Are You Comparing Apples to Apples on Fuel Prices? A Little Knowledge Can Go a Long Way
September 2010, TruckingInfo.com - Feature
In this day and age of high-priced fuel, fleet managers need to have a fairly comprehensive knowledge of the fuel market. This was not always the case.
Years ago when diesel fuel prices were considerably less expensive and market instability was a daily move in the wholesale market of less than a penny, the fleet manager considered fuel as just another operating expense. After all, a price increase of less than a penny was not going to bankrupt his company.
Fast forward to the present. Over the past few years we have witnessed daily moves in the wholesale price of fuel of 10, 15 and even 20 cents per gallon. Multiply that by the volume that many fleets consume on a daily basis and it adds up to real dollars very fast.
Many people say we have no control over the price of fuel. For the most part that statement is true. It is especially true for the small to medium fleet operator. They don't consume enough volume to leverage that volume to negotiate discounts at truckstops, card locks, with mobile fueling, or even bulk deliveries, unless they have some means to aggregate their volume with other similar operations. Large fleets have that ability and are courted by suppliers to purchase diesel fuel at their locations at a discounted price. In most cases, depending on the volume these discounts can be very aggressive.
With that said, there is some control over at least a percentage of the price of fuel, that being the margin charged, or mark up, over daily wholesale charged by the supplier, vendor or retailer.
Many fleet managers only look at the price of fuel and not the true cost of diesel fuel prices. A prime example of this is the consideration of a mobile fueling company that fuels the fleet at the customer's facility during their down time, usually during the overnight hours. Many fuel mangers will ask for a price quote on a daily basis and compare it to what they are paying when their drivers fuel at their normal retailer, truckstop or card lock. Usually the mobile fueling price will be higher than the local retail price. This is where the comparative mistakes begin. The fuel manger is comparing what he considers "apples to apples" price and not considering the true cost of fuel. That cost includes his driver's nonproductive time while either he or an attendant is fueling the truck as well as possible out of route miles. This can add 25 cents or more per gallon to the true cost of fuel. Another mistake is getting a price quote based on the mobile refueler's price compared to the retail price charged on any given day. The fleet fueling price should always mirror the wholesale market, whereas the retail market will always have a lag time in directly mirroring the fuel market. Therefore it is impossible to do a true "apples to apples" price comparison between the two methods on your diesel fuel prices.
The better way to compare the two methods is to get a pricing based on margin charged over daily wholesale. However, with this method the fuel manager must know what margin he is currently paying for fuel -- and 90 percent of fleet managers have no idea what margin they pay. Most fleet mangers don't have the time, resources or knowledge to be able to determine exactly what margins they are charged. In the retail market one word can describe margins: inconsistent. A reputable mobile fueling company will charge consistent, mutually agreeable margins, which can equate to lower overall diesel fuel prices.
Some fleet fuel managers have the expertise and knowledge of the fuel markets to make the decisions that best benefit their companies and operations and reduce fuel costs. Many that don't either need to gain the knowledge or seek the assistance of professionals that have the expertise to identify areas of fuel cost saving opportunity. As we can see by this example, there are ways to control at least a portion of fleet fueling cost. Gain the knowledge, or seek help. It's foolish to overspend on your diesel fuel. Glen Sokolis is president of Sokolis Group, a nationwide fuel management and fuel consulting company, www.FuelManagementSokolisGroup.com. You can reach him at firstname.lastname@example.org or (267) 482-6160.
Recent installments of "Friday Fuel:"
* "Fuel Management and Seven Tips for Putting Together an Effective Fleet Fueling Program,"
* "Cheap Diesel Fuel Prices? A Distant Memory"
* "Fleet Fuel: A Look Back and a Glimpse Ahead"
* "Fuel Management When You Least Expect It"
* "Life Is Like Fuel Management: You Never Know What You're Going to Get"
* "Take the Wild Card Out of Fuel Management"