FuelQuest’s Fuel Center monitors its clients’ inventories.
A “new normal” asserted itself within U.S. fuel markets a decade ago. Day-to-day price swings of 3 cents or more previously occurred only 6% of the time, but in 2004 they began happening nearly one-half the time. Swings of 5 cents or more rose from 1.4% of the time to one out of every four days.
This volatility is now embedded within wholesale fuel markets and shows no signs of abating. Use the following tips to procure fuel at the lowest possible price and take advantage of volatility while maintaining secure supplies.
Establish a balanced portfolio
While it’s tempting to plan around fixed-price contracts, they negate opportunities to take advantage of profitable price swings and tend to cause higher overall fuel costs. A mix of both contracted and spot supply is necessary to capitalize on opportunities for gain.
Optionality across contracts is important even with contracted supply. If you’re in suburban Detroit, you might find the best price there—or in Toledo, Ohio. Having supply options in adjacent markets also ensures security of supply.
Another way to drive lower costs and better overall pricing is to establish varying payment terms (e.g., same day, prior day) and multiple indices (e.g., PLATTS, OPIS).
Embrace just-in-time best practices
A just-in-time inventory strategy is essential to avoid having too much inventory on hand if prices fall. Excessive supply ties up resources that could be used elsewhere.
Just-in-time management lowers capital requirements and enables advanced strategies like load shifting: moving scheduled loads forward or back to capitalize on market movements. Load shifting allows fleet managers to take advantage of intra-day buying opportunities that rely on inventory transparency, available tank space, and demand forecast accuracy.
A baseline of existing processes and performance must be established to quantify savings and compare to previous performance.
A third-party company can help with the process and provide advanced processes and techniques. Look for a vendor that’s independent of fuel suppliers.
The current situation can be an asset for fleet managers who leverage the right technology, people, and strategies.
Ryan Mossman is vice president and general manager of fuel services for FuelQuest, a provider of gasoline and diesel management. Visit www.fuelquest.com.