Dealing With Gas Prices
If last season's mild winter didn't ding HVAC wholesalers' profits, this summer's fuel prices could do it.
After steadily climbing for the past six months, gasoline is expected to stay above $4 a gallon through September in much of the country. Some experts say prices during the next several weeks could hit record highs of almost $5 in some cities.
Economists are unsure what effect such prices would have on America's slowly expanding economy, but many distributors are more concrete in their assessments: It'll hurt.
"I don't want to say it's going to cripple us by any means, but it definitely hits the pocketbook, that's for sure," said Richard Leu, supply chain manager for Dayton, Ohio-based 2-J Supply.
Leu said he would not be surprised to see prices in 2-J's territory, which were already nearing $4 per gallon in late March, head substantially higher.
"I was told $5 by summer," he said.
With eight locations across three states and a 48-vehicle fleet, Leu said gasoline prices are a constant company concern.
Last year we went through 75,000 gallons," he said. "At $4.25 versus (prices) just four months ago, that's an extra $56,000 that we're going to be spending on fuel. It's a big number."
VOLATILITYExperts with the price-tracking website GasBuddy.com reported that all motorists can expect a volatile - and potentially expensive - summer when it comes to fuel prices. The company's most recent forecast, released March 27, said prices around Memorial Day - typically the unofficial start of the summer vacation driving season - could reach new highs in many metro areas. GasBuddy says a gallon of regular unleaded could cost almost $5 in Chicago, $4.50 in Detroit, $4.60 in Seattle and San Francisco, and up to $4.40 in Miami, New York and Philadelphia. All would set records.
"Motorists who drive an SUV may want to consider calling their banking institution and obtain a credit-limit increase so they can afford this summer's fuel expenses," joked Patrick DeHaan, a senior petroleum analyst with GasBuddy.
DeHaan expects the nationwide median price of a gallon of petrol to stay above $4 through June, before dropping slightly to $3.98 in July.
Gasoline is forecast to stay close to $4 a gallon through September, according to the report.
So why has gas gotten so expensive in a relatively short period? The reasons, according to experts, include seasonal fluctuations in gas prices, Americans' seasonal driving habits, as well as the introduction of specially refined, lower-polluting seasonal fuel blends during April and May. Many refineries also perform maintenance during this time, potentially limiting supplies.
Then the late summer brings the fear of hurricanes to the Gulf Coast, where many U.S. refineries are located. These concerns also have the potential to spike oil prices.
IRAN A FACTORAnd this year, worries that Iran's insistence on operating an unauthorized nuclear program could lead to a preemptive military strike by Israel have added $20 to $30 to the price of a barrel of oil, by some estimates.
Still, it could be worse, DeHaan said.
"While the 2012 outlook isn't what I would call rosy, we can look to Europe at their $6 to $9 a gallon gasoline and be happy that we're still not paying as much as some countries," he said.
But that's not very comforting to people such as Randy Boyd, president and chief executive of Fort Worth, Texas-based AC Supply. Perhaps that's why the first time gas spiked above $4 a gallon about four years ago, Boyd decided there had to be a better way to manage fuel expenses.
The four-location company uses six small diesel box trucks in its fleet, as well as paying for fuel used by a handful of sales staffers.
Boyd enrolled the wholesaler in Fuelman, a nationwide fuel management program that offers volume discounts on gas and diesel purchases.
Using the service, Boyd said AC Supply was paying around $3.73 a gallon for gas and diesel as of late March, compared with about $3.89 a gallon for regular unleaded at most stations in the Dallas-Fort Worth area.
CONTROLLING COSTSHe's not sure what the service will charge him for gasoline this summer, but he expects it to be less than the average price in the region.
"You never know what you are going to pay, but it has always seemed to save me money," Boyd said. "Once I started using it, my fuel bills went down."
Perhaps that's why unlike some of his competitors - and many of his suppliers - Boyd does not use surcharges to recoup his higher fuel expenses.
"We're always looking at how we offset that," he said. "We've never charged a fuel surcharge at our company."
AC Supply officials routinely weigh whether a customer needs a product right away or can wait a few days.
"If we have to make a delivery, we'll look at it and go, 'That's small enough. Can we throw it on UPS (United Parcel Service)? Can the customer wait until tomorrow or the next day to get it?' " he said.
And more often, company officials are saying yes, rather than drive 30 miles or more to make an immediate delivery.
Thanks in part to those types of cost-saving measures, Boyd estimated that AC Supply will spend about $50,000 on fuel during the current fiscal year - a figure that Boyd doesn't think is too bad.
"It's about half of 1 percent" of our total revenue, Boyd said. "I really think that's excellent."
THE PICKENS SOLUTIONThat doesn't mean Boyd is content with the way things are, however. He's a major proponent of the "Pickens Plan," a proposal by Dallas billionaire T. Boone Pickens to wean America off imported oil by investing in compressed natural gas for cars, as well as wind turbines for electricity.
"I'm the natural gas guy," Boyd said. "We've got an abundance of natural gas. There are millions of those little box trucks driving all over the road, and natural gas sells for $2.25 a gallon."
But while a few natural gas-powered commercial vehicles are available, Boyd said he is waiting until federal tax incentives are enacted before investing in the technology at AC Supply.
"And I need to replace my fleet," he added.
It's a message he's planning to bring to Washington, D.C., when he attends HARDI's Congressional Fly-In lobbying event. So far, bipartisan bills using parts of the so-called Pickens Plan have failed to gain traction - something Boyd is hoping to help change.