-home program two days a week.
“As a way of handling rising gas prices and employee commutes, we allow employees to complete their work at home,” says Faizi. “As long as their work is being completed in a timely manner, there is no problem. I have found this to be an effective strategy that has never let me down.”
Start a managed carpool program.
“Managed carpool programs help consumers save on gas costs and offer the added benefit of improving employee-to-employee relationships and limiting employee attrition,” says Sadow of Scoop. “For instance, carpools can introduce people who ordinarily might not interact at work, which creates an increased sense of community in the office.”
Sadow suggests implementing an employee carpool system to offset rising gas prices sooner than later.
“Get something going as soon as possible so that the program can grow and scale,” he says. “It’s much better to add people to an existing program than to build one from scratch when you have hundreds of employees.”
If you don’t have many employees interested in carpooling, Sadow suggests pairing up with companies in your area.
“If a handful of companies get together and implement a solution across their organizations versus simply their own, they’ll better use existing resources and won’t compete for parking,” he says.
Examine fuel efficiency.
If your business involves transportation, you can help minimize the effects of rising gas prices by taking a close look at the various elements that affect fuel efficiency.
For instance, consider streamlining routing and dispatch. The shorter the routes and better informed the drivers, the less fuel your company vehicles will use. Dispatchers that track traffic in real-time can reroute drivers for better fuel efficiency.
“Ensure that the route is planned in the most efficient way possible and that the trucks are packed full for shipping,” says David Lecko, CEO of DealMachine, an app for real estate investors interested in off-market properties. His company uses drivers who report potential properties.
Other factors that affect fuel efficiency include vehicle speed, how often and for how long a vehicle idles and how well-maintained the vehicle is. Regular maintenance can improve fuel efficiency.
“Proactively manage the risk of rising gas prices by taking into consideration the effect of price changes during the budgeting process,” says Hanna. “When developing budgets, complete sensitivity analyses to identify how changes in key inputs or outputs impact the bottom line.
“Use these analyses to develop action plans,” continues Hanna. “By proactively developing a plan, business owners will be better equipped to manage fuel increases and other changes that might impact their bottom lines.”
It’s also possible to offset rising prices by increasing the purchase of products or raw materials now that are used by your company, believes Cassel.
“Try to hedge or buy futures, if available,” he says.