What the Colonial Pipeline Leak Taught us about Small Business
How do high gas prices and shortages affect small businesses?
On Monday, September, 12, 2016, a leak in the Colonial Pipeline in Shelby, Alabama resulted in a massive spill of nearly 350,000 gallons of summer-blend gasoline. Ultimately, the leak lead to a partial shutdown of the pipeline and thus began a panic through the Southeast. The Colonial Pipeline runs from Houston to New York and provides gas for over 50 million people on the East Coast every day. The leak was no minor thing – it was a huge disruption to the everyday lives of millions of Americans and businesses. Within just a couple days, six states declared an official State of Emergency and gas stations everywhere were preparing for a serious gas shortage. In turn, consumers rushed to the pump to fill up their tanks before the shortage went into effect, ultimately hastening the crisis due to panic purchasing.
Originally, it was declared it could be weeks before we had gas again but fortunately, officials managed to repair the leak quicker than expected and instead of a full-on shortage, we have seen hikes in pricing. Consumers in some areas reported an overnight increase of ¢20 per gallon but most areas have seen lower increases in the ¢3- ¢8 range (on average). Think about it: a $30 fill up would be 15 gallons at $2/gallon. An increase in cost of $0.20/gallon would be a $3 increase for a 15 gallon fill up. Although small it still can make a big difference to companies who need transportation for products. While a few stations are still completely out of gas, people are now mostly being affected by higher gas prices. Aside from reluctantly watching the ticker on the fuel pump increase from your usual $30 to $50, how do fluctuating gas prices impact our communities? In the wake of what could have been a major crisis, it’s important to take a look at how local economies and small businesses are affected by gas shortages and prices.
How Gas Shortages & Price Increases Affect Small Business
- Increased Overhead Expenses: Businesses that rely on transporting goods to and from vendors or clients would be heavily affected by increased gas prices. Fuel pricing is generally worked into costs of doing business and if that cost was to substantially increase, business owners would need to find other ways to manage costs and avoid minimized profits. In the event of a long-term fuel crisis, businesses may have to cut their service radius or pass that expense onto customers, which could also impact the business.
- Service Radius: Increased cost of travel sometimes forces business owners to reduce their service radius or even cut back on the types of calls they take altogether. Business owners in the Triangle were forced to reduce their service radius and only accept emergency service calls due to the Colonial Pipeline leak – a long-term problem would severely impact profits and customer relations.
- Pricing: Increase overhead costs will affect pricing. After a period of time, the only way businesses can cope with higher fuel prices is to pass the expense on to their customers. Customers often dispute their charge or refuse to pay it, which could hurt the relationship and end up costing the owner more in the end.
How Gas Shortages & Price Increases Affect Local Economies
- Jobs: If business owners cannot manage the increased expense, they often have no choice but to cut expenses in other areas and that may mean eliminating jobs. Not only will this hurt productivity and morale within the business, but it will hurt the local economy. Layoffs lead to decreased consumer spending, higher unemployment rates, less tax revenue to spend on public services, and more.
- Decreased Consumer Spending: The average consumer spends 4% of their disposable income on gas. When gas prices increase, so does that percentage and the consumer has less to spend in other areas. This results in fewer dollars being circulated in the communities which hurts local businesses and tax-generated public services.
- Various Affects: Ultimately, higher gas prices can lead to problems such as higher food prices (those truckers have to buy gas too), smaller school budgets, increased transportation fares, higher retail prices to cover shipping, and so much more. Most people do not realize how much of a bearing fuel costs have on our everyday lives but they are critical to the way consumers and businesses manage their money.
Fortunately, it appears that the 2016 Southeastern Gas Crisis was resolved before it reached the level described above. While small businesses may have avoided a massive hit to their profits margins, it’s important for communities to understand how the slightest change can trigger a serious reaction. Small businesses are the backbone of our local economies and create a ripple effect when things are not quite right.
Infographic by National Funding.