The rising cost of gasoline is forcing small-business owners to cut costs in order to cope with what experts say will be the new normal for fuel prices.
Gasoline costs have risen by about 15 per cent year-over-year for Jason Boyne’s Goodbye Graffiti business. Mr. Boyne owns three of the franchises, including two in the Vancouver area and one in the Ottawa region.
His company uses gasoline to fuel his eight heavy-duty Ford F350 and Dodge 3500 trucks and the power washing equipment he uses to remove graffiti. The burner used to heat the water uses diesel, which has also risen in price.
“The biggest cost for us is filling up the trucks,” says Mr. Boyne, who says his business now pays about $160 to fill up each truck in the Vancouver area, where gasoline prices hit a record of $161.90 at the end of April.
While gas prices are highest in B.C.’s Lower Mainland, the price at the pumps is climbing across Canada.
The spike in fuel prices comes alongside other rising costs for small-business owners, ranging from wages and new payroll taxes to increased costs from suppliers as a ripple effect moves across the supply chain.
“All of that gets translated to higher costs for our consumers,” says Mr. Boyne, who recently increased his minimum rate by $10 to $199.
“It also affects my ability to give raises to my staff,” says Mr. Boyne, who has shelved a plan to provide his employees a registered retirement savings plan program this year.
To offset higher gasoline prices, Mr. Boyne tries to fill the trucks when prices dip and when the vehicles are outside of Metro Vancouver, where prices are lower because they don’t include a local transit authority levy. “But it’s not always convenient,” he says. “I’m not going to send my truck out [of the area] just to fill up.”
Buying new, lower-emission vehicles isn’t possible either, given the huge capital expense. “The only thing we can do is raise our prices,” Mr. Boyne says.
Business owners across Canada are paying about 15 per cent to 20 per cent more for fuel this year versus the same time last year, driven largely by the rising price of oil, says GasBuddy senior petroleum analyst Dan McTeague. A weaker Canadian dollar, limited refinery supplies and a new carbon price in provinces such as B.C. mean the price is expected to remain high – at least for the coming months.
“If you’re a business … this is definitely going to bite,” Mr. McTeague says. “This is the new normal – these higher prices remain firm.”
With both consumers and business owners paying more at the pumps, there’s an expectation that both groups will spend less on goods and services, which in turn will also hurt businesses. “Look for people to keep whatever products they have longer and for capital expenditures to be repurposed or redevoted towards accommodating this increase,” Mr. McTeague says.
Half of small-business owners in Canada say rising fuel and energy costs are a “major cost constraint that is limiting their ability to grow and be successful,” according to Dan Kelly, the head of the Canadian Federation of Independent Business (CFIB), based on a business outlook survey of its members released in May.
Given the other rising costs for businesses across Canada, Mr. Kelly says governments should consider slowing down their planned carbon-tax increases. Ottawa plans to raise the price of carbon to $50 a tonne by 2022, which would add 11.6 cents a litre to the cost of gasoline, while the four largest provinces – Ontario, Quebec, Alberta and British Columbia – have adopted some form of carbon pricing.
“There’s not much the provincial or federal government can do about the international oil price, but there is a lot they can do with respect to the tax component,” Mr. Kelly says.
At BigSteelBox Corp., a Kelowna, B.C.-based company that provides steel storage and shipping containers at 27 locations from B.C. to Ontario, higher fuel prices have forced it to rethink its delivery routes to reduce time on the road. For instance, in the past, a delivery or pickup would be done at any time, often separately. Now, pickups and deliveries are co-ordinated, says the company’s director of operations, Brian Hawkins.
Mr. Hawkins says the company uses diesel to fill up its delivery trucks, and, because they aren’t big enough to buy in bulk, they fill up at gas stations for the same price as other smaller businesses and consumers. “We are feeling the same ebb and flow as the average consumer,” Mr. Hawkins says.
He says the company isn’t raising prices to offset the higher fuel costs, “but for sure it’s getting tougher,” with diesel representing about 10 per cent to 15 per cent of overall delivery costs per store, each month.
HelloFresh Canada, a division of the international meal-kit company HelloFresh SE, has been dealing with steadily rising fuel prices for its delivery trucks since the business launched in Canada in 2016.
Fuel is a “significant component of our logistics costs,” says Ian Brooks, chief executive of HelloFresh Canada. That includes gasoline used in the vehicles that deliver its meal kits to consumers, as well as to pick up the ingredients from local farms and suppliers.
To help offset the rising costs of fuel, Mr. Brooks says the company has reduced its packaging and the weight of its meal-kit delivery boxes by a total of about 45 per cent over the past couple of years. That has helped prevent it from increasing its costs to consumers.
“When we reduced the size of our box at the beginning of 2018, we were able to work with a logistics partner to avoid an [approximate] 10-per-cent increase in delivery costs, a significant portion of which was driven by rising fuel prices,” he says.
The company is also set to launch a new fully compostable, plant-based cooling pouch. The lightweight pouches will reduce the need to use heavier ice in the boxes, and so help decrease fuel costs.
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