For the first time, a gallon of regular gas now costs $5 on average nationwide. That's bad news for businesses, on many accounts.
The record is hardly a surprise, as gas prices have been rising steadily for more than a year. The cost of a barrel of oil is more than $120, nearly double the price in August 2021, according to data from the American Automobile Association. A tight global supply chain--in part tied to Russia's invasion of Ukraine--and increased demand have caused the national average to surge more than 15¢ in the past week and more than 58¢ in the past month.
What is a surprise, though, is that the higher prices haven't destroyed demand, as classical economics would predict. "Based on the demand we're seeing, it seems high prices have not really deterred drivers," Andrew Gross, a AAA spokesperson, said in a statement. "If prices stay at or above $5, we may see people start to change their daily driving habits or lifestyle, but it hasn't happened yet."
Give it another month. Gasoline could be close to $6 later this summer, Tom Kloza, global head of energy analysis for the Oil Price Information Service, a price-reporting agency, told CNN, as we head into the peak summer driving season. Multiple factors are contributing to the skyrocketing prices. Because of the war with Ukraine, Western countries stopped or slowed buying oil from Russia. More than one million barrels per day were lost worldwide in April, and 1.5 million per day in March, according the International Energy Agency. Closer to home, there isn't enough domestic gasoline refining capacity to match demand after American oil companies closed some refineries during the pandemic.
Businesses are already fighting inflation and the rising cost of fuel, especially diesel, means anything transported on a truck, train, or ship will likely go up in price. While freight prices are continuing to drop slowly, according to The Maritime Executive, many large importers, especially those that rely on products from overseas, are feeling the pain. Shares of retail chain Target dropped 25 percent last month in part because of inflationary pressures--as well as a broader shift in consumer spending from goods to services.
"We did not anticipate the rapid shifts we've seen over the past 60 days. We did not anticipate that transportation and freight costs would soar the way they have as fuel prices have risen to all-time highs," Target CEO Brian Cornell said during the company's latest quarterly earnings call. He later told CNBC that rising shipping costs will set the company back more than $1 billion. In its earnings call, Amazon said the cost to ship a container from Asia has more than doubled compared with pre-pandemic rates and is more than 150 percent higher than a year ago.
Experts say there are strategies to offset rising shipping costs. Evaluating data from management systems using blockchain technology is one option, Mark Cohen, director of retail studies at Columbia Business School, told Inc. The technology can act as a single source of information, allowing you to manage the status of all things related to your orders, such as shipping times, vendors, cost increases, and more in a single, organized way.
Collecting vendor information using data tools can also help you find pain points in your supply chain such as bottlenecks at ports, more quickly, says Walker Ryan, CEO of Parq, an Austin-based company that specializes in mitigating supply-chain risk. This is especially important when products are coming from multiple sources. There may be local vendors that make, if not the exact, a similar version of a product, and finding a closer warehouse or manufacturer can help lower shipping costs drastically. Nailing down those relationships now could be crucial to inflation-proofing your business and avoiding unintentional costs, says Ryan, especially as other businesses look to do the same.