Trucks at Work
Containing fuel costs

Containing fuel costs

Fleet managers today are at the intersection of expense management and day-to-day operations. Charged with controlling costs and enforcing usage and operational efficiency plans, they are stuck between a rock and a hard place when it comes to balancing the theory and practice of cost-cutting and budgeting.” –Rich Stecklair, senior vice president-corporate payment solutions, Wright Express

Diesel fuel prices are on a tear all of a sudden – not surprising, given the recent deep freeze across the U.S. Diesel, as we all know, is made from the same petroleum distillate as home heating oil, so when the temperature plummets (like it’s doing now), refineries start cranking out more heating oil at the expense of diesel. Thus, you get a crimp in supply even as demand remains the same – thus, a shortage, and thus (tah-dah!) price increases at the pump.

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According to the Energy Information Agency, average U.S. diesel fuel prices jumped eight cents in the last week alone, rising to $2.87 from $2.79. They’d climbed six cents the week before that, too, climbing to $2.79 from $2.73. All told, diesel fuel prices are up over 56 cents per gallon compared to where they were at this time back in 2009 – certainly not music to a trucker’s ears.

So, what are fleets to do about it? The Department of Energy recently doled out $187 million in grants to various truck OEMs (you’ll read more details about this effort in our news section later today) to foster fuel efficiency gains for heavy and light-duty commercial trucks. But at best, any such fuel economy improvements resulting from this research and development funding bonanza are five years away – doing nothing to help fleets today, right now, control fuel costs.

While fleets can and do enlist the help of their drivers to achieve better fuel efficiency with their current equipment, contributions can be made from the back office as well, noted Rich Stecklair, senior vice president-corporate payment solutions for South Portland, ME-based Wright Express – a firm that focuses on development a range of fuel management solutions.

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“There are many simple ways to save on vehicle fuel expenses,” he said. “Today, there are several standard ‘fuel management’ tools in a fleet’s kit – including dedicated fleet cards, telematics and fuel buying services – that provide information about vehicle use in a constant effort to help fleets gain efficiencies and realize savings.”

Stecklair (seen here at left) explained that dedicated fleet cards capture usage information and provide insights into driver behavior, while with telematics, fleet managers can monitor usage, optimize the efficiency of drivers’ routes, send them to best-price fueling locations, and guarantee their vehicles are operating soundly.

“These services allow larger fleets to reduce costs and save a few pennies on the price of fuel – though it must be noted these savings are relative to current market prices,” he added.

Ultimately, though, fleet management programs that combine the power of a dedicated fleet card with the benefits of telematics and better fuel buying are still faced with fuel price volatility, Stecklair pointed out.

“But the bottom-line impact of that volatility can be virtually eliminated with a financial product – tied to the fleet card – that either sets the price of fuel, sets a range for the price of fuel, or sets a ceiling for the price of fuel,” he said.

Nullifying the impact of extreme fuel price swings is the goal here, said Stecklair. For example, he points to the infamous year of 2008, when retail diesel fuel prices went from $2 a gallon to more than $4 per gallon, then back down to less than $2 per gallon – all in about four months.

“That is as extreme a swing as anyone would ever expect, predict or manage for,” he noted. “It is also impossible to say that it won’t happen again.”

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The ripple effect of fuel price volatility moves though companies in different ways Stecklair explained; normally, the size of the price move in fuel is directly related to the size of the ripple inside a company.

“Bigger fuel price swings, in addition to sharply raising prices, get noticed at the most senior levels in companies – a time when it pays for fleet managers to have a solution in place,” he said.

The fully burdened cost-per-hour of that vehicle and driver precludes cruising around in search of lower fuels costs, which is why telematics programs come in handy, allowing for more efficient routing and planning – putting drivers at the right stations at the right time.

Fleets that have a bulk fueling option are already lowering their price relative to retail, said Stecklair. Contract prices for larger amounts of fuel can control short-term costs and show savings compared to retail, he explained, at the same time helping maximize efficiencies around bulk fuel by making better buying and inventory decisions that also increase the savings over retail fuel purchases.

“Another method is partnering with a fuel card provider that has access to fuel price protection programs, so fleets can put an end to fuel price volatility,” he added. “They will analyze a company’s current fuel costs, predict its future fuel needs, and then work with the fleet to create the right price protection strategy for the business and its budget.”

There are several options for fleets to pursue in this area, Stecklair pointed out:

Set a price for fuel. This option guarantees drivers will always pay a set rate per gallon when purchasing fuel, no matter where they may be or at what station.

Set a range for fuel. Fuel costs will always stay securely within a business’s pre-determined scope.

Set a ceiling for fuel. This risk mitigation strategy minimizes a company’s fuel expense risk and caps its financial exposure. Businesses will pay the market price for fuel – that is, unless prices climb above its pre-planned spending limit. By setting a cap on fuel spending, the company chooses the most you’re willing to pay per gallon.

“Fuel price predictability is one more tool carriers can use to better protect themselves against one of the biggest wildcards in fleets operations today: The cost of fuel,” he stressed. “It helps fleet managers smooth out the financial impact fuel price volatility has on their operation.”