Article

Automating Fuel Buying

Technologies exist today to help fleet managers make the most out of their fuel purchases.

June 2007, TruckingInfo.com - Feature

by Jim Beach, Technology Editor - Also by this author

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When asked how they were addressing the challenge of rising fuel costs, 36 percent of fleet respondents said they had implemented a fuel purchasing plan to streamline fuel buying practices, according to the 2006 Fleet Fuel Study survey by Eyefortransport, a global provider of transportation and logistics information. Another 50 percent said they use a software package to automate data gathering and fuel tax reporting.

In the same survey, fleet managers said route optimization was a key issue in saving fuel because they wanted to cut out-of-route and unloaded miles. Another 31 percent have implemented idle-reduction technologies to save fuel.

Technologies exist to help fleets get the most out of their fuel purchasing, but implementing them can be time-consuming and difficult. That's one reason 38 percent of the respondents to the survey say their strategies for cutting fuel costs consisted of traditional steps, such as negotiating better deals with fuel suppliers and fuel card companies.

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A successful program requires discipline and systems, said Greg Miller, fleet manager for DHL. Speaking at an industry conference last fall, Miller noted that collecting and processing the data a fleet needs to make the most of its fuel purchasing can seem to be a daunting task.

Fleets need to establish systems that capture where trucks fuel, how much it costs, how long it takes, vehicle fuel mileage, fuel costs at other locations, etc. Fleets also will need systems that process that data and produce optimized routes, suggested fueling locations, reports and other management information. Then, fleets must exercise the discipline to "know exactly when and how to fuel the vehicles," he said. And they must have the manpower and computing power to crunch the numbers and deliver useful reports.

One company delivering such services for several of the largest fleets is FuelQuest, headquartered in Houston. The company automates fuel purchasing, logistics and taxation for companies such as Wal-Mart, UPS, FedEx, Yellow Freight, Swift and other large carriers. According to CEO Rich Cilento, the company's Fuel Management System reduces manual processes, increases productivity and sources fuel from hundreds of outlets.

Using FMS, a company can centrally manage fuel contracts, audit invoices, eliminate paper reports, manage underground storage tank reports and automatically track and file fuel tax refunds. "Fuel management might entail purchasing the fuel and managing the logistics of getting the fuel from a fuel terminal to an end-user location via a third-party fuel carrier," Cilento said. "We might also include automated and forecastable demand through inventory management."

Traditionally, that process of fuel management has been handled in a very fragmented fashion through local relationships. In those situations, financial reconciliation can be difficult, labor intensive and complex, Cilento said. "Without tools and technology, and especially with the price volatility in the market, it's just a hard thing to manage. What we've done at FuelQuest, we allow customers to execute that entire process, using one common network or set of tools and applications to manage the complexity, the environmental regulation, the tax regulation."

Most of FuelQuest's customers run large fleets that buy fuel at wholesale. Their vehicles fuel at various terminal locations throughout the country. Cilento cites as an example a package delivery fleet with about 750 locations in the U.S. At those locations are fuel tanks where the delivery trucks fuel.

The FuelQuest system connects to each of those tanks and monitors their levels. Based on usage at that tank, the system forecasts in advance when it needs the next fuel delivery. The system also monitors prices at all fuel supply terminals and about 500,000 other prices from outfits such as OPIS each day.

If the software says that a particular tank needs 5,000 gallons, it also recommends the best terminal to buy that fuel based on price, taxes and transportation charges. An order for that amount of fuel at that terminal will go to a third-party fuel carrier who will show up at the terminal, fill up and then deliver the fuel to the fleet's location. The carrier can do this for each of his locations from one central location, where in the past, fuel buying decisions were made at each separate location.

But finding the best-priced fuel is just the beginning. Once it's delivered, the system verifies that it's been delivered to the tank that needed it and verifies that the gallons delivered were actually the same gallons pulled from the fuel terminal. That information is used to electronically generate a reconciliation with the supplier and the fuel carrier. The invoices from both the supplier and carrier are delivered electronically.

If the fleet has contract pricing with a supplier, then the system takes that into account. If the fleet also buys off the spot market, the system compares contract prices to spot prices before making a recommendation. In the past, such transactions were difficult to reconcile – but automated, each one can be checked line for line to ensure the fleet is paying the correct amount for fuel.

While getting the best fuel price is key to their customers, Cilento said the No. 1 priority for many was what he termed "fuel security. They want to know they will have fuel when they need it, but price is a very close second."

 

 

The key benefits of using such a system: invoice discrepancies are minimized, fleets can handle their fuel purchasing centrally, they can know about every gallon going in and every gallon going out. "When fleets are spending up to $3 billion a year on fuel, this kind of inventory control is very important," Cilento said. "Without automation, it was almost impossible to expect anyone to reconcile 100 percent of the fuel transactions in their business. Now there is no excuse for not reconciling 100 percent of these transactions."

FuelQuest started working with large fleets about seven years ago because, "that's where a lot of the complexity in fuel buying is," Cilento said. Recently, they have been looking at mid-sized and small sized fleets – those that buy less than 50 million gallons a year. One such customer wants the technology and automation, but doesn't want to hire a fuel procurement specialist, which is what most large carriers do. For those fleets, FuelQuest offers a service called Fuel Desk.

"We operate the software for them so they get the benefits. That's how we kind of scale down to meet the needs of the mid-sized and smaller fleets."

In some cases, fleets use a combination of technologies to improve fuel costs. U.S. Xpress uses a fuel optimization product from Integrated Decision Support Corp. of Richardson, Texas, in conjunction with the CoPilot Truck GPS navigation system from ALK Technologies, Princeton, N.J. Speaking at a technology summit in Princeton this spring, Ken Crane, IT applications manager for U.S. Xpress, said the company's goal was to use technology to reduce driver time finding customer locations and fuel stops.

The fuel stop information is integrated automatically with dispatch information. Crane said the driver feedback so far has been very positive, noting they've had drivers who would not upgrade to new trucks because the new trucks did not have these technologies yet.

It's too soon to put a hard number on the ROI of the technologies, Crane said, but he added he felt the programs are working "if we can save drivers as little as 15 minutes a month, across the system, the technology pays for itself."

In the last few years, a number of fleets are asking the vendors that provide routing and mileage packages to include fuel optimization function. "By far, the most requested item is fuel purchase optimization," Chris Lee, vice president ProMiles Software Development Corp., said in a recent interview. "The amount of money fleets and owner-operators can save from using a fleet optimization program has grown tremendously."

With the ProMiles fuel optimization module, users enter their fuel network information, mpg, tank capacity, a beginning fuel level and an ending fuel level. "You may want to set the ending fuel level differently in different locations," Lee says. "If you are running to California, for instance, you may want to set your ending fuel level at 100 gallons rather than 40 or 50 gallons so you don't have to buy fuel in California."

The program then looks at the truck's fuel level at any point along the route and suggests where to fuel and how much to buy. "You can optimize retail price or price minus IFTA taxes collected at the pump," Lee says. "If taxes are collected at the pump, a price that appears higher may actually be lower just for the fuel. The system tells you this." The ProMiles fuel product uses fuel price data from a proprietary database of more than 8,000 fuel stops, Lee says. Plus the company collaborates with fuel card companies, associations and truckstop chains to augment that data. The company recommends its customers download new price data daily.

Bernie Hockswender, director of sales for Rand McNally Commercial Transportation, agrees fleets can save money with a fuel optimization program. "The numbers we are talking about in terms of fuel savings are in the neighborhood of $1,000 a year per truck, and those savings are seen immediately upon institution of an optimization program. We believe in the current (fuel price) climate, it's something that will continue to grow and grow."

In answer to this demand, Rand McNally now offers a fuel optimization module for its IntelliRoute software called IntelliRoute Fuel. "A fleet owner or manager can enter in a particular route and then optimize that route with the fuel network they may be using," Hockswender explained. "They can plug in whatever their current discounts and then depending upon the price of fuel and state taxes along the way, the program will optimize the best places for that driver to stop and take on fuel. In some cases, the program may advise them to stop at one location to take on a quarter of a tank and drive to the next fuel stop to fill the tank completely where the fuel is cheaper."

The fuel module comes via a partnership called IDSC, Hockswender says. IDSC offers an array of IT solutions for truckload carriers including routing, asset tracking, fuel optimization and planning. With the IntelliRoute Fuel, users access the data via the web from IDSC's FuelAdvice.com site. IntelliRoute users activate the fuel module from within the software, which takes the user to FuelAdvice.com along with the route information already entered. The web site calculates the route and returns the fuel information for that route. Rand McNally will offer the fuel module to IntelliRoute customers for $9.95 per truck per month.

If a fleet is not using some kind of system to manage fuel costs, it is wasting money, said Verna Bailey, fuel manager for Prime Inc. Speaking at a fleet conference last fall, Bailey said Prime has been optimizing fuel for eight years; 96 percent of their fuel purchases are through their network. Company drivers are required to use recommended fuel stops and owner-operators are encouraged to use them. To induce owner-operators to come into the company's terminals for trailer inspections, the company guarantees to meet or beat any fuel price within 100 miles.

A number of vendors offer fuel optimization programs of varying degrees of complexity and cost. These systems allow fleets to input routes, preferred fueling locations, truckstop amenities and other information to generate recommended fueling locations. Many are designed for specific niches; others tailored toward long-haul operations. Noting that all carriers are different, Bailey said, "there is no one way to buy fuel" that works for every carrier. At the very least, however, a fuel optimization program should "optimize" fuel prices, tolls, taxes, miles and time. She advises carriers to test several systems and get driver input before making a final decision. "Getting drivers involved makes it easier to get them onboard with the system."

Bailey suggested fleets be prepared to adapt to make sure the system works for their particular operation. For instance, Prime went from once-a-day fuel price downloads to four times a day so they were making decisions based on the most recent information. Ensure the accuracy of the information put into the system to prevent bad results. "Bad fueling recommendations are almost always due to our errors," she said.

Implementing a program and integrating it with existing management and dispatching software can be difficult, Bailey warns, but finding a fuel management program that works can mean a better bottom line. For instance, Prime buys 80 million gallons of fuel per year. Their fuel management system is saving 3 cents per gallon, or $2.4 million a year.

As with most technology offerings in the trucking industry, one size does not fit all. Each fleet's strategy will depend upon its particular operation. Experts recommend talking to as many vendor companies as possible before committing to a strategy.

Of course, absent a fuel purchasing program, routing and fuel optimization software, fleets can still save money on fuel by burning less. DHL's Miller says fleets can have a better impact on the bottom line by managing consumption than by getting a lower cost per gallon. If you do both – optimize fuel purchases and manage consumption – you can save double.

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