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Is Your Business Ready for $5 Gas?

| Wednesday December 29th, 2010 | 6 Comments

Word on the street is that, come 2012, $5 may be a commonplace price for a gallon of gasoline in the United States. Specifically, John Hofmeister, the former president of Shell Oil, made the claim in a widely circulated interview yesterday.

The primary reason, he argues, is simply the enormous growth in demand (from China & India especially) coupled with some degree of economic recovery over the course of 2011. I’m inclined to believe him on that. He also goes on to blame US politicians for not opening up more areas for drilling. I’m inclined to downplay that part (what would ANWR save? A nickel?). Regardless, with gas already much higher than it was this time last year, an upward trend seems more likely than the opposite.

The question remains then: What are you going to do to make sure your business can keep thriving?

Obviously the answer depends radically on the type of business. A delivery service is going to face major cost increases, whereas companies which are built on providing efficiency solutions (take ATDynamics for example) stand to benefit hugely form high gas prices. But there are probably some generic rules of thumb to work with:

1) Assume this trend isn’t going away any time soon.
Five dollars seems like a lot, but the price of most traditional energy sources is bound to keep rising. Assume a $5 price and then redo calculations – particularly as it pertains to capital expenditures like fleets of vehicles.

2) Employees need a hand.
Employees are often hit particularly hard by high gas prices. Can yours bike to work? Is it encouraged or celebrated? Is your office located in a convenient downtown location or in a fringe parking lot?

3) Efficiency = profit
Penny saved, penny earned. Remember when UPS eliminated most left-turns? Although it took complicated software, it’s exactly the kind of genius idea that could turn up anywhere if you know where to look.

4) Location, Location, Location…
Are you located in a far flung suburb requiring long commutes and delivery times? Perhaps that should be reconsidered?

5) Embrace Innovation
One of the good things about high gas prices is that they’ll drive innovation into other fuel sources and other modes of transportation. There are countless business opportunities to be had making it easier for people to avoid driving. Diversify and find the aspect of your business affected least by gas prices and see if there are expansion opportunities there. Or start something new!

I’ll be digging into this issue a little deeper in the coming weeks! What are some other ways to mitigate or even profit from higher gas prices?


▼▼▼      6 Comments     ▼▼▼

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  • GreenJobsGuru

    I would love gasoline at $5/gallon. It’s not coming fast enough!
    People would buy more hybrids, more small fuel-efficient cars, and less gas-guzzling SUV’s. Ten of thousands of green jobs would be created!

    It would put this country on a faster path to energy independence, which is good for the economy and national security.

    See the discussion on my site:
    http://www.thegreenjobbank.com/stories/gasoline-price-at-5-gallon-in-2012-i-love-it

    • Mael

      I totally agree…

      The problem is the drooling hordes out there will blame Obama and vote for someone who’ll open every last square inch of the country to drilling.

      UNLESS – we have leadership (Hello Mr President???) Who can show people that alternatives are on the way and that they are better. It’s not going to be easy, however.

  • http://www.cose.org/blog Tim Kovach

    Thanks for the post, Nick. This is an important question to consider now, while gas prices are still manageable, though increasing. Long-term risk assessment and management is essential for the success of any business, especially for small businesses that are in more fuel-dependent sectors. These types of small businesses are the ones that will likely get squeezed the hardest by increasing oil prices, so it is important for them to begin preparing for the worst case scenario now; there is no better time that the start of a new year to take this process on. While, as the first commenter noted, higher oil prices will likely decrease miles drive, which is certainly a social good, we must also not lose sight of the potential drag on the economy that this could present if small businesses – 99% of all employers in the US – are not equipped to handle this change. At COSE, we are working to help our members see the benefits of energy efficiency and sustainability, and this is certainly one of their major concerns. Hopefully more SMEs will recognize this problem and prepare accordingly, as our economy cannot recover without a strong small business community.

    - Tim Kovach,
    Product Coordinator, Energy Programs at COSE
    http://www.cose.org/blog
    http://www.twitter.com/COSEenergy

  • http://www.jamesolinda.com/blog James Olinda

    Great post! I’m curious to see where our economy starts going when things get even bumpier. Adversity breeds innovation, I’m just hoping it’s not to much for businesses to handle. I would disagree with you about U.S. drilling sites. I think if you combine ANWAR, the Gulf and other minor sites you start making a dent in imported oil. Not to mention, a penny saved in this case is a couple of jobs for hard hit Americans.

  • Sheila Samuelson

    Fantastic post, Nick! Companies (like your UPS example) that have been working on efficiency for some time will have the competitive advantage of at least some insulation from increases. Yet, even companies currently lagging in this area can become leaner – as Dana Meadows said, “We have exactly enough time, starting now.”

    Interestingly, there have been several recent announcements about companies moving major operations and staff from offices on the outskirts of town to downtown locations in both Iowa City and Cedar Rapids, Iowa. I thought this was an excellent move even before the predictions on fuel prices, and even more so now!

  • Michael Whitehead

    Here in the UK we pay well over $8 per gallon of fuel (petroleum), so it’s a little hard to empathise. The UK government imposes massive taxes, in the region of 70%, on fuel. The dis-incentive to drive is no more apparent than when I travel over to the States; at the USA’s rock-bottom prices for fuel I’m a devil-may-care on the roads!