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The Colonial Pipeline Hack, Fuel Prices, and Your Bottom Line

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How the upward pressure on fuel prices over the past year and the past month are impacting your equipment’s operating rate.

You likely have already personally felt the impacts of the recent hack and six-day shutdown of the Colonial Pipeline1. Perhaps very acutely in terms of your local gas station running out of fuel or perhaps at arm’s-length by simply observing spikes in fuel costs. It is also likely that by now you have started to see these increases in gas and diesel prices pushing up the cost of your firm’s current construction projects. Yet, while these recent increases have been sharp and abrupt, retail fuel prices have been increasing for the past year. 

At the onset of the pandemic, when most businesses were paused and most people were hunkering down at home, prices for gas and diesel understandably plummeted. According to the U.S. Energy Information Administration2, from January 6 to April 27, 2020, gas prices fell 31.2% and diesel prices fell 20.9%. 

These reductions in fuel costs came at a welcome time for anyone trying to complete construction projects, as during this same period we saw serious increases in the prices for steel, lumber, and other building materials3. A recent survey conducted by AGC4, showed that 85% of respondents reported the costs they are charged for materials, parts, and supplies had increased compared to the prior year and 52% said that they were experiencing project delays or disruptions due to the shortage of construction materials, equipment, or parts. 

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Even though no one anticipated the rock-bottom fuel prices seen during the spring of 2020 would last forever, and gas and diesel prices had already been steadily increasing since November 2020, the recent pipeline shutdown and ensuing run at the pumps pushed prices up considerably. From just the beginning of April 2021 to May 17, 2021 average prices for gas rose 6.0% and diesel rose 3.3%. Compared to May 18, 2020, average prices for gas are up 61.2% and diesel is up 36.2%. 

While it is obvious that an increase in fuel prices would translate to higher costs to operate heavy equipment, we wanted to help quantify that in terms of some popular types of equipment. By leveraging the Rental Rate Blue Book from EquipmentWatch, we have compiled a sampling of three diesel-powered types of construction equipment and one gas-powered type of lift equipment to see how the percentage increase in the operating rate for the equipment compares to the percentage increase in the fuel cost. Across each equipment type we have selected five popular models within a similar size class and horsepower range. 

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While diesel increased 36.2% year-over-year, the change in fuel cost increased the operating rate for excavators by 14.1%, wheel loaders by 15.2%, and dozers by 11.4%. Over the same time period gas increased by 61.2% but the impact on the operating rate for lift trucks was 27.9%.

As we can see, the percentage increase in the operating rates were typically a little less than half the rate of the fuel price increase. This is a good reminder that fuel is just one input to the calculation for operating rate. Costs such as mechanics wages, maintenance costs, and a host of others also play a role in calculating the overall operating rate for any given piece of equipment. 

 

Articles Referenced:
1)    U.S. fuel crisis eases as pipeline returns to normal after hack. Retrieved May 18, 2021. 
2)    U.S. Energy Information Administration’s Gasoline and Diesel Fuel Update. Retrieved May 19, 2021.
3)    Skyrocketing steel, lumber costs threaten to slow construction jobs. Retrieved May 18, 2021.
4)    March 2021 AGC Coronavirus Survey Results. Retrieved May 18, 2021. 
 

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