Gas Prices Are Pressuring Service Rates
I recall a similar spike in gas prices a few years ago, when motorists were paying almost $2 per gallon here in the Midwest (and even more out in California). In fact, in a June 12, 2000, column I wrote:
"My brother-in-law, who lives in the Milwaukee area, recently filled up his van at $1.81 a gallon. I felt guilty crying about the $1.55 I was paying at the time in the Detroit area."
Gee, here it is late May 2004, and I wish I were paying $1.81 per gallon.
I asked visitors to our HVACR Forum in the Extra Edition section of our Web site (www.achrnews.com) if they would pass on rising gas prices to their customers. One visitor, Brad Swanson, replied, "We have added a $5 trip charge to all calls. We had thought about a $10 charge, but decided to start with $5 instead."
Do The Math
This is the part of my column that sends other News' editors and proofreaders scrambling to see if there are batteries in their calculators. (A business management editor doing his own math calculations tends to do that.)Let's set up a hypothetical situation involving a service company that has 10 trucks on the road, each with a 20-gallon gas tank. Let's assume the trucks average 15 miles per gallon and travel an average of 100 miles per day. Each truck is in service 260 days a year (5 days times 52 weeks).
Now, I know that these numbers may be high or low, depending on the type of vehicle, engine size, type of driver, etc., but these averages should be useful for our comparison.
Based on these numbers, each truck would travel 300 miles on a full tank of gas (15 mpg times 20 gallons). Each truck would travel 26,000 miles per year (100 daily miles times 260 days). That equates to about 87 fill-ups.
With gas at $1.50 per gallon, it would cost $30 to fill up a 20-gallon gas tank. If that tank were filled 87 times during the year, it would cost $2,610. Multiply that by 10 trucks, and the annual gas cost for the fleet would be $26,100.
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With gas at $2.00 per gallon, it would cost $40 to fill up. The annual cost for gas per truck would be $3,480. Multiply that by 10 trucks, and the total would be $34,800.
That's a difference of $8,700 in total fuel charges for a contractor with 10 trucks. If you had 50 trucks in your fleet, it would be an extra $43,500. Even if you had only five trucks, you would be paying $4,350 more per year.
Can contractors absorb these costs?
"We put a decision on hold and are going to reconsider the issue at our weekly brainstorming sessions," said Norm Christopherson in a visit to the forum. "It is good to hear what others are doing and what their thoughts are before we make a move."
Another forum visitor suggested it is time to step up the use of alternative energy sources in order to combat the rising gas prices.
"Alternative modes of transportation have to be implemented - hybrids, battery, whatever," commented Harry Baldini. "I had this same conversation in the late 1970s. Isn't it time to eliminate this albatross from our necks and get on with the business of using our superior research and technology to move into the next age?"
Your thoughts?
John Hall is business management editor. He can be reached at 248-244-1294, 248-362-0317 (fax), or johnhall@achrnews.com.
Publication date: 06/07/2004