I’m sure that every reader of this will be aware that the cost of fuel oil products continues to rise. However, there may be some surprise at the differential rates of increase for various products supplied to the UK marketplace and the underlying reasons for these variations.

The table below shows the 12 month change in prices at the wholesale level for the four most widely supplied products (and based on the commonly supplied specs of product).

The most significant trend is the pace of increase of non-road fuels. This is having a major impact on costs for any businesses that use these fuels for plant, ambient heating, and other industrial processes. Not only are these fuels more affected by the underlying world market increases (because duty rates are a smaller proportion of costs c.f. road fuels), but Gasoil in particular has also been impacted by EC regulation requiring the use of Ultra low-sulphur Gasoil for mobile plant and equipment, and in order to avoid confusion, most UK fuel distributors now supply this specification as their standard Gasoil product. Unfortunately, this product is more expensive than the specification that it has replaced. However, there are still sources available for the older specification, and it continues to be refined for ongoing supply.

Additionally, a range of new blends and specifications are available for boiler fuel applications, where the cost consideration is complicated by differing calorific values. Considering change can be a bit of a minefield, but there are cost-savings available if pursued objectively.

Of concern to fleet operators, particularly of cars and vans, is the growing differential between Diesel and Petrol. The trend in recent years has been very much in favour of diesel fleets, but with Petrol now beginning to look more of a “bargain”, some fleet procurement strategies may need to be reviewed, especially for lower mileage vehicles.

At Expense Reduction Analysts we are always available to review your fuel-oil procurement, including the prices paid, and appropriateness of fuel types and specifications.

See all Logistics Team Blogs

See all Logistics Team blogs – Click Here

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.

See all Logistics Team Blogs

The consequences are that:

1/ The net cost of the bio element in mixes (for eg, normal pump diesel already includes up to 5% bio) is increasingly dramatically, as a result of the reduced duty rate being withdrawn, and,

2/ The wholesale costs of the bio elements (known as FAME in the trade) are rising faster than mineral based fuels, because the legislation requiring the minimum percentage is European wide, and market traders are taking advantage of a possible supply shortage.

Fuel oil suppliers are being very cagey on the final impact on prices, but based on wholesale market prices at the beginning of March, the combined effect of market rates plus duty subsidy removal willequate to an additional 1.5 pence per litre on pump prices over the official duty increase due on 1^st April.

General market commentary is fairly unanimous that fuel oil prices will rise significantly anyway this year, as the far-eastern economies begin further economic growth. Combined with all the legislative and duty changes on the 1^st April, we can look forward to fuel costs being significantly higher by the year end.

Mitigation measures, whether through technology, modifiying driver behavious, or smarter purchasing will no doubt become of greater priority as the increase bite !

See all Logistics Team Blogs

The table below shows examples of some of our recent project results.

See all Logistics Team Blogs