With fuel prices on the rise, trucking companies need to come up with innovative ways of addressing a higher price at the pump. With the trucking economy booming, bottom lines are growing, and fleets are expanding, but can that expansion survive an environment where fuel prices are on the rise?
There is little doubt that trucking has been enjoying an unprecedented boom. Rates are at near-record highs with lots of freight and capacity to go around, but fuel prices could put a crimp in all the good news. With higher fuel prices come increased fleet expenses. The cost of fuel also has a direct impact on freight demand.
The Forecast
Fuel prices by June 1 moved up by more than 55 cents on the same time the year before. Recent readings put the national average cost of regular gasoline at just over $2.96 per gallon. Over the same time period, the average cost of a gallon of diesel rose by nearly 5 cents, closing in on $3.30 per gallon. But is this all cause for alarm?
Some point out that these prices are still better than they were just half-a-decade ago. It could be that motor carriers have adjusted to the sub-$2 per gallon prices from early-2016. Will they be able to transition from the lower prices to the higher prices without major market disruption?
The immediate impact of high fuel prices is about more than what your truck drivers pay at the pump. High fuel prices will affect the economy through consumer spending, which could have a knock-on effect for the transportation sector. When consumers spend less on a new dishwasher, couch, or entertainment center, it directly impacts those who transport these materials by truck.
Take the month of April as one consideration. For the month, gas prices rose around 16 cents per gallon. That translates into nearly $5 billion a year in higher gas prices instead of merchandise and other expenditures that drive the economy.
May saw a similar increase, so if you put both months together, we are talking about an average cost for gasoline approaching $10 billion in economic loss. Those are huge numbers for just two months. We have seen the cost of gasoline rise by nearly 30 cents per gallon. Will the current positive economic climate be able to withstand any more increases?
Fortunately, retail sales remain robust. April saw numbers come in at just under half-a-trillion dollars. They are expected to rise another 0.3% as we move into the summer. Retail sales grew by 0.8% in March, equaling a $1.5 billion gain. The fact is, people had to spend billions more dollars on fuel, which far outstripped the $1.5 in retail sales gain over the month.
The Department of Energy (DOT) revised its April forecast upward for the average cost of fuel over the rest of 2018. By the end of the year, diesel is expected to come in around $2.94 per gallon, which compares to the $2.65 and $2.31 reported in 2017 and 2016. Higher fuel prices are expected to remain the trend throughout 2019. From trucking companies to government agencies and trucking advocacy firms, most expect fuel prices to remain an issue.
Whether you talk to trucking economists or groups like the Oil Price Information Service, higher diesel prices are in the forecast. The underlying driver remains a global supply-and-demand scenario with lower inventories and consumption continuing on the rise. Could it be that the output of distillate fuels could ease pricing? Some say yes, some say no, yet the answer remains clouded. The question now is this: What should a fleet do to prepare themselves for higher fuel prices?
Advice for Fleets
Motor carriers have many tools at their disposal in combating a higher fuel price environment. Whether it be through a comprehensive cardlock fleet fueling solution to innovative fuel expenditures budget, fleet managers need to pay careful consideration to an unpredictable fuel market. Only by having a strict oversight of fuel assets will a motor carrier ensure fuel prices don’t eat into profits.
With global uncertainty on the rise, fleets need to review the effectiveness of their fuel management operation before big price spikes result from the uncertainty. An effective fuel management program can help identify ways to cut costs and increase efficiency through decreased fuel losses and streamlined operations.
This is about more than the size of a fleet. Whether a motor carrier is managing over 1,000 rigs or just 30 vocational trucks, it is important to play close care to aging equipment and fuel. Variable fuel costs make it more difficult to fund maintenance and equipment procurement needs.
Investing in fuel control systems allows fleet managers and motor carrier administrators to better manage their fuel assets. Without a level of authorization and accountability, it will be hard for motor carriers to adapt to an ever-changing fuel price environment. Fuel control systems help fleets track every gallon of fuel going through company assets.
Fuel Management on the Mind
Comprehensive fuel management systems prevent unauthorized fueling and fuel theft, but it also allows back office workers to better document fleet-wide fuel use and operating costs. One problem is that many fleets still rely on a manual inventory reconciliation. This methodology often results in inaccurate and inefficient fuel tracking.
By choosing an automated reconciliation method, countless hours of time spent collecting, calculating, and reporting on fuel use can be eliminated. Modern cloud-based software programs are both accurate to the dime and often fairly easy to use. Motor carriers who use the potential of automated reconciliation correctly will increase the overall depth of their inventory and streamline back office procedures.
Taken to its furthest extent, a trucking company could outfit their vehicles with tank gauges that communicate with the CAN and wirelessly send fuel data back to the office in real-time. When a fleet manager has instant visibility into current fuel volumes and the anticipated fuel usage across the fleet, they can better fine-tune fuel usage and utilization.
Fleets who utilize these systems are in a better position to both optimize both the price they pay and the time to buy for their fleet fueling needs. Whether a motor carrier is buying millions of gallons of fuel per year or just 10,000 fuel management strategies pay off.
Many times fuel management systems are interwoven with preventative maintenance programs. A package deal from a software-as-a-service OEM might provide a fleet the ability to export their fuel management program monitoring data for analysis. When fleet technicians can count on their fuel management system to better support unplanned downtime, costs drop across the board.
One Eye on the Future
The last thing a motor carrier wants to do is spend a lot of precious capital on a fuel management system that doesn’t get the job done. As mentioned before, the country is in a breakneck trucking environment, and business growth requires a fresh look at how the company is getting the job done.
If a fuel management system provider cannot offer an upgradeable components program, which leads to greater workflow efficiencies, then it may be time to look for another provider. Decades-old site controllers will do no one any good. Give a highly technically capable company the ability to look at your sites options and upgrade them as necessary and watch your savings mount.
Fleet maintenance integration and reporting capabilities allow fleet managers to cut costs through streamlined data management. This is especially true in an environment of still-relatively-low fuel prices. We all remember what happened in 2008. While no one expects to get there anytime soon, nimble fleets will need to stay prepared just in case the geopolitical situation changes, and fuel prices go through the roof.
With the recent lowered fuel cost, when comparing last year’s numbers to this year’s, should have given fleets some breathing room. With more money available due to lower fuel costs, some of that money should be invested in fuel management technologies. Why wait until fuel prices go higher to expand fuel control practices?
Consider that when fuel prices rise, fuel theft generally rises as well. While fuel theft at $2.50 per gallon may be acceptable, if we get to $4.00 a gallon, fuel theft (and loss) can be potentially devastating, especially for smaller fleets not set up to ride out the storm.
Heavy-duty motor carriers and other businesses operating commercial fleets must invest now to strengthen their fuel control practices before it is too late. This way, they will be in a far better position to keep their bottom lines happy during economically challenging times. Bank in the savings by doing more than just slapping some aerodynamic accessories on fleet vehicles and calling it a day. Take control of your fuel management operation and watch the savings roll in.