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Falling Gas Prices Can Mean Rising Business Profits

By Sherri Parrish Crawford, posted Jan 16, 2015
John Fortuin, the City of Wilmington’s fleet manager, stands at the city’s fueling station. The drop in gas prices has helped the city, as well as other businesses, keep their budgets on target. (Photo by Chris Brehmer)
Thanks to a trend in falling gas prices, some Wilmington area businesses are boosting their bottom lines. The downward price slide, however, needs to stand long term, for larger companies to really gain the benefits.

But short term, businesses that rely heavily on fuel consumption for operations are getting what some say is welcome relief. Not so long ago, soaring crude prices forced budget cuts for some and added fees, such as fuel surcharges, by others.

One local business that’s reaping lower fuel price rewards is Seahawk Towing. A small-sized operation, consisting largely of a diesel-engine tow truck and a gas-powered service van, owner Michael Ahouse can keep tabs on company savings fairly easily.

Whereas as a tank fill up (from a quarter of a tank reserve) for the latter used to run in the $80 range, it’s now around $47 dollars. With that “40 or so percent savings,” Ahouse said, it’s comparable to getting a promotion at work.

“It’s almost like getting a raise, with the extra savings I’m seeing,” he said. 

Cheaper fuel prices are boosting his business in another way – more service calls. Since it’s been more affordable to drive, he said, he’s seen an increase in the amount of traffic on area roads. More traffic relates to more vehicle breakdowns and accidents, which means more business
for his company and others in the towing industry.

“When gas was $4 or more a gallon people went out a lot less, so now that there’s more traffic, there’s a lot more wrecks,” he said.

With the savings that Ahouse’s business has seen, it seems that businesses with more vehicles would see even larger doles, but there’s other factors to consider. With more manpower, a larger fleet and more ground to cover, Hooked-Up Towing owner and operator Mark Gabriel said his company’s fuel savings are offset.

Based in Wilmington, with an additional office and service area in Hampstead, Gabriel recently expanded to cover Jacksonville.

With more service calls to handle there’s more mileage to cover, plus overhead has increased.
“It’s added about 15 [more] calls on average per day, ranging from light service like jump starts, and tire changes, to winching and towing services,” Gabriel said. “So I added two Hino 258 Carriers and a Ford Transit Connect light service vehicle to my fleet.” 

Considering that the Hino rollbacks have a 45-gallon diesel fuel tank, “plus a 10 gallon DEF tank, which is required for federal emissions on diesels starting in the year 2008,” Gabriel added, his fuel costs are about $7,500 a month. The windfall you’d expect from lower fuel prices gets washed out, he explained, since drivers are covering more area, which burns more fuel.

Like Gabriel’s company, fuel costs comprise a sizeable amount of operating expenses for the City of Wilmington – but again, there’s more than meets the dropping-fuel-price eye. With a fleet of about 600 vehicles, from police cruisers and hybrids to backhoes and street sweepers, the city’s current budget includes $2.2 million for fuel. The city even has its own fueling operation centers.

“Because our budget and the amount of fuel consumed is so large, it would really take a sustained, significant drop in prices for the city to realize savings that would have a significant impact on our operations,” city spokeswoman Malissa Talbert said.

But in the short term, Talbert said, savings “have been significant,” when you compare last month’s prices with those the year before. In December, the city paid almost a dollar less per gallon of gas than in December of 2013, and slightly more than a dollar less for diesel. 

What’s more, the downward pricing trend has helped keep the city’s budget on track. When gas prices rise, they can adversely affect the operating budgets in multiple departments.

“Our fuel cost projections remain on target for the year, which means it’s less likely that we’ll have to worry about not having enough money set aside to pay for fuel for the rest of the year,” Talbert said. “On occasion, when fuel prices are higher than expected, the city’s fuel allotments could run short before the end of the fiscal year, which means the departments have to absorb those costs elsewhere in their budgets.”

Short-term savings at the pump seem to be helping household budgets too. With gas prices averaging more than a dollar less at the end of 2014 compared to the same time in 2013, AAA says individual households saved about $115 on gas. Overall, Americans saved an estimated $14 billion last year compared to 2013, “based on monthly prices and consumption.”

Those savings are putting more drivers on the road, especially in North Carolina. The state’s end of the year holiday season travel hit record numbers for 2014.

“Falling gas prices and an improving economy has led to more North Carolinians traveling to celebrate the holidays and ring in the New Year with family and friends,” said David E. Parsons, president and CEO of AAA Carolinas. “The record number – 2,939,500 – represents an increase of 113,000 compared to last year.”

While holiday driving increased considerably statewide, it’s too soon to tell if there was a direct impact on Cape Fear-area tourism. Among the top five industries in New Hanover County, local tourism is measured by collected room occupancy tax.

“This is based on room rates, not actual occupancy,” explained Wilmington and Beaches Convention & Visitors Bureau spokeswoman Connie Nelson. “There is a six-to-eight-week lag between when the 6 percent room tax is collected and when New Hanover County reports it … so in that respect it is too soon to tell.”

As the national average price of gas has dropped for a record number of days (since Sept. 25), North Carolina’s – and the Wilmington area’s – average price is about 10 cents higher. That’s largely due to the state’s gas tax, which is among the 10 highest in the country.

Additionally, the gas tax rate rose a penny on Jan. 1. Now at 37.5 cents per gallon, North Carolina drivers are paying the highest rate allowed under current state law.  

If you’re wondering why the tax rate isn’t falling like gas prices, that’s due to timing. The new tax rate was based on an equation calculating a base rate with a six-month average on wholesale prices – this time between April and September. Gas prices didn’t begin their continuous downward trend until September.

As long as they continue the fall over the next few months, the next gas tax rate should follow suit.
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