The era of cheap oil is over. The last few years have seen high fuel prices and an increasingly volatile oil and gas market. In fact, 2011 set the record for the highest average inflation-adjusted fuel price in a given year. By all indications, 2012 will bring more of the same, as shown in the graph below, with a projected diesel price of $3.85 a gallon–a 40 percent increase over the 2010 average.
For shippers and carriers, rising fuel costs are particularly problematic. According to a recent Inbound Logistics study, fuel is the second largest cost for carriers after employee compensation.
The good news? Careful planning and the use of predictive technologies can minimize the impact fuel costs have on the bottom line. Companies that manage a fleet can cope with rising fuel costs using three general strategies:
- Streamline fuel procurement;
- Improve operations and fleet management; and,
- Better plan delivery routes and shipment loads.
Streamline Fuel Procurement
Managing fuel costs isn’t just about taking steps to control the costs. According to David Zahn, VP of Marketing at FuelQuest, significant savings can be realized simply by building predictability into fuel procurement budgets. Gas prices typically swing five cents per gallon, up or down, on any given day. When purchasing thousands of gallons of gas, buying at the wrong time can be devastating to a company’s bottom line.
Technology solutions like FuelQuest give companies that store gas a way to forecast demand, monitor on-hand fuel, and procure at the best market price. Automating the fuel procurement process, says Zahn, typically saves companies four to six cents per gallon.
Of course, long-haul carriers don’t have the luxury of being able to fill up on-site. Companies that transport long-haul freight should consider fuel optimization programs that indicate where to refuel and how many gallons to fill at each location to minimize total fuel costs.
Improve Operations and Fleet Management
Any cost savings from purchasing fuel at low prices can be nullified by transporting with an inefficient fleet. Most efficiency improvements–such as streamlined trailer aerodynamics or retrofitting the engine for renewable fuel use–require significant capital investments. However, there are several controllable factors that can boost fuel efficiency for a fraction of the cost.
One of the biggest boons to fuel efficiency is employing highly-skilled drivers, which can improve fuel efficiency by five to 20 percent. Roy Craigen, President of Transcom Fleet Services, suggests testing drivers beyond licensing standards to ensure they’re versed in industry-standard driving techniques, such as accelerating smoothly and minimizing idling. Beyond that, routinely monitoring things like tire air pressure and speed go a long way toward conserving fuel. Here are a few quick stats Craigen shared with me in a recent conversation that show the impact driver actions can have:
- A three percent variance in air pressure impacts fuel efficiency by one percent.
- For every 10 MPH over 55 MPH, you consume 10 percent more fuel.
- A 100 truck fleet operator can add over $700,000 to its bottom line by improving fuel efficiency just a half a mile per gallon.
Better Plan Delivery Routes and Shipment Loads
A final strategy for reducing fuel costs is to plan more intelligent routes and truckload shipments. Both of these goals can be accomplished with transportation management tools. TMS software helps fleets suppress fuel costs by planning routes in a way that minimizes miles travelled and the number of stops. The resulting efficiency gains can help fleets make more deliveries within comparable operating hours. When used in conjunction with a well-trained dispatcher, this can be a great way to minimize things like time spent in fuel-wasting commuter lanes.
Creating intelligent routes is complemented by load planning features that ensure trucks leave with a fully-stocked load to reduce return trips. This limits fuel surcharges incurred by making less frequent shipments. It also helps make difficult decisions, such as whether to drop off the heaviest load first–even if it’s farther away–to make the rest of the drops with a lighter, more efficient vehicle.
Companies that put these strategies to use will be prepared to deal with the high fuel prices of today and tomorrow. By reducing the impact of rising fuel prices, companies with fleet operations can maintain competitiveness without sacrificing their bottom line.
As we gear up for 2012, what strategies are you using to reduce fuel costs? Please share which strategies that you’re seeing pay off.