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How are increasing fuel prices impacting Small Businesses?

Fuel prices keep hitting new record highs. A couple of weeks ago, Reuters reported the original record of the national average price of a gallon of gasoline went from $4.331 to $4.374, but within two days of that report the record was beaten again, twice, reaching a high of nearly $4.42 a gallon.

How did we get here?

There are a lot of factors contributing to these sky high prices. One of the key reasons is supply and demand. For the past two years, demand for fuel has been significantly lower due to the more restricted lifestyles of the coronavirus pandemic. Now that people are freer to move around, demand is rising fast, but supply can’t keep up.

Nationally, there are fewer barrels of gasoline to go around; 2.2 million fewer, to be precise. This is partly due to the increasing price and decreasing availability of crude oil, caused in part by reduced oil purchases from Russia due to the war in Ukraine. But it’s not just the USA. Over the past two years, the world has lost 1.5 million barrels worth of oil supply, according to CEO of HF Sinclair Corp Mike Jennings.

The second supply problem is that there aren’t enough refineries for the oil we do have. Refineries have closed for scheduled maintenance, and others due to unforeseen circumstances. What’s more, the refineries that are currently operating are prioritising the production of jet fuel and diesel, 10% of which are traditionally supplied by Russia, also unavailable due to the war and related global sanctions.

After supply problems, another reason for higher prices is tax. Federal taxes add roughly 18 cents per gallon to fuel prices, and states add their own taxes on top of that. Amounts vary from state to state, but it averages out at 31 cents a gallon. These taxes are becoming a lot more noticeable now that the base price of oil has risen so high.

Impact on Small Businesses

The first and most obvious impact is the cost of shipping. Small businesses that ship goods to consumers, especially those that manage their own deliveries, are having to spend a lot more on running their delivery vehicles. This is especially hard for mobile food service, like the food truck owned by Ozark small business owner Jeremy Mathis, which depends on fuel to stay profitable.

For businesses that don’t deliver their products, receiving supply and materials costs more too. The diesel that powers the trucks, ships, barges and trains that deliver raw materials and ingredients to small businesses is more expensive too, and many shipping companies are raising their fees to keep up with the loss. This means food services businesses like the Tasty Pastry Bakery in Tallahassee, FL are paying more for the eggs that go into their cakes, and more for the trucks that deliver them to customers.

Offsetting the rising cost of fuels is the main challenge facing small businesses at the moment. Do you recoup the losses from the customer, the staff, or the owner? Rising inflation has already impacted small business staffing, this increased pressure could make retaining full-time staff even harder.

For hourly employees, rising fuel costs could make the difference between showing up for work or not. Hourly staff may be looking for jobs they can walk to, especially if the cost of filling up your tank to commute to your job is higher than the wage you’d earn while you’re there.

What is being done to lower fuel costs, and is any of it working?

The Biden Administration is working to boost domestic fuel production. Fuel companies are being encouraged to drill more, and investments are being directed towards refineries. However, some believe this is too little too late, and that even if this approach did work, the dividends won’t be seen for years. A cut in fuel tax is a potential lever the Federal and State governments could pull, though there is little sign of that happening anytime soon.

For now, President Biden’s financial policy is focused on decreasing inflation, partly via investing in clean energy and transport. As a result, right now it’s looking likely that fuel prices will stay high, and perhaps even rise, in the near future.

In the meantime, save money and hire hourly workers with Snagajob.

For a limited time Snagajob is offering small businesses 25% off their first job post.

Tom Quinn |
Tom (he/him) is a growth marketing manager at Snagajob helping small businesses find hourly workers.