By James Edmonson
My wife and I are from opposite ends of the country, Louisiana and Michigan, and own a home in both states. We are blessed with the ability to avoid both the oppressive heat of the south in the summer and the bitter cold of the north in the winter. Having two homes 1,100 miles apart means our family travels a lot.
We have literally traveled back and forth, and back again, by planes, trains and automobiles. Our most recent trip in June was by automobile, which reminded us of a long-standing fact: the State of Missouri has the cheapest gas and diesel prices from the Gulf Coast to the Great Lakes. The principal reason, I am told, is the state tax on fuel is much less in Missouri than in other states. Just so you know, we haven’t noticed that Missouri’s roads are in any worse condition than those of other states; in fact we would rank them in the upper-middle range for quality.
As always, we passed through Missouri and timed our fill-up there. With the price of gas in Missouri well below $4.00 and the price in other states at $4.09 to $4.12, I was certainly strategizing around location. I began to think about whether the price of fuel could one day become an important site-location decision. Could the price of fuel in a given location become another index in predicting corporate behavior?
The price of fuel directly impacts the cost of doing business for any transportation, logistics or delivery service-based business, and indirectly, any company that uses them. So doesn’t it make sense to locate your base(s) of operation where at least the first tank of fuel is considerably cheaper? Of course, increased cost can be passed on to consumers, but it may still be a factor to consider.
Another cost is coming to the forefront that until recently was traditionally a hidden cost. That cost is the one employees pay to get to work. Let me just say it is beginning to come out of the closet.
Why would employers care? They do for many reasons. Happy employees are productive employees. With the cost of gas cutting into family vacations, food budgets, and extras, it will start getting ugly at work on occasion. Plus, the increased rate of inflation based on the increased cost of fuel and food forces employers to provide larger cost-of-living increases or risk losing their best and brightest to companies that do.
Maintaining a happy workforce could have been what Michigan’s Governor Granholm was thinking while proposing a four-day, ten-hour-day work week to reduce employees’ costs to get to work. More evidence of the importance of fuel cost for the workforce is the daily trips of many Southern Californians to Tijuana, Mexico, where gas is $2.50 a gallon and diesel $2.19. Drivers are installing larger fuel tanks in an effort to reduce the number of trips across the border for fuel.
An important factor to consider when adjusting workforce schedules around the cost of fuel is the new workforce expectation created that may hound employers in the future. With increased use of compressed scheduling, the workforce will learn to expect three-day weekends and employers requiring a standard 8 to 5, Monday-through-Friday shift may find it difficult to find quality employees.
So here is my list of things to consider regarding the competitive advantage or disadvantage of the price of fuel which, as we are told, is heading to $5.00 a gallon some day:
- Fuel-sensitive manufacturers, transportation and service companies will favor lower fuel-cost regions.
- In regions where fuel costs have become critical to the workforce, employers will adjust work schedules with reduced days and work-from-home programs. Regions in which this occurs are creating another dynamic to the workforce: expectations for flexible schedules and long weekends. Companies requiring more rigid work schedules will be negatively impacted and vulnerable to relocation.
- Regions with low-cost fuel can tout the lower cost and a traditional 8-5, M-F, workforce. These regions can favor companies that are fuel-cost sensitive or demand traditional work schedules.
- Regions with high-cost fuel can tout new regional workforces capable of working from home and tolerant of flexible scheduling. These regions may favor professional, scientific, and technical professions that are migrating toward more flexible work arrangements already. Employers in this category can reduce office space and cost, too, by sending workers home. This may cause higher vacancy rates, and the domino effect can go on. Just think of the possibilities. One bright note for these regions is that the professional, scientific, and technical workforce can typically afford the higher price of gas.
- Regions with high fuel costs and historically low education-attainment levels and low median incomes will be most severely impacted.
Like most location factors, the advantages or disadvantages of any factor vary depending on the industry sector. However, I believe a subtle shift in business locations will begin to occur among high-cost and low-cost fuel regions based on adjustments by employers in those regions and the ability of employees to support their transportation costs. When these shifts begin to occur, the real question is how to measure impact.