Gasoline Price Increases for USA and Canada and their impact on Verisk Pricing
Verisk has made the assumptions below about fuel price increases and insured that labor costs within the published pricing for June are included.
The following information outlines the steps Verisk has implemented for the June 2022 publication. As always, ultimately the line items and pricing used for those line items within each specific estimate will need to be determined by the parties involved.
Rising costs of fuel have increased overhead costs for nearly every type of repair in the industry. As per the Department of Energy website located at: https://www.eia.gov/petroleum/gasdiesel the average price of a gallon of gasoline in the USA has increased nationally from $4.231 to $4.593 from March 28 to May 23. While the specific increase varies among different areas of the country, the amount or percentage of increase is very similar ($0.36 / gal or 8.6%).
In Canada as per the Natural Resources Canada website located at https://www2.nrcan.gc.ca/eneene/sources/pripri/prices_bycity_e.cfm the average price of a litre of gasoline has increased nationally from $1.799 to $1.982 from March 28 to May 23. While the specific increase varies among different areas of the country, the amount or percentage of increase is very similar ($0.183 / litre or 10.2%).
The starting point and date for the fuel costs was based on our continual review of gasoline prices and the adjustment that was made for the April 2022 price list publication. See https://www.xactware.com/en-us/company/news/archives/2022/gasoline-price-increases-for-usa-and-canada-and-their-impact-on-verisk-pricing-data.
Verisk’s Pricing Team has been continually surveying the market to gather the most up-to-date cost information in preparation for the June 2022 publication. Below is a summary of the increases which have occurred since the May publication.
Building Material – In review of Verisk’s Basket of Goods Material only index we have seen a 10.4% increase since January 2022 in the USA and a 6.5% increase in Canada. In addition to increases in the cost of materials themselves, other indirect costs such as delivery fuel surcharges are becoming more common. Delivery surcharges cannot however be factored into individual material costs as they are normally applied as a flat dollar amount regardless of the amount of material being delivered. It is likely that, until the market settles, a delivery surcharge for fuel over and above the cost of materials included within Verisk’s published pricing information, may continue to be added by suppliers. This can be accounted for using the fuel surcharge line item (code FEE FLSRCHG).
Labor – Increases in fuel costs have a direct impact on the cost to transport employees to the jobsite. Labor costs have increased 3.9% nationally in the USA and in Canada since the January 2022 publication (see Labor Rate Update below).
Repair costs as a whole – overall repair costs have increased 6.8% in the USA since the January 2022 publication and 5.6% in Canada.
For a more detailed view of cost impact and price trends, visit Verisk’s Industry Trend Report section of XactAnalysis at https://www.xactanalysis.com/apps/itr/itr.jsp.
Labor Rate Update
Unlike material and equipment costs which react very quickly to these market factors, the true impact on labor costs is generally much slower to be seen. One reason is that most contractors sell services daily but pay fuel receipts only monthly. Therefore, a lag time between when the work was originally bid and performed to when all job costs are calculated can be a month or more. Additional time is then spent in determining the extent to which the increased fuel costs should be passed on to the consumer. Unlike material or equipment suppliers whose markets are more easily controlled, the labor market is highly competitive, making the translation of costs from the fuel pump to an increase in billable hourly rates a much more time-consuming process.
Realizing that the contractor/service provider market may not have had sufficient time to adjust for these increased costs and to communicate these adjustments to Verisk, Verisk has taken steps in the release of our building cost data for June 2022 to ensure that all Retail Labor Rates published are inclusive of some level of assumed impact.
We are using the following assumption to take into account the additional cost of fuel for the June publication for the USA and Canada.
Verisk assumptions USA
Average miles per vehicle / per year: 30,000
Average gas mileage per vehicle: 10
Average # personnel per vehicle 1.5
Verisk assumptions Canada
Average kilometers per vehicle / per year: 48,000
Average gas mileage per vehicle: 23.5 l/100km (0.235 litres per km)
Average # personnel per vehicle 1.5
Based on this assumption, the impact (increase in cost) per hour of work on the job was calculated to be $0.35 per hour in the USA and $0.66 per hour in Canada.
Determining whether labor data included gasoline price increases
Verisk’s goal is to never arbitrarily influence prices. In keeping with this goal, we wanted to ensure that labor rates which had been provided by Contractors and Service Providers that already included these adjustments were not increased further. To accomplish this, Retail Labor Rates were not increased across the board, but rather were analyzed in detail to determine if the increases provided by the marketplace met at least the minimum assumption calculated by our formula above. If a labor rate did not meet that minimum assumption, it was increased. If it did, no adjustments were made.
This was done because the rapid and significant increase in the cost of fuel which occurred during May was an anomaly, and therefore an action on our part outside of the normal reporting process was deemed appropriate. Verisk encourages contractors and service providers to continue to monitor costs in their area and provide updated pricing information to Verisk as they normally do whenever changes in the market occur.
Verisk’s analysts determined that since the April publication nationwide increases in gasoline costs should cause an average increase in Retail Labor Rates of $0.35 per hour in the USA. Based on this information, Verisk adjusted any Retail Labor Rate provided by a Contractor or Service Provider which did not increase by at least $0.35 per hour since the April 2022 publication to meet this minimum increase assumption.
For Canada Verisk’s analysts determined that since the April publication nationwide increases in gasoline costs should cause an average increase in Retail Labor Rates of $0.66 per hour. Based on this information, Verisk adjusted any Retail Labor Rate provided by a Contractor or Service Provider which did not increase by at least $0.66 per hour since the April 2022 publication to meet this minimum increase assumption.
It is important to note that the actual needs of each Contractor and Service Provider will vary. Meaning that the actual miles driven per day, and the fuel economy of their vehicles may be greater or less than the assumptions made by Verisk during this analysis. Verisk, as always, encourages users to calculate their Retail Labor Rates based upon the expenses and overhead needs of their individual company. When doing so, however, please be mindful that these increases described in this paper have already been implemented based upon our assumptions.
* USA Calculation
1) 30,000 miles per year / 260 work days per year = 115.38 miles per day
2) 115.38 miles per day / 10 mpg = 11.54 gallons of fuel used per day
3) 11.54 gallons per day * $0.36 increase in fuel = $4.15 per day in additional fuel costs
4) $4.15 per day in additional fuel costs / 1.5 individuals per vehicle / 8 hrs work per day = $0.35 per hour
* Canadian Calculation
1) 48,000 kilometers per year / 260 work days per year = 184.62 kilometers per day
2) 184.62 kilometers per day * 0.235 l/km = 43.39 litres of fuel used per day
3) 43.39 litres per day * $.183 increase in fuel = $7.94 per day in additional fuel costs
4) $7.94 per day in additional fuel costs / 1.5 individuals per vehicle / 8 hrs work per day = $0.66 per hour