Summary: Rising gas prices are impacting small businesses in a number of ways. Find out why gas prices are rising, the effect of rising gas prices on small businesses, and what business owners can do to help save on fuel costs. Small Businesses Hit Hard by Rising Gas Prices
People across the United States are feeling pain at the pump lately, with the cost of gas surpassing the 2008 record and surging to
all-time highs. Although gas prices vary by state, it’s common for many areas to see the cost of gas rise above $4 a gallon. These rising gas prices are taking a toll not just on individuals’ wallets, either. Small businesses in various industries, many of which are just starting to rebound from the COVID-19 pandemic, also feel the impact.
Gas Prices and Inflation: Why are Gas Prices Rising?
According to the
U.S. Energy Information Administration (EIA), the price of retail gas includes four main components:
- Crude oil costs
- Costs of refining and profits
- Marketing and distribution costs and profits
- Taxes
The EIA reports that retail gas prices peaked during the week of March 14, with numbers representing a 22% increase since the week of February 21.
In response to Russia’s invasion of Ukraine, President Biden imposed a ban on Russian oil imports to the United States. However, gas prices had been rising even before Biden took office due to growing demand, financial strains on oil companies and new drilling. The price of oil, which has reached as high as $139 a barrel in recent days, has affected consumers and businesses to the point where they may need to make changes to their monthly budgets.
As of December 2021, energy accounted for over
7% of the U.S. Consumer Price Index (CPI), a common measure of inflation. The cost of crude oil, used as a key ingredient in some of the chemicals used to make plastic, will also impact the prices of many plastic products. However, since the 1970s, the relationship between gas prices and inflation has become less distinct overall. Still, there is no denying the correlation between the rising cost of oil and the cost of goods – and transporting goods.
How do Fuel Prices Affect Small Businesses?
Small businesses have struggled over the past two years of the pandemic, facing shutdowns and closures, dealing with supply chain issues and a
shortage in labor. Many business owners were hopeful that as time went on and COVID-19 cases decreased, they’d be able to get back to their normal operations.
However, the higher prices at the pump could affect the overall economy, including small businesses. When a larger portion of their income is spent filling the tank, people will reduce their spending in other areas. Consumers may find they have less expendable income for some of the goods and services they would normally purchase, or they will avoid driving as much as possible.
For small business owners, it can be difficult to continue operating as “business as usual” during periods of rising gas prices. Fuel prices affect small businesses in several ways, from their overhead expenses and available service areas to the pricing of their products. If fuel costs continue to increase, some companies might find they have no choice but to raise their prices and pass along some of the costs to their customers.
Small businesses that use vehicles as part of their daily operations, such as construction, transportation, maintenance and deliveries, will be obviously hit the hardest. These industries may be the first to administer extra charges to offset rising gas prices and help maintain their profit levels. Additionally, some businesses may begin to limit their service and delivery areas, targeting smaller regions to help reduce their fuel costs. Even
nonprofit organizations could feel the impact of both rising gas prices and inflation, with higher demand for products at food banks or services like Meals on Wheels, as an increasing number of the population could require additional humanitarian services, according to Parvathy Sree, Vice President of AmTrust Nonprofit Underwriting.
How Small Businesses Can Save on Fuel Costs
AmTrust’s Matt Zender, SVP of Workers’ Compensation Strategy, says, “As businesses feel the pinch on one side of their ledger, we encourage them to keep a long-term view of their operation. A corner cut here and there can lead to greater expenses down the road in increased insurance spend.”
Safety should always be top of mind, especially when it comes to operating a vehicle. Some of these key safety procedures can even help businesses save on fuel costs. Zender continues, “Like any operation, opportunities can reveal themselves in surprising manners. It is an appropriate time to evaluate route management, vehicle maintenance and many other areas that can help reduce cost. Additionally, making sure that vehicles are properly maintained can improve MPG (and lead to fewer fill-ups) while having the benefit of making them safer for your employees to operate.”
Along with regular upkeep, here are a few other things businesses can do to help offset the rising gas prices:
Keep tires properly inflated
The National Highway Traffic Safety Administration (NHTSA) says that keeping the tires on vehicles properly inflated can reduce fuel costs by up to 11 cents per gallon. Properly inflated tires also last longer and can extend their lives by 4,700 miles.
Provide training to help drivers avoid aggressive driving
Driving aggressively is not only dangerous, but it can increase fuel consumption. Make sure drivers are properly trained to reduce aggressive driving habits. These habits include braking too quickly, accelerating too rapidly, and turning corners too sharply.
Combine multiple trips into one
Fewer trips reduce fuel costs simply because drivers can be proactive and efficient, combining errands into a single trip instead of several throughout the day. One longer trip can reduce the amount of gas used by half, rather than many short outings where the engine must start and warm up every time. Plan trips in advance and cluster deliveries, tasks, errands and service calls into common regions to cut down on the number of trips taken.
Avoid heavy traffic times
Getting stuck in rush hour traffic is not only stressful, annoying and sometimes even dangerous for the driver, but sitting among barely moving vehicles burns a lot more gas, too. While the occasional traffic jam is unavoidable, encourage drivers to learn the shortest and quickest routes – and when the best time to travel them may be.
Maintain the speed limit
Zender says, “According to studies backed by the department of energy, a vehicle is less efficient as speed increases. At 75 miles per hour, studies show that vehicles are 23% less efficient than at 55 mph. Driving at slower speeds is more efficient for the vehicle and safer for the operator.” Additionally, driving the speed limit is safer for all those sharing the road.
Reduce the load
Clean out cargo areas, trunks and backseats to lighten the vehicle’s total load. A heavier vehicle uses more fuel, so decreasing the overall weight will help improve fuel efficiency. Make sure vehicles are only carrying what is absolutely necessary to their destinations.
Let AmTrust Protect Your Small Business
AmTrust is a leader in
workers’ compensation insurance for small to mid-sized businesses. Our customizable coverage, combined with our comprehensive
loss control services and
workplace safety resources, including
transportation safety resources, can help protect your business from the specific risks you face.
Contact us today to learn more.
This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.