Fuel management

Scope

All carriers should track the fuel mileage of each truck as well as each driver’s performance.

Regulatory citations

• None

Key definitions

• Bulk buying: Bulk buying means the carrier takes possession of the actual fuel and stores it in their own storage facilities or has the fuel shipper store it for them. Fuel hedging can be better defined as buying “virtual” fuel for future fuel needs while bulk buying is actual purchase and possession of the fuel itself. It is similar to fuel hedging as it also involves buying large quantities of fuel at one time.
• Company network: A company network is built by studying the movements of the fleet and identifying logical fuel stops along these routes. The carrier then negotiates fuel discounts with those specific fuel stops and identifies them to their drivers as “company” fuel stops. The largest savings can be realized if the carrier can determine, by volume, the amount of fuel that will be needed on a scheduled basis such as gallons per month. Discounts can then be negotiated based on volume use at each stop.
• Cost-plus programs: A program wherein the fuel network requires a carrier to pay a base price for fuel, as established by current market prices and contract, plus a fee.
• Exclusive network: Under this program, the carrier agrees to purchase all its fuel from one supplier which gives the carrier substantial leveraging in relationship to price. This then, can be distributed to the carrier’s vehicles at the supplier’s locations through a fuel card system or fuel credit card. Because of the guaranteed future business given to the fuel supplier, the carrier can enjoy sizable reductions in fuel costs under this program.
• Fuel hedging: Fuel hedging is purchasing fuel in volume, at a current price, for future delivery and use. This is done to protect against anticipated and unanticipated increases in price.
• Fuel networks: Agreements with fuel stops, fuel chains, fuel suppliers, and those companies that use fuel. Fuel networks allow the carrier to negotiate the best possible price for fuel at all times.
• Fuel surcharges: Extra fees added onto the original shipping rates determined by the carrier. Fuel surcharges are agreed to as part of the transport fee, and are directly related to increases in fuel costs. Typically, a standard rate is agreed to by the shipper and the carrier, tied to a specific fuel price. As fuel increases or decreases from this price, the fuel surcharge is adjusted accordingly.

Summary of requirements

Fuel surcharge. There are no legal requirements stating that a customer must pay a carrier’s fuel surcharge. Fuel surcharging is negotiated between participants by way of contract. If a carrier chooses to implement a non-agreed upon fuel surcharge, the customer may refuse to pay it and consequently, the carrier has no recourse.

Because of the reduction function in fuel surcharging, many customers have become more willing to negotiate a fuel surcharge increase rather than a shipping rate increase. Customers see it as more difficult to renegotiate a lower shipping rate based on lowering fuel costs, while a fuel surcharge rate is designed to automatically do that.

Once an exclusive or company network is established, the fleet manager will need to create a tracking mechanism to identify problems and make adjustments as needed. Off-network fueling needs to be avoided since this negates the whole purpose of the fuel network; fuel cost savings. If fuel stops are too far apart, too close together, or are not acceptable to the drivers, considerations and adjustments may need to be made to assure maximum savings from the program.

Both fuel hedging and bulk buying can bring sizable reductions in fuel costs to a carrier, but clear, concise studies must be done to determine proper purchasing schedules, relating to time and volume (use).

Fuel conservation measures. Fuel conservation can be realized through proper spec’ing of equipment to match the specific needs of the carrier, and through the use of a quality inspection and maintenance program for all vehicles. Some maintenance areas that directly affect fuel use are tire inflation and condition, bearing condition, brake operation, fuel system integrity, oil level and condition, and overall engine performance.

Driver behavior and incentives. There are numerous incentives that can be put in place to promote fuel savings through proper driving techniques.

• Many drivers respond favorably to simple monetary bonus programs. As with any bonus program, it is important to set the bonus levels carefully to assure attainability by the drivers while still allowing for savings by the company after the administrative costs are considered.
• Even if a company does not offer a fuel bonus system, it should track the fuel mileage of each truck as well as each driver’s performance. If a driver or truck is consistently getting poor fuel mileage compared to similar drivers and trucks, something needs to change. Either the driver needs feedback and possible retraining, or the truck needs some type of repair. In either case, if a company does not track its fuel use, it will not know when inconsistencies are present or when changes need to be made.