March 2008, Fleet Financials - Feature
Saving Fuel: What Works, What Doesn't
By Staff
There seems to be no end to the rise in both oil prices by the barrel and gas prices at the pump, and fleet managers, more than ever before, are focusing on the challenge of controlling fuel expense.
Experts and nonexperts alike promote any number of strategies, along with gadgets, additives, and complex financial transactions. Fleet managers can be forgiven if their heads are spinning, trying to determine the path to control. Looking through tavailable methods, it isn’t be surprising that even though there’s no "magic bullet" that will save fuel, some hard work, common sense, and data mining will bring measurable results.
Cost vs. Expense
Running a fleet of company vehicles produces expense: fixed expense ,such as depreciation and insurance, and variable expense such as maintenance, repair, and fuel. These costs are a function of what is purchased, how often, and price. Fleet managers can have control over the first two and some control over the last.
The point is that controlling fleet fuel expense involves more than just looking for the least-expensive fuel or using the most fuel-efficient vehicles. It is a combination of all three factors.
The current rise in oil prices, and subsequently fuel costs, is very different from that of the late 1970s. The twin gasoline price spikes of the early and late ’70s were supply-driven; that is, prices rose because supply was choked off by the OPEC oil embargoes. Anyone who lived through that period can remember "No Gas Today" signs, rationing (odd/even license plates), and cars lined up for blocks at gas stations across the nation.
Today’s price hikes are demand-driven. There are no shortages of refined products at the pump; no one is waiting in lines; and stations aren’t running out of product. A sustained period of economic growth has driven demand very high, and it isn’t just demand in the U.S. driving prices upward. Huge demand in the booming Chinese and Indian economies are a large part of the issue as well, particularly in what is now a far more global market than three decades ago.
Whatever the reason, fleet managers are feeling it, and feeling it hard. Fuel budgets are spent as assumptions for prices made last year have been left in the dust. When senior managers demand cost reductions, fuel expense is a natural target. Savvy fleet managers who look to all three of the aforementioned factors — what, how much, and how often — will find savings.