The Impact of Dropping Oil Prices on Three Austin Businesses

Posted by: Stacy Perman on October 22, 2008

When oil prices surged, reaching an all-time high of $147.27 a barrel in July, small businesses like many, found themselves on the precipice of yet another painful hit to be endured in the course of running their businesses: a hit that was 360 degrees in scope. Those dependent upon transportation of goods and services saw their own costs soaring while their profit margins began to head south. Many found themselves with few options to consider outside of passing on their own costs to consumers whose spending had begun to shrink alongside the economy.

pump.jpgNow with the price of oil dropping – to nearly half of what it was at its peak last summer – I spoke with a diverse group of small business owners in Austin, Texas to see what kind of impact the current decline in prices was having on their businesses now.

Stephen Shang, the owner of Falcon Storage, a portable storage firm, says the volatile cost of gas actually forced him to be more creative and efficient in conducting his business. For starters, Falcon purchased a 3,000 gallon gas tank in order to stabilize the firm’s own gas prices at least on a monthly basis. “Before we just went to the pump and bought as needed,” Shang told me. “We’ve been able to buy at volume and save money. And our drivers now that when gas drops they can buy it from the tank.”

Secondly, Shang says that when gas prices spiked he ended up passing on the higher cost to his own customers — by some 20 to 30 percent. But as result of that, he also told me it pushed the company to make improvements in efficiency. “We had a big discussion. We couldn’t just pass this onto customers without doing something,” he explained. “So we ended up improving the level of customer service.” Shang says Falcon refined its own systems considerably shaving off the amount of time customers waited for a container delivery: from all day to two hours. “Ok you’re going to pay more,” he says. “But we are providing better service. Actually it’s helped us gain some market share.”

well.jpg Since 2003, Mary and Dow Davidson have run Austin Overtures, a sightseeing firm that takes tourists to 30 major historical and cultural points of interest in a hot pink Mercedes Benz van over the course of 90 minutes. “The fluctuating price of oil affects us dramatically,” Mary told me. “It is really a bottom line issue for us. It makes a difference in how much we make. When oil is high we make a lot less in terms of profits.” Especially, since as Mary told me, the pair decided against passing on the extra costs to their customers and instead absorbed the expense in order to stay market competitive.

At the same time, however, Mary told me that the company hasn’t been able to purchase new equipment or do much in the way of new programs or changes. Now they are waiting to see how the slide in prices will affect their bottom line. Whether it will help cushion the blow they’ve endured or cancel it out. “We won’t know if our profits are a wash until the end of the year when we do our final calculations,” she told me. “This directly affects there is no way around it.”


On the other hand, Robert Piller, the president of EcoMarketingSolutions.com, a company that provides promotional items to companies for trade shows like hats and bags says that since the price of oil dropped his business has shot up. “The trade shows are dependent on gas. When it was high people were not as willing to get in their cars and drive three to four hours to a convention center,” he told me. However, once prices began to fall Piller says business resumed, making up for lost time. “In the last three months my business is up 30%. Instead of ordering 150 tote bags, companies are ordering 500.” Still, the volatility makes it hard to strategize. “You can’t anticipate what is going to happen,” he says. “I thought the spring was going to be fantastic based on past trends but it’s been the fall when I’ve done much better.”

photos: Getty Images

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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