For many fleets, bulk fuel may not be a long-term cost advantage

Aug. 13, 2015
White paper: Fleets should factor in associated costs, procurement expertise needed

Should your fleet be purchasing fuel in bulk or at retail pumps? Once you consider all the associated long-term costs of bulk fuel — things like pollution protection insurance for fueling equipment — most fleets would be better off with retail and a fleet card, a new white paper suggests.

“Installing, operating and maintaining bulk tanks is generally far more expensive than paying for fuel at the pump,” according to the paper’s publisher WEX Inc., a provider of payment processing and information management services to fleets and others.

WEX handles bulk fuel and other purchases, but also offers fleet cards that incorporate fuel and payment management systems. So the company deals with fleets that choose either option, or both. 

Fleet cards from WEX and others like the various fuel brands “in almost every case . . . are the more cost-effective option” when long-term costs are added in, the white paper states — though it should be noted that some of those associated costs are potential, not guaranteed. But fleet cards can offer savings through fuel rebates or cash-back programs and may also include sophisticated payment controls and features, like purchase tracking down to the driver or truck and routing apps that can direct drivers to the lowest-cost fuel stops.

To be sure, there’s more than just the cost consideration. Some fleets such as those operated by emergency responders, government agencies and utilities companies may require 24/7 access to fuel, the paper notes, and thus may need their own onsite fueling in case of things like power outages or a range of emergencies. Other fleets may be operating off-highway vehicles or require fuel at a particular location, so they’ll require their own fueling onsite.

Where costs add up

The white paper notes the upfront costs of bulk fuel alone are substantial. “To install a single above-ground tank, including all the necessary hoses, pumps, card readers and so forth, typically runs a minimum of $25,000 on average,” the authors write.

Those initial investment costs sometimes are built into fuel prices over time, “tacking on an extra 5 or 6 cents/gal.” that could take years to recoup.

Costs of keeping equipment updated to meet safety and Environmental Protection Agency regulations also come into play. The white paper cites a 2014 API report that U.S. fuel stations collectively have spent more than $20 billion since 1990 on environmental concerns like fuel equipment upgrades. Fleets that buy bulk fuel bear such costs themselves, whereas a fleet card puts that responsibility on the retail fuel outlet. 

The paper’s authors suggest that fleets looking to buy fuel in bulk may not have in place the manpower and expertise needed for cost-effective fuel procurement. “Bulk fuel often requires a dedicated full-time employee or employees,” the white paper states, and fuel is acquired by spot or contracted futures purchases, which bring with them a host of market variables.

“Tasks often include bidding on fuel, tracking inventory levels, and managing tank ‘leaks,’” according to the white paper. “If the [fleet] manager can’t spare the resources, or if the process is managed by someone who doesn’t have this expertise, then the fleet may lose significant amounts of money.”

Fleets also may lack reliable controls on bulk fuel tank use and filling, says Bernie Kavanagh, vice president of North American fleet and strategic relationships at WEX. Particularly with older tanks and equipment, methods like an honor system for employees using the pump or “sticking” — dipping a yardstick into a tank to gauge fuel levels — are imprecise at best, and can result in losses for a fleet.

“That can leave you open to slippage,” Kavanagh tells Fleet Owner. Equipment like new card readers and fuel management systems can be added to older tanks, he notes, though the cost burden of such upgrades again is on the fleet rather than the fuel retailer.

Even for fleets that have the requisite systems and expertise to purchase, track and manage bulk fueling, there’s also the possibility of a spill, which could bring with it hefty fines and years of cleanup. “That’s a wild card in all of this,” Kavanagh says. “If that happens, all bets are off; you could have all kinds of problems.”

Should fleets make a change?

Fleets need to consider their unique needs and a variety of factors, Kavanagh says, if they’re initially opting for a fleet card, bulk fuel or some combination of both — or deciding to change what they’ve been doing.

“You’re going to make a decision based on multiple factors,” he notes. “It’s cost, but it’s also convenience, security and other things. For example, if the most economical way of fueling is also the least convenient, you need to weigh that into the cost. Those are some of the things you look at.”

Beyond those that simply require their own fuel supply at all times, Kavanagh describes the kind of fleet for which bulk fuel makes sense. “If you could script out the perfect bulk-fueling customer, it’d be somebody who comes back to the yard every night, so vehicles are there in the same location and can fuel before they go out for the day,” he says.

“They’ve got great people on staff who know how to buy the fuel, so they’re watching the futures and know when to fill up the tank,” Kavanagh adds. “All the compliance is taken care of from an EPA standpoint — they’ve got double-walled tanks, it’s all checked for leaks.”

“If you have that infrastructure in place, we find a lot of fleets will say, ‘I’ve already put the money into this and have the resources in place,’ so they’ll stay in bulk fueling to get the return out of it,” Kavanagh tells Fleet Owner. 

On the other hand, he also discusses the fleet that may want to consider changing its fueling strategy. “You may have a fleet with a number of trucks, and they put some tanks in when it made the most sense — maybe back when fuel was $3/gal. or $4/gal. — and they thought, ‘I need to just start buying fuel in bulk, because it seems like it’s going to be a cheaper solution.

“Now, fuel prices have come way down, and maybe those fleets are several years in and have to do some tank upkeep,” Kavanagh continues. “Maybe they’re not capturing the data with bulk fuel that they really need to be, so now they're losing some control.”

“That’s the kind of fleet that might look at this and say, ‘Okay, there are enough tools available on a retail card program that are going to give me the security and the control that I need to make sure the fuel is going into my company-owned vehicles, and they can steer me to the lowest-cost [retail fuel] providers so I’m going to maximize my buying power,” he says.

Kavanagh emphasizes the white paper’s conclusion. “More times than not, yes, for the typical fleet, the retail fuel solution using a fleet card is going to be better for you in the long run — and there are a number of pieces that come into it.”

About the Author

Aaron Marsh

Before computerization had fully taken hold and automotive work took someone who speaks engine, Aaron grew up in Upstate New York taking cars apart and fixing and rewiring them, keeping more than a few great jalopies (classics) on the road that probably didn't deserve to be. He spent a decade inside the Beltway covering Congress and the intricacies of the health care system before a stint in local New England news, picking up awards for both pen and camera.

He wrote about you-name-it, from transportation and law and the courts to events of all kinds and telecommunications, and landed in trucking when he joined FleetOwner in July 2015. Long an editorial leader, he was a keeper of knowledge at FleetOwner ready to dive in on the technical and the topical inside and all-around trucking—and still turned a wrench or two. Or three. 

Aaron previously wrote for FleetOwner. 

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