The Smart Way to Lessen the Sting of Fuel Increases

The Smart Way to Lessen the Sting of Fuel Increases
Once you have a handle on the cost of fuel, do what you can to manage your consumption. Both small and large companies should have systems in place.

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The phrase “pain at the pump” has become almost a mantra for everyone in the 21st century, with gasoline and diesel prices seemingly jumping every week. And while many individual and combined factors impact gas prices, what really matters to contractors (whether they have a fleet of two or 22), is how to deal with rising costs. 

As of mid-June, a gallon of diesel fuel in the U.S. ranged between $3.75 to just over $4 per gallon (depending on region), according to the U.S. Energy Information Administration. Those prices, across the board, are up several cents over last year. And with many trucks getting less than 15 miles to the gallon, it all adds up. 

Ignoring these increases is foolish. Absorbing additional costs can be perilous. But passing along costs to customers can be risky. Experts agree, however, that there are effective methods to keep fuel costs in check; doing so may be the best way to keep your fleet humming along during tough times. 

Do your homework

The current economy, as well as issues of supply and demand, all impact the fluctuations in the gasoline market. “One of the key issues is logistics,” says Gregg Laskoski, senior petroleum analyst at GasBuddy.com. Right now, he notes, the Great Lakes region is especially impacted, with some refineries operating at lower capacities, which drives up costs. 

“We don’t think it’s a long-term trend,” he says. “Another part of the picture is also taxes. They can vary significantly depending what part of the country you’re in.” 

Doing your homework on sites like GasBuddy.com and www.eia.gov can be an important part of the equation. Know what the prices were a year ago, what they are now and what the forecasts predict. 

“Fuel prices often follow fairly cyclical patterns,” Laskoski says. Using fuel charts, contractors can customize their own charts over periods of time to track how prices have gone up and down. High prices tend to occur, he adds, in spring and summer. 

Manage, or hedge, your fuel costs

Once you have a handle on the cost of fuel, do what you can to manage your consumption. Both small and large companies should have systems in place. Sites like GasBuddy.com offer quick and easy tips that any size contractor can take advantage of. Using such tools helps manage the risk and protect profit margins. 

Another alternative is to consider fuel price hedging — which are legal strategies to help companies insure themselves against the risk related to fuel charges. 

Elaine Levin is president of Powerhouse, a Washington, D.C., consulting firm of energy hedge advisors and futures brokers. “We help companies control their profit margins and control their businesses,” she says. 

Companies may hedge oil prices to dampen unpredictable price movements and the damage it does to budgets. Many fleets rely on a fuel surcharge, but it may not cover the entire change in fuel costs. 

Levin says customers can pay a premium to purchase an “option,” which is similar to an insurance product. It’s a strategy often used with home heating oil companies. 

“If you own an option, if the price goes above the level of the option (the strike price), there is a payoff,” she says. “You can use the payoff to offset your higher fuel bill.” This is especially convenient for contractors who don’t want to pass along a fuel surcharge to their customers. 

And, much like insurance, she adds, “If the market goes lower, you spent premiums for protection you didn’t need. The volatility of the market can impact the price of the option.” 

Price hedging/options is just one of the topics that will be covered at the Oil Price Information Service (OPIS) Fleet Fueling Conference Sept. 9-10 in Nashville; the event will also feature seminars on keeping fuel costs down, route optimization and biodiesel technologies. For more information, visit www.opisnet.com/events/fleetfueling/index.html. 

Manage your fleet

Fleet management has come a long way. Companies such as NexTraq offer software packages to help companies with all size fleets. “These fleet management systems really have seen such rapid adoption in the past few years,” says Mike Scarbrough, CEO of NexTraq. “A lot of what we’re focused on is helping people increase the revenue of their business. 

“It’s no one thing that’s usually killing the organization,” he admits, noting that fuel price increases alone are just part of the equation. 

Monitoring efficient routing is only one important factor. “We’re trying to get people to efficiently go where they’re supposed to go and only go where they’re supposed to go,” Scarbrough says. “That should lead, in and of itself, to fuel savings.” 

Fleet management systems also cover driver behavior — such as coaching drivers in techniques that can waste fuel, such as harsh braking, speeding and increased idle times. Keeping tires properly inflated — along with other regular maintenance — also saves fuel, but these simple things are often overlooked by both small and large companies. 

Validate any surcharges

If you’ve exhausted all your options and decide to implement a surcharge, do so wisely. “There’s no rule that can be applied across the board,” Laskoski says. “Every customer has a different tolerance level.” 

Validating the reasons behind increases — such as using online fuel charts — at least make surcharges more understandable (if, albeit, painful). And remember that a surcharge needn’t be a permanent measure; some customers may be able to relate better to introducing a surcharge as an emergency measure. 

“People, as a rule, are trying to do the right thing on both sides,” Scarbrough adds. “You need to do a good job of explaining why you’re charging what you’re charging automated systems help you do that.”



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