Potential fuel supply disruptions motivate fleets to plan for the worst

AFTER a slow start, the 2009 hurricane season heated up quickly in late August. Over a single weekend, three named storms — Ana, Bill, and Claudette — formed in the Atlantic and Gulf of Mexico.

It was a graphic reminder that these potentially devastating storms can appear overnight and trucking companies must prepare in advance for severe weather events. Lack of preparation can result in disaster.

Even without weather issues, truck fleets face the challenges of ensuring fuel supply security and minimizing the cost to procure, manage, and transport bulk fuel. Add to this the threat of a supply constraint caused by a hurricane, and these challenges are amplified tenfold.

Rapidly increasing fuel prices and price volatility are not short-term economic variations. In fact, this unpredictability is the new norm affecting the trucking industry now and for years to come. In order to properly streamline fuel processes, fleet owners should evaluate a comprehensive approach to fuel management that simultaneously provides security of supply and improves the economics of fuel buying and consumption.

Fuel expenses now rival labor as the largest cost for fleet owners and operators. This is leading to the re-evaluation of underlying assumptions and risk controls about how fuel price volatility and potential supply shortages are built into a truck fleet's business model.

Gustav and Ike

In 2008, Hurricanes Gustav and Ike caused some pipelines and refineries to temporarily shut down along the Gulf Coast, which in turn caused supply constraints and price spikes. But, hurricanes cause even greater challenges for fleet managers who are tasked with predicting operational expenses and protecting operating margins.

Fleet operators managing supply portfolios and maintaining adequate stock levels, often at multiple sites, should consider a centralized approach to their fuel management. Because the premium is placed upon security of supply, many fleet operations tend to overstock, which can result in overpayment and increased inventory carrying costs.

This supply chain complexity coupled with erratic price cycles caused by the market and unpredictable weather patterns, causes concern for chief financial officers and business unit managers. With margins the thinnest they have been in recent history, attempting to minimize overall expenses is essential to remaining competitive.

Today more than ever, reducing these liabilities, controlling the total fuel spend, and maximizing asset utilization have become strategic imperatives for leading fleet companies. This is precisely why many truck fleets are outsourcing fuel management to expert teams that can:

1. 1) Centralize the fuel management process,

2. 2) Help mitigate the impact of price volatility, and

3. 3) Ensure security of supply.

By outsourcing fuel management, fleet operators obtain greater supply security at a lower cost while redistributing internal resources that can focus on the core business.

Key benefits of outsourcing include:

• Lower fuel costs

• Increased supply security

• Reallocated resources

• Reduced administrative burden

• Acquired expertise of a complex supply chain

Fuel supply chain complexity often inhibits an internal fuel department's efficacy when it comes to accurately valuing inventory or tracking in-ground volumes. These difficulties in accurately forecasting precise volumes and usage severely limits an operator's capacity to price protect.

An effective outsourcing arrangement can equip fleet owners with real-time access to all operational, purchasing, pricing and financial reconciliation activities. Fuel management experts also can provide contingency planning assistance to help fleet companies analyze their supply portfolio to avoid stock-outs during supply disruptions.

Expert outsourced solutions such as FuelQuest's Fuel Center drive average savings of four to six cents per gallon by combining industry expertise, best practices and an industry-standard fuel management solution. Fleets of all sizes can access sophisticated benchmarking and detail in order to better manage operational budgets and centralize control — yielding new levels of visibility across the organization.

Few options

Fuel price volatility is a year-round challenge for fleet operators and hurricane season is no exception. In a recent Hurricane Fuel Pricing and Supply Survey conducted by FuelQuest, the majority of respondents, which included both retailer and fleet operators, indicated that they only have between one and 10 fuel supply options in place.

One respondent indicated that “finding and maintaining relationships with multiple vendors is difficult due to the driver carding guidelines of most terminals.” Feedback also indicated that terminal access is based on the frequency in which one utilizes the facilities, making it difficult to establish long-term supplier relationships.

When developing an effective supply strategy, fleet operators need to build a portfolio of supply alternatives that match business needs, logistics, and geographic infrastructure. This can include an optimal balance of long-term, fixed price contracts, index-based contracts, and spot market opportunities.

Fuel Center provides an outsourced fuel management service for clients who wish to control high motor fuel prices and volatility. This expert fuel team leverages FuelQuest's Fuel Management System (FMS), which manages more than 15 billion gallons of fuel annually. This advanced level of industry intelligence and integration to all supply options enables greater supply predictability — a crucial factor as the summer hurricane season gets underway.

Matt Tormollen is President and CEO of Houston-based FuelQuest, the leading on-demand software and services company for the global downstream energy industry