Freezing the Market: Price Protection
By karen in Automotive | 0 comments
One of the most challenging parts of managing your fleet’s fuel expenses is how difficult it is to predict fuel prices. Although for the most part, the cost per gallon changes very slowly, that is not always the case. Don’t forget about 2008, when fuel prices shot up faster than anyone could have predicted. Suddenly we were paying more than $4 a gallon for fuel. For a fleet manager who is forced to operate his fleet on a tight budget, these kinds of unexpected jumps in fuel prices can be devastating.
What can you do? Luckily, there is something called fuel price protection. This is where you sign an agreement with a company to continue buying fuel at an agreed-upon price, even if the market jumps during your contract period. Most programs will enable you to choose the length of your agreement. This gives you the choice of whether you want to lock in your fuel prices for just a few months, or a year or more. Fixed price fuel programs are available for both diesel and regular gasoline.
Fuel price protection is not a totally new concept, but it is relatively new to smaller fleets. Large fleets have been using their influence to get fixed fuel prices for a while now. With many trucks and substantial fuel needs, the promise of their patronage gives them a valuable bargaining chip.
Small fleets, on the other hand, are starting to take advantage of fuel price protection programs, as well. Even if you don’t have a hundred or more vehicles, you can enjoy the benefits of a fixed price program.
To demonstrate how valuable fuel price protection can be, let’s imagine that we have another spike in fuel prices, as we did in 2008. Your drivers fill their tanks at a fixed price of $3.00 per gallon, while the rest of the country is paying $4.41 per gallon. Let’s say you get 500 gallons a month at that fixed price. That means you are saving $7.05 a month, which works out to be about $8,000 per year if the price jump lasted that long. Could you stand to save $8,000 per year on your fleet budget? Who couldn’t?
There is another advantage to fuel price protection, above and beyond simply saving money if fuel prices jump again. Even when fuel prices only vary by a little bit every week, this makes it difficult for you, as the fleet’s manager, to run an effective budget. With a fixed price per gallon for fuel, however, you can stabilize your fuel costs, and better predict your spending weeks or even months in advance. This enables you to budget out months in advance, and make long-term plans based on your budget.
When combined with other tools for managing a successful fleet, such as assigning Fleet Mastercards to each vehicle for tracking fuel consumption and fleet service, fuel price protection helps you to minimize your fleet expenses and maximize your business’s profits.
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