Katrina: Independent Gas Stations Expect Losses

While gas prices nearing $4 a gallon have people charging “price gouging,” the vast bulk of gas stations are actually losing money, according to an AP report.

Independent Gas Stations Expect Losses

Drivers aren’t the only ones feeling the pain of high pump prices and scattered fuel shortages. Independent gas stations are, too. The stations, which rely on traffic from people filling up their tanks to drive sales in their stores, on Sunday were still counting their losses, which one industry group expected to be significant in the wake of Hurricane Katrina.

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The bulk of the nation’s 167,000 retail outlets that sell gasoline, including some that carry the names of big oil companies, are independently owned and operated. They rely on store sales to generate profits and generally only receive pennies on the dollar from gas sales, which are meant to drive traffic into their stores. “This is a hundreds of billions of dollars industry, with the majority of profit coming from in-store sales,” said John Eichberger of the National Association of Convenience Stores, which represents companies that operate 70,000 outlets nationwide that sell gasoline. “A lot of retailers have lost money.” Eichberger said it was too early to give an estimate of the losses, but he predicted it would be “significant.”

The hurricane damaged gas pipelines and refineries along the Gulf Coast and caused some supply and production disruptions. Panicked buying by motorists also has contributed to shortages at some stations in the South, along the East Coast and in the Midwest.

[…]

In Illinois, officials were trying to keep more gas stations from closing by relaxing some rules related to posting of prices, and station managers were trying to keep from losing more money by clamping down on gas theft.

The state’s Department of Agriculture said gas stations with older pumps that are incapable of computing and displaying prices higher than $2.99 a gallon will be allowed to temporarily post half-gallon prices. “The alternative would be to shut those gas stations down until they were in compliance,” said Agriculture Director Chuck Hartke.

Jeff Napolilli, a cashier at the Westown Shell in Carbondale, Ill., said the fear of people stealing gas has caused his station to require customers to pay in advance.

In Tallahassee, Fla., many Circle K gas stations were completely out of gas Sunday and had been for several days. At a BP station that did have gas, the price stood at $3.38 a gallon for regular on Sunday. Not all stations were hurting, though. Maurice Marcellus, a 23-year-old store clerk, said the rising prices haven’t slowed store sales at the BP station where he works. “People still have to go to work,” he said. “How are you going to go to work without gas?”

Eichberger of the National Association of Convenience Stores encouraged people to be patient, saying it will take time for stations to rebuild gas inventories and for pump prices to come down. “The person that has to pay $3 a gallon isn’t happy,” he said. “The person who has to charge $3 a gallon isn’t happy, either. So, nobody is happy right now.”

Kim and I paid $71 and change to fill up the tank with premium yesterday, with prices at $3.75.9 per gallon. It seems inconceivable that the station, which presumably got the gas before Katrina shut down any refineries, isn’t getting a windfall from the radical price hike. On the other hand, stations can’t make any money without gasoline. And customers hurting from paying that much for gas may be a bit more reluctant to enter the store to buy overpriced groceries.

FILED UNDER: General,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. spencer says:

    Sounds like a free market is working like free markets work.

    So, what is your problem

    this is what you profess to believe in.

  2. James Joyner says:

    Huh?

  3. Herb says:

    It’s truly a shame that honest independent businessmen trying to make an honest profit have to suffer from the high price of gasoline while the oil companies make record profits. Supply and demand are one thing, but when the oil companies have full control of the supply side, thats another. I am not to sure that the oil companies would not take joy in seeing the independents go belly up.

  4. bryan says:

    On the other hand, stations can’t make any money without gasoline. And customers hurting from paying that much for gas may be a bit more reluctant to enter the store to buy overpriced groceries.

    “a bit”? Heh.

    And I’m not so sure the oil companies are jumping at the chance to run small-time convenience stores all over the country with very small profit margins.

  5. Mark J says:

    Spencer,
    Anti “price gouging” laws are in effect. This is not a free market.

    And James,
    Gas stations do not base their prices on what they paid for the actual drop of gas that you are buying. The hedge against what they’ll be paying next week. So, when wholesale prices go up, retail prices go up almost immediately. Of course, when wholesale goes down, retail also drops immediately. The benefit of this is that price fluctuations are not instantaneous, which would create strange patterns. If you knew that in 24 hours, a new shipment of “expensive gas” would be coming in, and would spike prices by 25 cents, you’d make a mad rush on the station. If you knew that prices were going to drop 25 cents, you might wait it out. But this way, price gradually change, and demand doesn’t spike or dip as much.

  6. Mark J says:

    Bah, I should say “prices START to go up immediately.” and “prices START to drop immediately.” The rate at which they go up is gradual.

    So basically, the graph looks like a handicapped ramp, instead of a 10 foot ledge.

  7. Dr. Weevil says:

    It’s hardly surprising that gas stations raise their prices immediately, even when they still have tanks full of gas they bought cheaper. If they don’t raise prices, how are they going to pay for the more expensive gas when it comes time to refill their tanks? When prices fall and competition is tight, they may be forced to lose money if they’re still selling off the last of the stuff they paid a lot for, while their competitors have already refilled with the cheaper stuff.

  8. Steve Verdon says:

    Kim and I paid $71 and change to fill up the tank with premium yesterday, with prices at $3.75.9 per gallon. It seems inconceivable that the station, which presumably got the gas before Katrina shut down any refineries, isn’t getting a windfall from the radical price hike.

    Sure, in a sense. The problem is that if they didn’t raise prices then they’d run out faster and with supplies tight they might actually have to shut down. Prices are a way of rationing goods. It is really that simple. When conditions change, then expect prices to change.

  9. James Joyner says:

    Steve: Sure, although only indirectly. The station isn’t raising prices to ration goods but to jack up their profits. They’re doing it because they can get away with it, not to benefit the consumer. That’s price gouging; whether it’s a good thing is a separate question.

    Price gouging sometimes makes perfect sense. For example, if Home Depot can’t jack up lumber prices after a hurricane, then it has no ability to surge mass quantities of lumber to the region after existing stock goes.