In reality, it’s hard to find many businesses that don’t benefit from lower fuel costs. The biggest losers are oil producers, who receive less revenue for their inventories. This also depresses business activity for oil explorers and producers of alternative energy solutions, since they now have more price competition from cheaper oil and gas. But let’s not shed too many crocodile tears for Exxon and BP. Instead, let’s celebrate the winners.
And The Winners Are…
- Transportation Companies: Operating costs for airlines and shipping/delivery companies are much lower when oil and jet-fuel prices fall. Perhaps this will trickle down to a reduction in ticket prices and shipping charges, but somehow these prices never seem to decline. At best, we are not likely to see new fuel surcharges anytime soon.
- Automakers: For better or worse, Americans like big, gas-guzzling SUVs and trucks. Lower fuel costs stimulate sales of the mega vehicles, which are far and away the biggest profit-makers for the automakers, especially for the Detroit Big Three. That might also mean more tax revenues and better times for people living in Michigan and other states that produce trucks.
- Manufacturers: Petroleum provides a wide variety of organic compounds used to manufacture chemicals, plastics, textiles and a huge assortment of other materials. Lower prices for raw materials means fatter profit margins for manufacturers, and may increase price competition. Wouldn’t that be lovely?
- Utilities: Lower fuel costs are great news for fossil-fuel utilities, such as electric generation companies. But there are a couple of caveats. State overseers may require utilities to roll back prices. If that happens, consumers may use more electricity, increasing demand for generation companies and possibly increasing the possibility of brown- and black-outs this summer.
- Farmers: Many farming costs are tied to fuel and petroleum costs. Items like fertilizer and insecticides that use organic chemicals may fall. It will cost less to fill the gas tank of tractors and combines. The cost of getting produce to market will decrease. Special exception for corn growers — the lower cost of oil means more price competition for ethanol, so corn producers may find themselves selling corn for food instead of fuel, which may be a less lucrative trend for them. It will cost less to feed corn to livestock, which might mean lower meat prices.
- Travel Industry: If lower fuel costs translate into lower ticket prices, people might be more willing to fly to vacation destinations in America and around the world. Travel agencies and travel websites, as well the hospitality, restaurant and entertainment industries, will benefit from this trend. This also bodes well for car rental companies, Greyhound and Amtrak.
- Liquor Makers: A huge percentage of the price of your favorite bottle of bourbon stems from taxes. But the cost of production involves many processes that directly or indirectly require fuel, including acquiring grain, creating mash, distilling alcohol, bottling and distribution. Once again, liquor prices seem to be on a one-way up-escalator, but we can always dream.
It’s obvious that the American consumer is the biggest winner when fuel prices decline. Lower prices on gasoline and on products that have costs tied to petroleum mean more money in the wallet of John Q. Public. This drives demand, boosts the economy and increases the demand for investments in new plant and facilities. If your business finds that demand is outstripping your production capacity, consider a loan from IOU Financial to finance expansion. Interest rates are still low, so now is a great time to anticipate greater demand and grow your business.