If this affected you, the latest long-range forecast from respected forecaster James Madden may cause you concern. His key conclusion is:

“I therefore expect the 2011-2012 winter to follow a similar pattern in terms of how November and December was in 2010 for the vast majority of this winter.  It will be exceptionally cold and snowy with well below average temperatures.  I fully expect to see records broken with the highlands of Scotland being once again particularly hard hit.  It is therefore vital to start preparing now in terms of high energy bills and raising awareness amongst the most vulnerable and elderly people of society.

James Madden (UK Long Range Forecaster)

www.ExactaWeather.com   Published: 18th June 2011 (21:29) BST”

(Full forecast at http://www.exactaweather.com/uploads/mainswinter1.pdf )

Even today, heating-oils at wholesale level are trading at a premium of circa 25% above prices at the beginning of November 2010. However, once the weather turned wintry last year, final delivered prices were running at nearly double wholesale prices in some cases.

Fortunately although existing clients of Expense Reduction Analysts endured the impact of world wholesale prices, they avoided the pain of the increased costs associated with the delivered prices being charged to non-contracrt customers in the UK.

If you are a heating-oil user, perhaps now would be a good time to undertake a review with Expense Reduction Analysts to achieve some immediate cost savings whilst obtaining protection against opportunistic pricing when the weather turns as bad as Mr Madden has forecast.

Ken Rogers.

August 2011

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Diesel fuel now represents up to 40% of the cost of operating transport fleets, and should therefore be an area attracting serious attention to anybody responsible for the costs of such an operation. However, there remains very little understanding of how the fuel markets actually work, and therefore establishing whether best prices are being achieved.

Nevertheless, the largest part of the cost is in duty, and nobody has yet successfully negotiated a decrease with the Chancellor of the Exchequer! After allowing for the net price of diesel being set on international markets (Rotterdam) and duty, the net sums available on which to base negotiations with fuel suppliers are limited. Typically, the pump price in the UK averages at about 6 pence per litre over the Rotterdam price. Whilst a couple of pence price reduction can be significant in absolute terms, in percentages, it has only a small effect on that 40% !

Some managers (probably a minority) have invested more time in investigating the potential to achieve reductions in actual consumption. In many cases, such attention has resulted in short term initiatives, for example in trying alternative fuels, or driver training programmes. Very few have however, been matched to long-term management and monitoring programmes with continued actions to ensure that short term gains are maintained. There almost needs to be a leap of faith in investing up-front in more expensive fuels or intensive driver training such as the SAFED programme, without any guarantee of long term gain.

It is easy to measure short term improvements on the same day that a driver is trained, but what is really happening 6 months down the road, when other priorities are demanding management attention at the operational level. The Freight Best Practice Programme has identified that a typical 10% consumption saving on the training day can have disappeared within half a year unless there is a rigorous programme of monitoring and appropriate intervention. But how many companies have the operational commitment or the in-house expertise to do this effectively ? Nevertheless, with a 10% long term savings goal, who can afford not to be doing so.

Fortunately, Expense Reduction Analysts are now able to include a review of fuel consumption in road transport fuel projects. This means that we can create an accurate benchmark of current consumption to give a firm basis on which to measure any future savings. Our objective  market expertise means that we can give an independent view of what is on offer and facilitate and monitor  the effective implementation of any consumption project.

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The Department for Transport has recently published its annual Road Freight Transport Statistics Bulletin 2009, and interpreting the figures provides a fascinating analysis of the changes occurring in the Distribution Sector. This year’s publication is significant in that not only does it show the impact of recession when compared with 2008, but also as the 20^th edition, showing the fundamental changes over two decades.

Unsurprisingly, total tonnage uplifted declined markedly in 2009 compared to the previous year, but the balance of goods moved between different sectors has continued recent trends.  The volume of food and drink products has been at a stable 370 million tonnes for three years, after a fairly constant upward trend, whereas all other categories declined, noticeably Bulk Products, which fell from 620 million tonnes to 440 million tonnes year on year. Perhaps worryingly for British Manufacturing, this compares with levels of over 600 million tonnes being uplifted in this sector even during the recession years of the early nineteen nineties.

Analysis of usage by vehicle type shows artics moving 58% of goods compared to just 40% in 1989.  Not only does this show the impact of increased vehicle weights on improving efficiencies, but also goes some way to explain why unit haulage rates have failed to keep pace with inflation, whilst still allowing haulage businesses to continue.

However, from a cost analysts’ perspective, the most interesting statistic must be the change in the proportion of goods being moved by own-account vehicles versus 3^rd party hire and reward hauliers. In 1989, hire and reward operators uplifted 60% of goods (by weight), declining slightly to 57% in 1991 as the recession bit. However, with a trend for more companies outsourcing logistics functions, this then peaked to 67% in 2001. A gradual decline to 61% in 2007 has then been followed by big drops to 51% in 2009. Actual volumes for the hire and reward centre have dropped from a peak of 1,145m tonnes in 2007 to just 723m tonnes in 2009 – a 47% drop ! Undoubtedly, the impact has been large numbers of providers disappearing from the scene with record administrations and insolvencies in the sector, and the survivors following rigorous cost cutting programmes and capacity reductions. For the future, however, from the service procurors perspective, this means reduced competition as hopefully volumes begin to recover.

Although the own account sector suffered a small volume reduction to 699 million tonnes, this was still the third highest volume moved in this sector since 1989. However, the sector moved its goods further than any previous year and therefore recorded its highest ever tonne kilometre measure. The re-emergence of the own account sector must be a relief to suppliers of fleet services: our internal data shows that margins charged on fleet supplies (eg fuel, tyres, maintenance, fleet insurance, etc.) are consistently higher than being achieved by the same suppliers to the hire and reward sector.

Therefore, despite the fact that own account operators are working their fleets harder, there are still major opportunities to improve their cost base through detailed effective procurement reviews.

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What’s the issue ?

EU Directive 2009/30/EC introduces a requirement that, from 1^st January 2011, all gas oil (commonly known in the UK as ‘red diesel’) marketed for use in non-road mobile machinery (NRMM) must contain no more than 10 milligrams of sulphur per kilogram of fuel (virtually ‘sulphur free’). NRMM includes tractors, other agricultural equipment, forestry equipment, construction equipment, forklifts, portable generators, railway engines, and inland waterway vessels. In the case of gas oil for use in rail vehicles the introduction of sulphur free gas oil will be one year later (1^st January 2012).

Why will this cause confusion?

The new specification applies to NRMM, and not other Gasoil uses such as heating boiler-fuel, static plant, etc. Therefore companies who currently use the existing specification Gasoil will have to decide on how to order their fuel after 1^st January. Their consideration will need to take into account what the intentions are of their incumbent suppliers. Some suppliers have already stated that in order to meet the NRMM requirement, they will supply Road-specification diesel (which already meets the requirement) as Gasoil, after adding red dye in order for it to have Gasoil duty rates applied. Moreover, some have also indicated that they will discontinue supply of non-NRMM.

However, Road-specification diesel has by law to include a proportion of bio-diesel (min 3.5%, and up to 7%) This has a serious impact both for the storage of the product, and potentially its use in older equipment and associated maintenance regimes. We have also had anecdotal evidence of firing problems when bio-diesel or bio-gasoil has been used in older boilers.

“Bio” fuels present particular problems for storage and fuel-lines and filters, because of a tendency for algae growth. They are also reportedly more aggressive in degrading seals, gaskets, etc.

What are the effects on my fuel pricing?

On the international markets, Road-specification diesel is currently about 1 pence per litre more expensive than Gasoil (before duty is applied). We can therefore assume that NRMM Gasoil will be at least 1 pence per litre more than current supply, irrespective of any commodity market price variations. Users will also need to budget for increased costs of service and maintenance.

What should we be doing now?

Users of older equipment would be well advised to test whether it can operate successfully with a bio-blend. If not, a plan needs to be in place to ensure that supply of the older specification Gasoil will be available from either their current supplier or alternatives.

Where maintenance is undertaken in-house, consideration needs to be given to reviewing service and inspection intervals, and additional maintenance action that may be needed to discourage, and if necessary, flush algae development in fuel tanks, lines and filters.

Mixed application users (ie a combination of mobile plant, static plant, and/or heating boilers), may wish to give consideration to having two sets of storage equipment for the different uses, especially if they have older equipment with reasonable economic life left.

Where equipment is in use, which is found to be unsuitable for a bio blend, processes need to be in place to ensure that all staff who order fuel understand the differences in Gasoil, and which specification needs to be delivered.

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2. ‘Think before you print’ tags for emails and documents encourages staff to consider the impact of printing and paper consumption

3. Find out how much energy is used overnight to understand the scale of your energy waste problem

4. Mark energy-hungry devices with a prominent “green dot” to remind users to switch them off each night.

5. External expertise can analyze energy use and monitor performance. (http://www.erauk.net)

6. Enabling power-save options can reduce energy consumption by 95%

7. A ‘green suggestions box’ will enable colleagues to add thoughts on the ongoing green improvements

8. The Carbon Trust offers a free energy survey to those businesses that spend over £50,000 per annum on power.

9. 7-day plug-in timers fitted to key equipment is a sound investment

10. Equipment uses energy, but people use equipment. Training staff on equipment use can achieve savings

1. Start by reviewing your direct energy costs, your travel costs and then your indirect supplier costs. You could even extend this further to consider carbon embodied in materials you use.

2. Review your direct energy use – electricity, gas and heating fuel. Identify the areas of greatest usage in your organisation and those which have the highest impact in terms of cost and/or carbon footprint. Use this information to determine the priority for a more detailed review.

3. Assess the usage patterns identified from this data and consider whether they pass the ‘make sense test’. Are seasonal/weekday/hourly/ day vs night variations as you would expect for your business? If not, why not?

a) Is equipment being left on unnecessarily?

b) Is start up and/or shutdown as you would expect?

4. Conduct a detailed site survey to determine which equipment or processes are the most energy-hungry. Consider the following questions:

a) Is that equipment turned off when not in use?

b) Is it energy efficient – by design, maintenance and how it’s used?

c) Is it fit for purpose?

5. Review your organisation’s processes:

a) Would it be possible to cut out any stages in the process without affecting quality?

b) Can the amount of re-work be reduced by improving quality checking?

c) How can your processes be redesigned to improve efficiency?

6. Consider your organisation’s culture:

a) Is your Energy Policy clear and understood by all employees?

b) Is this reflected in their personal targets?

c) Do you have Energy Champions to provide a readily-accessible source of expertise?

d) What do you need to do to encourage all staff to take this seriously and reduce energy consumption wherever they can?

e) Do you have a highly visible and well-used staff suggestion scheme? They will probably have some great ideas about where savings could be found.

7. Consider your organisation’s equipment maintenance and replacement policy:

a) Ensure that energy efficiency is a key element in decision-making regarding replacement kit.

b) Be aware of the whole-of-life costs of any piece of equipment. Do increased energy costs outweigh purchase cost savings?

c) Can existing equipment be made more energy efficient without having to completely replace it?

d) Ensure that equipment is well-maintained, which will keep it more energy efficient as well as prolonging its life.

8. Consider your travel policy:

a) How much do you spend on business travel each year? Include costs such as car leasing, parking, fuel, insurance, air travel and travel management costs.

b) How could these costs be better managed to generate cost reductions? Eg would it be better to have a pool car or company bicycles than company cars?

c) Are all journeys necessary? Could some face-to-face meetings be held using telephone or video conferencing instead? The supporting technology is improving all the time – if you were to reduce the number of business trips by 25%, how much difference would that make in terms of cost reduction and carbon emissions? This is exactly what Vodafone has done, resulting in double digit millions of cost savings. (Source: Tandberg case study)

9. Consider your distribution channels:

a) Do you need to distribute a physical product?

b) Can you reduce the number of journeys or organise them in such a way as to reduce the number of miles travelled?

c) Is the vehicle fleet fuel efficient?

d) Can you minimise packaging and the size of containers without damaging your goods?

10. Consider how you could encourage your suppliers to manage their energy use in a similar way. If this leads to cost reductions for them, they will be able to pass some of this on to you, creating a virtuous circle of benefit.

This is just a small number of suggestions to get you started. There are plenty of things you can action on your own, but if you would like some specialist help, please do give me a call.

Do you have 10,000 toilets for rent? Or 17,000 beds?

Then the London Olympics need your business! Keep an eye out on 4th November as the organisers detail tender arrangements for everything from 200,000 temporary seats to table-tennis balls and even javelins.
So far approximately 1,000 infrastructure development contracts worth £5bn have been placed – 98pc of them with UK firms.