Odds are that your fleet is already doing a lot to reduce the cost of fuel and help protect the company from price volatility at the pumps. Few carriers had the cash flow to withstand the 2008 run-up in diesel prices without taking steps to cushion the terrible blow that steadily rising fuel costs were delivering to the bottom line. Today, however, thanks to new technologies and new services, you could probably do better still, maybe even much better.
Beyond the core fuel economy measures, like control of idling, spec'ing equipment for fuel efficiency, good maintenance practices and driver performance monitoring, there is another circle of less-obvious tools and strategies. Some savvy fleets are tapping into these to gain a competitive advantage and fortify their defenses in the event of future hard times.
Fuel price protection for smaller companies, for instance, is one new service that fleets are just beginning to utilize. Some of the largest carriers already “hedge” their fuel prices, but for mid- to smaller-sized fleets, the market analysis and fuel purchase quantities required often put hedging out of reach.
“Buying fuel-price protection is like buying an insurance policy,” explains Robert Fell, founder and CEO of Pricelock, a company which provides fuel-price protection solutions to businesses large and small, including truck fleets, by aggregating demand from a wide array of companies. “If you have more than twelve vehicles in your fleet, it now makes sense to consider fuel-price protection.”
According to Fell, Pricelock's fuel-price protection enables companies to lock-in their diesel or gasoline prices by paying an upfront premium, typically a percentage of their fuel budget. Fleets can decide what fuel-price protection level/cost they want, the number of gallons they want to be protected, and the length of the protection period that best meets their needs. The “insurance” premium then caps their exposure to price volatility for the insured period and protects fuel budgets from unforeseen spikes.
Suppose you locked in your fuel price at $3/gal. in January of 2008, Fell illustrates, before gasoline hit $4.41 that July. That would have protected your company against an incremental $1.41/gal. increase. On the flipside, without price protection, a company which consumed 250,000 gal. of fuel per month would have had an unbudgeted expense of over $350,000/month or $4 million per year.
“With unpredictable fuel prices here to stay, companies must approach their fuel budgets strategically and incorporate ways to improve budget predictability,” he says. “Fleets must think of fuel price protection as a permanent fixed expense that protects them from their biggest variable risk exposure.”
STATE FUEL TAXES
In addition to fuel purchase price protection, some fleets are also taking a much closer look at their state fuel-use taxes, especially at how they handle the accounting, reporting and recordkeeping. According to Al Uritis, CEO of accounting firm OTS, there are some accounting mistakes and plain old misconceptions about fuel taxes that can cost companies plenty in penalties and interest. “When it comes to saving money on fuel, most people think in terms of reducing consumption,” says Uritis. “I come at it from another angle — accounting.”
Uritis explains the state fuel-tax structure as “a system of debits and credits.” All states and the federal government add taxes to the price of fuel at the pump. The federal tax is always the same, but state taxes may vary from 8 to 36¢/gal. Since the usage tax is based on where drivers consume the fuel while on the highways, however, the money you save buying cheaper fuel in one state may be more than offset by the consumption taxes when you cross the state line, he notes.
Say the fuel tax is only 8¢/gal. in Georgia so you buy 80 gal. of fuel at the border on your way south, he explains. Georgia may credit you back the 8¢ tax you paid on the 70 gal. you did not burn in their state. However, Florida will charge you a usage tax for those remaining 70 gal. you burned on their highways, and that usage tax could be much higher than your ‘savings’ in Georgia.
“It is misguided and short-term to go out of your way to buy lower cost fuel,” says Uritis. “With state fuel taxes, it is a case of pay me now or pay me later. A lower price at the pump does not give you a direct savings; it gives you the perception of a savings. At the end of the quarter, there is no way to lower your tax burden unless you actually alter your routes to stay in lower tax states.”
What Uritis recommends to fleets trying to manage fuel costs is to keep good fuel records for at least four years, even though the state fuel-tax audit period is three years. “If you don't keep good records, you can be severely assessed on your direct cost of fuel plus charged penalties and interest that is compounded annually,” he says. “That means if you are found to owe $30,000 in fuel taxes, you may get another $10,000 added in interest plus a penalty fee. We have actually seen companies go out of business over this.”
According to Uritis, cash-strapped states are looking for revenue opportunities everywhere. For some, that means increasing fuel-tax audits on trucking companies. “Recordkeeping is critical,” he notes. “Treat your fuel tax return like your personal income tax return. Keep all the proof that supports your records, too. Every state is required to audit at least 3% of their fuel purchasers every year, so it is really a matter of when, not if, you will be audited,” he says.
When it comes to fuel cards, fuel purchase optimization systems, and automated fuel-tax reporting systems, Uritis is all for them, but he cautions that even those systems are not fool-proof. “The data is great, but it does not automate the actual reporting process,” he says. “You still have to audit the data. There is no such thing as a perfect system. Dispatch errors, for example, do sometimes occur.”
TANKS AND PUMPS
Errors (accidental and otherwise) can also occur at the pump or even at the fuel tanks, as carriers who maintain their own fueling stations can tell you. “Petroleum is no different from any other inventory, except that it is difficult to count,” notes Joel Hershey, director for Eclipse, a fuel storage and dispensing management system that is a division of ECS. “Most companies rely on their fuel delivery tickets and sticking [physically measuring] what is in the tank to keep track of fuel, but variables come into play as you pump or dispense fuel.
“People have not looked at inventory control as a valuable thing to do when it comes to fuel,” he says. “There is a disconnect between what they got and what they used.”
According to Hershey, there are four key areas where fleets may be losing money on fuel: leaking tanks; paying for more fuel than they actually receive; outright theft of fuel; and calibration problems with the fuel dispensers. “These may not seem like huge issues, but they really do add up,” he says.
In 1998, the EPA required monthly leak detection of fuel tanks and automatic tank gauges became the method of choice, but most companies tend to use them as “automated dipsticks,” explains Hershey, which means they don't really serve as a proactive, fuel inventory management system.
To help companies actively manage their fuel inventories, Eclipse electronically taps into those existing automatic tank gauges in almost real time and reconciles the amount in the tanks with the delivery bill of lading to within “a very few gallons,” says Hershey. Once fuel is in the tank, levels are also monitored 24/7 for leaks or unaccountable product losses.
As the fuel is being dispensed, the Eclipse system is also designed to compare what was actually dispensed with what the meter says. “Pump meters do ‘drift,’” he notes.
Eclipse also actively monitors consumption and inventory cycles for customers and advises them on when to buy based on the wholesale or “terminal rack rates” for fuel. “Wholesale levels, terminal rack rates, can vary hugely,” says Hershey. “Swings of 6 to 7% do happen. So we may contact a customer and advise them to top up their tanks early, for instance, because prices are going up.”
All this fuel management data is aggregated and available as a report for tank owners. There is also a warning system for issues such as tank leaks that require immediate attention. “Even if you have just one 10,000-gal. tank, you can benefit from better fuel inventory management,” Hershey notes. “As long as you are storing fuel, there is a potential for loss and a potential for savings.”
Even if your company does not maintain its own tanks and pumps, you could still shave dollars off your fuel budget by using a fuel purchase optimization system in addition to the fuel cards your drivers probably already carry. IDSC, now a part of TMW Systems, reports average savings for its “Expert Fuel” customers (generally fleets of 50 or more vehicles) of 4¢/gal. on a restricted network and 8¢/gal. on an unrestricted network. Some fleets see as much as 11¢/gal. savings. That translates into about $1,000 per truck per year and a payback period of three to six months, according to Mike August, vice president and general manager of TMW's optimization group.
Expert Fuel works by generating fuel purchase plans using IDSC's unique algorithm to calculate all relevant route and vehicle factors, including current fuel prices, fuel level, vehicle fuel consumption, state tax implications, fuel network implications, out-of-route miles, route policies, terminal fueling policies, tank fill policies, and driver amenities. Then upon dispatch, the system automatically generates a route optimization and a plan for fueling along the way. The resulting trip plan offers highway-by-highway directions and specific fuel-buying instructions, including the number of gallons to buy at each truckstop.
In business since 1994, IDSC has been growing rapidly, notes August, due in part to that 2008 run-up in the price of diesel. “We've grown 50% in the past two and a half years,” he says. “And there is a lot more investing in technology going on out there right now. Companies are implementing new technologies in order to leapfrog their competition — they hope. They see things improving, so they are preparing.”
Another new, technology-driven strategy for reducing fuel costs centers around the drivers, not the diesel, using driving simulators to deliver better training on how to drive for fuel efficiency. At Virage Simulation in Canada, for instance, the company is producing driving simulators and training programs designed to do just that.
“When it comes to driving for fuel efficiency, the problem is not with the drivers, it is with the trainers,” says Mike Reardon, director of business development for the company. He is convinced that simulators can help trainers to do a much more effective job teaching fuel-efficient driving practices, and he offers data to prove it.
According to Reardon, a study released last August in the U.K. documented a 1.5 to 3.2% improvement in fuel efficiency among drivers receiving “eco-drive” training in a simulator. “The attraction with simulator-based training is the quality of the feedback,” he says. “It breaks down theoretical concepts, such as looking far ahead, or skills such as shifting to their most basic level.”
He also notes that the simulator gives trainers and drivers the opportunity to test preconceived ideas about ways to save fuel so that they can see for themselves what really works. “We have been able to scientifically prove what driving techniques actually help to improve fuel efficiency,” Reardon says, “and we have an 87-page report on what to do and why. Sixty percent of wasted fuel, for instance, is due to how a driver accelerates.”
WHAT DO YOU KNOW?
All this enforced scrutiny of fuel-economy yielded an unexpected benefit; it turned the entire industry into a virtual think tank about how to reduce the cost of fuel. One of the results has been that fleet management solution suppliers and their customers have discovered new ways to extract more fuel-saving opportunities from the already-available data.
During the run-up in fuel prices, for example, PeopleNet developed a customized service designed to help their customers analyze the effects of driver performance, maintenance and other vehicle-based factors on fuel efficiency. Today, according to Jim Coffren, professional services consultant for PeopleNet, the average savings for fleets going through the program is $2,000 to as much as $10,000 per truck.
“The tool streamlines how you hear the story from the numbers,” Coffren says. “You see where you are succeeding, where you are not succeeding and why. It takes a real, objective look at why a particular unit uses more fuel or less fuel than another comparable unit.”
Coffren says that there are six different areas that may contain the real, root causes for the differences in fuel efficiency from one vehicle/driver to another: operating efficiencies, fuel network opportunities, maintenance, the truck specs themselves, the electronic parameters of the engine, and the drivers' behaviors. “We can isolate just how each individual combination performs while working,” he says.
“Trucks may be using $5,000 in extra fuel, for example, because the fleet is pushing out the oil change intervals to save money,” Coffren explains. “We also tend to manage to approved ranges, so drivers getting 5.5 mpg when they should be getting 6.5 mpg just don't show up [on the alert system] and they don't get any attention. Today, companies can look at fuel economy performance on a truck-by-truck basis.
“Fuel is really the canary in the coal mine for a truck,” he adds. “If you can set up the data properly, you can identify those under-performing trucks. Today, if you are operating in the 5.7 mpg to 6.0 mpg, you are behind the curve. Fleets should be seeing at least 6.5 mpg, and the best fleets are well into the 7's and pushing 8.0 mpg.”
Qualcomm's new Analytics Manager, scheduled to be released this fall, is also designed to help fleets get a better, more actionable look at their company's fuel efficiency performance. “Analytics Manager was developed to enable fleets to create their own, customized views of their fleet's fuel economy performance,” says Jim Sassen, senior product marketing manager for the company. “Carriers can set their own views of fuel performance, establish acceptable thresholds and weigh factors that contribute to fuel economy in their own operation. We have also begun providing a Qualcomm-wide view of fuel economy so you can see how you compare to like fleets. Having real data will enable companies to see trend lines that can be reassuring or motivating.”
Through our Fuel Manager application, people can also do their own testing on components, fuel additives, etc., to see how they affect performance as compared to the rest of the fleet,” Sassen notes. “They can set up test groups within the fleet. They can also create landmark functions which allow them to make fuel-use comparisons by location served, route, and time of day. As people start to use these capabilities they want to go deeper and deeper into the data to learn more.”
IMPACT OF WEATHER
One of the things fleets are ready to learn more about is the weather and how it impacts their daily and seasonal operation. At Xata, customers are using technology to help make adjustments to rates based upon the weather.
“We can calibrate fuel usage to weather patterns, which are cyclical, so that fleets can adjust their rates [or product costs in the case of private fleets] to reflect those changes,” says Christian Schenk, vice president-product marketing for Xata. “It costs 4.5% more to operate in Montana in the winter, for example, so you can adjust rates or product costs to reflect that on a seasonal basis.
“If we can adjust — via trends, modeling, pattern analysis, and so on — then we can also help mitigate risk from events like incoming storms,” Schenk continues. “You could compare incoming storms to lanes of travel and the associated risks and costs, for example. People have always watched the weather, but we did not think there was much we could do about it. We can plan better, though.”
“The spike in diesel prices really changed things forever,” observes Mike Flynn, manager of onboard technology for Penske. “People realized that this has just got to be controlled. They looked at their technologies and began to ask more questions and want more features. Today, fuel economy management is almost an expected functionality.
“These systems are complex, however,” Flynn continues. “We find customers that just aren't using the capabilities of the systems they already have. It takes a while to get up to speed and then you have to be retrained [as new capabilities are added or people change jobs]. Many of our customers wear a lot of hats, so it may be the system they have is not pushing data at them the way they need it to do. We work with our customers to help them get back on track.”
“Beyond driver training and vehicle maintenance, it is important to ensure that drivers [and others] clearly understand the fleet's fuel-purchasing strategy,” explains Patricia Waguespack, marketing manager for fuel-card provider Multi Service. “Smart business is directly impacted by smart driving in the trucking industry, and if you can create a corporate environment that promotes empowered and efficient drivers, you will see the returns.”