Diesel prices have risen fairly steadily since bottoming out in January when crude oil was trading at about $50 a barrel.
Diesel prices have risen fairly steadily since bottoming out in January when crude oil was trading at about $50 a barrel. As of late April, the national average is $2.877, and prices are just a hair below the $3 threshold in many parts of the country.
In this issue, we look across disciplines at some of the ways trucking operations can save on fuel costs – through price risk management, alternative fuels, information analysis and equipment selection. We don’t pretend to cover everything; certainly fuel cards, ptimization software and savvy maintenance practices, among others, are key to saving money on diesel. Rather, we are highlighting just a few important tools – some of which you might not have considered.
HEDGING YOUR BETS ON FUEL
Fleets of all sizes have pricing options
Hedging is a term that likely intimidates many fleet owners who think it’s an option only for owners of large fleets who employ at least a few MBA graduates. True, various forms of fuel hedging require someone to understand the inner workings of commodities markets and global petroleum demand, but that person doesn’t have to be the trucking executive. And clearly, size matters when it comes to negotiating directly with fuel suppliers. But while some hedging mechanisms might require a fleet to be a large purchaser of fuel, fleets of all sizes can leverage the market power of a larger group – or of the commodities markets.
The simplest form of price risk management – not really hedging – involves collective purchasing, such as through a group fuel program or a buying cooperative. For example, members of the National Association of Small Trucking Companies (www.nastc.com) can participate in the NASTC Quality Plus Network, which offers cost-plus discounts at more than 700 fuel stops. The discounts are applied daily and are reflected in the initial billing on each tank. Or there are rebate programs such as TruckersB2B (www.truckersb2b.com).
Hedging is more sophisticated in that it typically involves limiting the overall price in some way – not just discounts on a potentially volatile fuel price. In some cases, that means limiting the price of fuel directly. Sometimes, it means investing in one or more financial instruments that effectively “reimburse” fleet owners as costs rise. But that protection comes at some kind of premium, so fleet owners must assess the upfront costs versus the likely benefits.
Hedging as insurance
Among the factors involved in deciding whether and how to hedge are the degree of market volatility and the likelihood of upward pressure on prices. The current diesel climate fits the bill in both cases, according to Brad Simons, president of Simon Petroleum’s Pathway Network (www.simonspetroleum.com).
