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Hedging your Bets

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Is it time for fleets to lock into fuel contracts with the hope of saving money at the pumps? PHOTO Unsplash

In a perfect world, some fleet managers could have locked into fuel contracts long before we saw the kind of prices we see today. With gasoline selling at, or above, the $2/litre mark, is now the time to make deals with suppliers?

“When it comes to hedging, that ship has sailed,” says Steven Jastrow, Vice President, Consulting and Analytics at Element Fleet Management. “That is unless you think prices are going to go much higher.”

Then again, fuel suppliers are aware of where prices are now and have made their own forecasts about where they might be in the near future. Hedging now would only make sense, Jastrow adds, if you thought fuel suppliers’ forecasts were wrong, and you expect prices to exceed what the industry is predicting.

Jastrow adds that hedging is a two-edged sword. You could win if prices go really high, or you could lose if prices go back down. “I’m not sure I would suggest fleets pursue a hedging strategy,” he adds, “That’s really something their finance teams ought to be looking at as part of an overall hedging strategy against inflation.”

Andy Hall, Manager, Fuel & EV Products, Global Procurement, Holman warns that hedging isn’t something that all fleets can get into. “Usually, you have to be doing a pretty significant volume,” he explains. “Usually the threshold is around 90,000 litres a month with either gas or diesel. So you have to be doing a significant volume, you have to do a lot of advanced planning, and you really have to get your finance leadership comfortable with the idea.”

Pain at the pump

Unfortunately, for many fleets, the cost at the pump is going to be hard to negotiate, Jastrow says. “If you were going to transition to bulk fuelling, you would be able to negotiate a rebate,” he adds. “That works if you have a depot, and you have on-site fueling. But the majority of our clients are filling up at regular gas stations, and they’re limited in terms of negotiating better prices.”

Fleets that are taking advantage of a fuel card program could enjoy discounts that are already built into the program, but Jastrow says it would be difficult to negotiate additional discounts on top of what is already offered.

That said, there are other good reasons to monitor spending with a fuel card program. “A managed fuel program is important because when fuel prices go up, that’s when you may be more susceptible to fuel fraud,” Jastrow explains.

Ashley Hyland, Account Executive, Holman suggests fleets take a closer look at the fuel card program they’re using. “What’s the discount?” she asks. “Can you negotiate a higher discount based on your volume?”

She also recommends monitoring fuel spending more carefully. “Sometimes fuel spend can be an identifier of other issues,” she explains. “So set up reporting, monitor your spend on the weekend, monitor your premium fuel purchases, monitor out-of-scope fuel purchase times, and things like that. These are all things you can do right now to impact the bottom line.”

Kevin Tait, Fuel Specialist, Global Procurement, Holman says that larger fleets should not shy away from negotiating better discounts with fuel suppliers. “When we have big clients coming to us, I reach out to the major oil companies, provide them with potential volume metrics, and most of the time, if there’s significant volume there, [we can get a more favourable price]. I won’t name vendors,” he adds, “but we have actually had a couple come to us unsolicited and say, ‘Can we provide a better discount?’ So it is absolutely possible, and it is something that we certainly have the ability to do.”

Quick-fix solutions

If you’re thinking of additives or other quick-fix solutions that would improve your fleet’s fuel economy, Keith Lamb, Director of Fleet, 4Refuel says he’s tried a number of products, but nothing seems to work.

“As a fleet, we have tried a number of solutions,” Lamb explains. “One of them was a hydrogen injection system installed on our diesel engines. It generates small amounts of hydrogen and then directly injects it into the system. During compression, it uses hydrogen to increase power and reduce fuel economy. We tried it on five trucks over six months, but the fuel economy was basically unchanged for those assets. We also tried additives, but the results were negligible.”

After investing in a number of solutions, Lamb concludes that a more back-to-basics approach might be best when it comes to cutting fuel costs. “The best way to save fuel is to reduce idle time.”

Finding relief from sky-high fuel prices isn’t going to be easy. Experts agree that monitoring driver behaviour and reducing fraud with the help of a fuel management program are probably your best bets until things get back to some kind of normal.

 

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