Gas prices have been rising precipitously and have now broken an old record. The highest average price for a gallon of gas in history was $4.11 per gallon in 2008. This year, the average price for a gallon of gas has reached $4.25!
On top of that, many states have an even higher price for a gallon of gas. The construction industry uses a lot of heavy equipment that relies on a lot of fuel. That means that it is disproportionately affected by these high gas prices.
What exactly are the ultimate effects of these fuel prices on the construction industry? Read on to learn all about the most important things to understand about what these fuel prices mean for construction businesses.
The Construction Industry May Have to Raise Prices
Some people think that increasing diesel prices simply mean paying more at the pump. However, the effect of raising fuel prices goes far beyond that. Every aspect of construction jobs is affected in some way by increases in the price of fuel.
The most direct effect of rising fuel prices is having to pay more to run equipment and transport people to construction job sites. However, that does not account for the materials. Don’t be surprised if the materials for construction also increase in price. Why is that?
Every material used in construction goes through many stages of processing. In between stage of the processing, it has to be transported. That transportation requires fuel. Since fuel prices are going up, materials processing companies may increase their prices.
They may also have to raise prices because the processing of materials itself requires a lot of fuel. Even if a company does not directly use machines that run on gasoline, they may use electricity that is created using gasoline and other types of fuel.
The end result is an almost inevitable increase in prices. That means that construction companies have to pay more for those materials on top of already paying more for the fuel.
Construction Companies May Need to Explain the Situation to Clients
Unfortunately, customers may not be in a position to pay more for construction work. They are also paying higher prices for their own fuel use. They are probably buying goods and services that are increasing in price.
As a result, they may be resistant to paying more for construction jobs on top of everything else.
The recent inflation of the United States dollar may also contribute to this problem. People who saved up money are now finding that it is not worth as much now as it was when they put it away. That may make them further hesitant to pay higher prices for construction jobs.
On the other hand, these struggles may help potential clients to understand the struggles for the construction industry.
Just because a potential customer understands these struggles, that doesn’t mean that they will have the money to pay for construction work.
Construction companies may have to help current customers understand why they are raising their prices.
One effective technique to help manage the situation is to add a surcharge for fuel use. In that way, a construction company can avoid raising the price on anything else. They can simply explain in advance that the surcharge for fuel will probably be unusually high because of the higher prices of fuel.
Higher Diesel Fuel Prices Mean Lower Margins
In some cases, companies may not be able to find business if they raise their prices. As a result, they may have to eat the cost of higher fuel themselves, leading to lower profit margins.
Unfortunately, some construction companies do not have especially high profit margins. Construction companies go out of business every year, forcing many companies to make do with lower profit margins while some of them will not enjoy profits at all.
Construction Industry Growth Trends May Reverse
With zero to low profits, some construction companies may go out of business. Unfortunately, that will reverse trends of growth in the construction industry.
Alternatively, some companies may need to repair and maintain heavy equipment rather than buy new items.
Larger Construction Companies May Have the Advantage
Some construction companies will be better able to manage temporary low profits than others. In particular, larger companies are more likely to have the ability to temporarily forgo profits and survive.
Larger construction companies will have the ability to buy in bulk and receive discounts. This can partially offset their decreased profits.
Also, these companies may be able to shrink without having to go out of business entirely. They may also be able to find profits with some projects that will provide them with the money they need to make up for the lack of profit with other projects.
The business environment for the construction industry constantly changes. Keeping up with these changes can help you adapt as needed.
Understand the Effect of Fuel Prices on Construction
We hope learning about how fuel prices affect the construction industry has been helpful for you. Many construction companies disproportionately suffer from raising fuel prices. This is partially because of how much fuel their heavy equipment uses, and partially because of how often they have to travel.
To learn more about the effect of fuel prices on the construction industry or to speak with experts in heavy equipment, feel free to reach out and speak with an industry expert today!
