A year ago, the average price of unleaded gasoline in the United States was $3.04, according to AAA. Since then, small business owners have been grappling with rising inflation, record-high rent and mortgage costs, and fuel prices averaging $4.59 for that same gallon of unleaded.
Why are gas prices rising, and how has it affected American small businesses? And what can business owners do to mitigate the rising cost?
Get Funded Now
The Effect of Gas Prices on Small Business
As previously noted, the current average gallon of unleaded gas in the United States costs $4.59. Prices range from $4.10 in Oklahoma to $6.07 in California. And that’s just for unleaded. If you’re operating a trucking company where diesel is your primary gasoline purchase, you’re looking at a national average of $5.53 per gallon.
According to data from the United States Energy Information Administration (EIA), Gas prices have been climbing steadily since hitting a low average of $1.93 in April of 2020, as the COVID-19 pandemic effectively cleared the roads. And unfortunately, those price increases have coincided with several other challenges for small business owners.
Of course, there was the pandemic. For many businesses, pandemic-era lockdowns meant a near-total disruption in revenue. Employees were sent home, supply chains were devastated, and small business owners had to struggle to keep doors open. Many did not. Since the nadir of the pandemic, American workers have quit their jobs in more significant numbers than ever seen before, known as the Great Resignation. On top of all that, it’s more expensive than ever to have a physical space: office rent rates are rising, and industrial rent and warehousing rent costs 10% more in Q1 of 2022 than it did in Q4 of 2021, per Statista.
Consumers are paying those high gas prices just like small businesses are, so their budgets are getting tighter. Without additional expendable income, consumers are forced to spend less money, which directly affects the income of small businesses.
In addition to businesses and consumers, employees face higher commuting costs, leading to a massive boon in working from home. If a business cannot support working from home, employees are more and more willing to leave for a company that does. This leads to needing to pay more for those employees to stay, compounding budgetary issues. These problems all impact one another, compounding their effects.
What’s Causing Rising Fuel Prices?
Put simply, gas prices are almost directly a result of current crude oil prices. To make gasoline, crude oil is distilled and the various elements that make up crude boil into vapor at different temperatures. Jet fuel, for example, boils off from crude oil at a higher temperature than your regular gasoline.
So we need crude oil to make gas. There are many reasons why barrels of crude have grown more expensive. The first is the pandemic. As noted, when the pandemic was at its most severe, people weren’t going anywhere. People not going anywhere meant that people needed less gasoline, so both the producers of gasoline and extractors of crude oil slowed production. There was simply no need to create vast amounts of petroleum products because demand was down.
But as lockdowns and other pandemic-era restrictions faded into the background, demand for gas rose. But since producers hadn’t been producing at a high level, there was simply not much product to sell. A lot of demand and little supply leads to high prices.
In addition to volatility as oil companies recalibrate to post-pandemic production, the Russian invasion of Ukraine has caused additional supply chain issues. According to the American Fuel & Petrochemical Manufacturers (AFPM), an oil trade association, the United States imported approximately 200,000 barrels of crude oil daily from Russia last year. That made up about 3% of total imports.
Losing that 3% of total crude oil doesn’t necessarily lead directly to the gas prices we see today, but losing a significant export partner in addition to the wide-ranging sanctions imposed on Russia by the Biden administration means that all the countries who’d been importing Russian oil are now buying elsewhere. It goes back to supply and demand again: the rest of the world is coming out of the pandemic, so fuel demand is increasing. And a country producing vast amounts of crude is no longer in play, so the remaining countries are driving up prices from the remaining producers.
How To Save on Gas
1. Optimize Delivery Schedules
The most apparent strategy is to use less gas simply. You can do that in a few ways. First, you can try to cut back on driving in general. If your business involves several deliveries, for example, you may want to schedule those deliveries so that you’re making multiple stops in the same area instead of taking multiple trips. If you run a restaurant, consider whether having a delivery option is financially feasible.
Unfortunately, some industries, like trucking, mean that using a large amount of gas is unavoidable. In that case, use another strategy to mitigate rising energy prices.
2. Buy Gas Strategically
Have you ever stopped at an intersection and noticed that gasoline prices on one side of the road are higher than they are across the street? Choose your gas stations wisely, particularly if you’re buying a lot of gas. If you’re buying a large amount of gas every month, the price of gas has a massive effect on your bottom line.
If you’re able to fill up at gas stations that are offering gas at just a slightly lower price, you’re going to save a ton of money, particularly if you’re in industry using a considerable amount of gas. A semi-truck, after all, can hold up to 300 gallons of fuel.
There are apps and websites used to track gas prices and lead users to the cheapest fuel. Gasbuddy is the most popular, but others, like Gas Guru and AAA’s Mobile app, can also help show you where the cheapest fuel is.
3. Use Business Credit Cards
If you’re going to have to spend outlandishly on high gas prices, you might as well let those high gas prices work for you. Many business credit cards offer rewards for gas purchases. For example, Bank of America’s Business Advantage Customized Cash Rewards credit card offers 3% cash back on all gas station purchases. Using that card for your gas purchases means you’ll be giving yourself an automatic 3% discount as you build credit for your business, allowing you to get better terms on your next business loan.
4. Get a Hybrid
At the earliest, gas prices are expected to rise and/or stay elevated well into 2023. In some cases an investment in new fuel-efficient hybrid vehicles may be a viable option. These vehicles partially run on battery power and can cut gas costs for their drivers drastically. Even hybrid trucks are out there, getting up to 25 miles per gallon at 430 horsepower (for Ford’s hybrid F-150). That fuel economy gets even better the smaller the vehicle gets.
5. Reduce Expenses Elsewhere
There’s always somewhere you can reduce costs to deaden the blow of high fuel prices. For example, if you’re looking at rising rent on top of the expensive gas, consider whether you can afford to go fully online or reduce your facility’s space requirements. Perhaps you’re realizing that there’s redundant staff on your team. Offering employees the option to work remotely can reduce facilities’ overhead costs.
6. Charge More
One last way to ensure that higher gas prices affect you as minimally as possible is to pass the fuel cost on to your customers. It’s not what you want to do, but it is logical. If it costs more to produce an item or travel to perform a service, it makes sense that your customers will pay more on their end too.
Some companies are even adding fuel surcharges to their receipts, an indicator that the price of a service hasn’t changed – the gas required to perform the service has. Using that fuel surcharge also shows customers that you will be willing to remove the surcharge for their continued business once gas prices are controlled.