What does the decrease in fuel prices mean for the construction industry?


Shell gas station. Photo by Zakaria Zayane.
Photo by Zakaria Zayane.

In light of the current Covid-19 pandemic and nationwide stay-at-home mandates, fuel prices have plummeted as driving has come to a screeching halt.

In most states, construction remains an essential business and crews continue their work out in the field

That got me thinking: despite the economic turmoil facing the United States (and the entire world), could there be some silver lining in it for our industry? Namely in the form of extremely low fuel prices?

After all, as I’ve heard our owner, John Oman, say repeatedly: fuel prices are the most volatile cost in estimating.

So, with this in mind, I asked: “Will the current low fuel prices be beneficial to the construction industry?”

The answer: “Sort of.”

In 2008, the recession hit our industry hard when fuel prices soared so high that many companies found it difficult to complete projects within budget.

The Great Recession and the Construction Industry.
The Great Recession and the Construction Industry.

This, along with residential construction coming to a standstill, left the industry in need of a major stimulus.

Today, we have the opposite situation with the national price per gallon average falling under $2 for the first time in years.

On the plus side, low fuel prices can decrease project costs and cause a boost in profitability. As Construction Monitor stated when fuel costs dropped in 2015: “Lower oil and gas prices have reduced transportation costs for construction companies, making it cheaper and easier to move supplies and other necessary materials to construction sites and transport dirt, stone, and waste.”

On the other hand, industry experts know this bump in profits may be temporary and remain cautious. 

The answer lies in the infrastructure package that has been proposed as the next phase of economic stimulus measures. 

Governors' Video Teleconference on Partnership for the COVID-19 Response  (Official White House Photo by Andrea Hanks).
Governors’ Video Teleconference on Partnership for the COVID-19 Response  (Official White House Photo by Andrea Hanks).

Also, in states like Tennessee, fuel taxes are used to fund infrastructure projects. While this may ease my mind the next time I fill up in Nashville, it doesn’t stir much reassurance in the current economic situation. 

All in all, fuel prices continue to be a double edge sword. So, where’s the silver lining I was looking for?

Industry experts hope that the government takes a more tailored approach to the infrastructure stimulus bill and build a foundation for more long term results than we saw following 2008.

President Obama signs the American Recovery and Reinvestment Act as Vice President Biden watches in Denver, Colo. on Feb. 17, 2009 (White House photo by Pete Souza).
President Obama signs the American Recovery and Reinvestment Act as Vice President Biden watches in Denver, Colo. on Feb. 17, 2009 (White House photo by Pete Souza).

As Peter Ruane, the former president of ARTBA, stated when the bill was first brought to Congress in 2018, “Congress should ensure any federal resources provided in the 2018 infrastructure package are supplemental to the current level of funding being dedicated to transportation or other infrastructure capital improvement projects by the receiving state. Although the 2009 “stimulus” included a “maintenance of effort” requirement to prevent such substitutions, it lacked the teeth to make it enforceable.”

Ruane’s words still stand true in 2020: “Following tax reform with a wisely-targeted and robust infrastructure package this year will deliver a powerful “one-two” punch that can drive U.S. economic growth for decades. Let’s get it right.”

Amid a global pandemic and looming possibility of a recession, getting it right will be pivotal for the economic future of the United States and the silver lining the construction industry needs. 

Written by Kelsey Bixler with Oman Systems, Inc.