The real costs of rising fuel prices

Whether it be local dump truck drivers, long-haul owner/operators or soccer moms – everyone’s been griping about the cost of fuel lately. And for good reason, it’s costing all of us more money – at the pumps and now even in the stores. But scratch beneath the surface and I think there’s even more reason for concern when taking a look at the big picture and the larger impact the cost of fuel is having on our economy.
Looking at the issue from the perspective of a consumer, there are two causes for concern. For one, the cost of fuel is heightening transportation costs for the goods we consume and is already driving up store-shelf prices. Signs are popping up in store windows justifying cost increases and attributing them to increased transportation costs. It was only a matter of time before this started happening and now it has begun.
Secondly, and perhaps more importantly, a higher percentage of our disposable income is being diverted towards the purchase of gasoline, which means at the end of the month, there’s less left over for non-essential purchases, such as dinners out, a night at the movies or household items. In North America, it’s this type of spending that drives our economy. With gas prices surging by 50% or more, we are effectively removing millions – maybe even billions – of dollars of consumer spending and directing it towards the cost of gas. That money is literally going up in smoke. I think this is very disconcerting and often overlooked when considering the true impact of rising fuel prices.
I haven’t been able to dig up a Canadian equivalent, but consider this: According to an Oil Price Information Service study, the percentage of income the average American now spends on gas has doubled since 2002 (from 1.9% to 3.8%). That report was released late last year – it has likely increased even more in early 2008.
Removing 1.9% of consumer spending from the economy is going to have a major impact. Less consumer spending = less demand for trucking services. It also means less business for store-owners, restaurants and other entertainment providers. Maybe I’m over-simplifying the issue – I’m not an economist. In fact, some economists argue that directing a higher percentage of income on gas doesn’t necessarily mean a reduction in consumer spending. But I question their logic. It costs me about $20 more today than it did two years ago to fuel up my reasonably fuel-efficient Corolla every time I pull into the gas station. That’s $20 that doesn’t go to Cineplex, or Boston Pizza or Canadian Tire – or a personal savings account for that matter.
I reside in a middle-class neighbourhood (I also fear the once seemingly all-encompassing middle-class is evaporating and leaving in its place a widening gulf between the ‘haves’ and the ‘have-nots’ – but that’s a subject for another blog). My personal observations suggest that people are reeling in unnecessary spending (driving less is rarely an option, at least for those of us in the ’burbs). The alternative is to tap into credit sources and home equity and that could prove to be even more disastrous long-term.
If the cost of gas doesn’t soon subside, I predict we’ll begin to see store closures and more job losses in the months ahead. So what’s the solution? That’s the multi-billion dollar question. I don’t think there’s an immediate fix. But in the short-term, I think we need to find environmentally-sensitive ways to tap into North America’s vast supply of oil. That should be enough to tide us over until we make further gains towards developing vehicles which can be operated electrically or via other sources of power.
It’s a lot to ask of auto manufacturers – to develop cost-competitive vehicles which don’t require fossil fuels to operate. However, I look to our industry for inspiration. In 2002, 2007 and again in 2010, truck engine manufacturers have had seemingly impossible challenges placed before them by the EPA. Each time, they have risen to the occasion. Hopefully auto makers can be equally successful in their pursuit of a solution that will lessen our dependence on fossil fuels for personal transportation.

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James Menzies is editor of Today's Trucking. He has been covering the Canadian trucking industry for more than 20 years and holds a CDL. Reach him at or follow him on Twitter at @JamesMenzies.

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  • James,one of my first questions to people who gripe over the the rising costs of gasoline/fuel when it rises 10 cents a liter”Did you receive a ten cent an hour raise?”In the case of highway trucks the question should be did you receive a twenty cent a mile raise?Sooner or later these added costs will have to be reflected in everybody’s bottom line,food,transportation costs and consumer goods will rise last but not least wages will have to go up to reflect market costs.

  • That’s just it, James. Wage increases aren’t going to keep pace with cost increases for consumers. The more they spend on gas, the less they spend on other things – including things that need to be trucked. It’s a real viscious circle and I see no immediate end to it.

  • There’s an old adage that bears repeating. “sometimes one cannot see the forest for the forest”. Yes I did misquote for a reason to make a point. I have been convinced for some time now, having heard and read too much propaganda about the enery crisis, that Mother Nature has already provided us with the sustainable,renewable, clean energy solutions we need to virtually iliminate this current crisis over the next 10-20 years. However, there are powerful corporate and political interests around the world, including here in Canadian, with billions invested in energy resources who are just not in a rush to declare their technology and its resultant infrastructure obsolete just yet, specially now that the provererbial windfall profits are poruring into their corporate coffers.
    Our entire focus must shift to these obvious resources and to the technology that will bring them on stream without further delay. They are Hydrogen, Solar and Hydraulic-Wind & Water. We have these sources in abundance all around us!
    If we were told tomorrow that an asteroid was on a collision course with Mother Earth for the year 2010 I’ll bet that most of us on the planet would be willing to pull out all the stops in an attempt to avoid the impact.
    Well, this astroidal energy/food crisis which has picked up to warp speed lately, has the potential to cause cosiderable damage to everyones quality of life on this planet unless we can collectively get refocused on the real issues. With Mother Natures solutions in place we won’t have to consume as much because we won’t need as much to provide us with the basic creature comforts we need to be truly happy.
    I know, it’s just not that simple, right? By the way, how many of you now run with Nitrogen in your tires?

  • I think what needs to happen is for Canada and the US to tell OPEC how much they are willing to pay for oil, say $60.00/ barrell. If OPEC does not agree to this reasonable price then tell them to take a hike and sell it to someone else. The last time I looked the rest of the countries are mostly third world and don’t buy a whole lot of fuel anyways. In North America there is enough oil to meet our own needs. If something is not done soon, we will end up in a deep reccesion.
    The other alternative is to have a trade emargo against the oil producing nations. Don’t sell them anything. Most of these places are not self sufficient, the only thing they have is oil. Pretty soon they will be begging us to buy there oil at $60.00 / barrell.
    Or better still, lets sell them our goods at a highly inflated price just like they sell us oil at highly inflated prices. You want to buy Canadian beef, sur eno problem, its $20.00 a pound. You want to buy Canadian beer, sure $300.00 a case. You want medical supplies for your sick and dying, no problem. What ever you paid us yesterday, multiply that by 100. Then lets all watch the oil prices come down.