National average fuel prices hit a new 52 week low yesterday at $2.81 per gallon, drastically down from an all time high of over $4.76 per gallon just 4 months ago (source: U.S Government Energy Information Administration - the TruckMaster Fuel Finder is showing a $2.71 average this afternoon).
How long will this downward spiral continue? Not much longer, in my humble opinion.
We all heard the excuses for the skyrocketing oil prices literally weeks ago:
Out of all of these inflating factors, really only the speculators have changed drastically. This is probably one of the only good side effects of a tanking stock market, oil prices have been hit as hard or harder than just about every other traded commodity. Sure, political tensions have been moved off the front page due to a presidential election and sour economy, but the same problems still exist, and will surely be elevated in the minds of the public once again shortly.
If we allow for some unknown or unexpected crisis to rear its ugly head, it could surely lead to just as severe or possibly more severe upward trend in prices, and $4.70 per gallon prices will be the norm again.
Keep in mind that since a new high price has been established for a barrel of oil, speculators are naturally going to assume that if it has hit that high before, it can hit that high again. They will be more apt to jump into the market and stay in the market until just short of that high.
Are there steps that a trucking operation can do to be prepared for an eventual spike in fuel prices? Sure, please allow me to share a few suggestions.
I'm going to assume you have already done this, or you wouldn't still be in the trucking business, but just in case..
Starting with the customer you haul the most volume for and working down the list to the lowest, negotiate fuel surcharges. Most larger companies that ship product expect to pay a fuel surcharge and have an existing policy in place. Most base the percentage off of a national fuel price index (such as the DOE, or OPIS), some will modify this percentage based on the lane or region, still others have complex algorithms to determine the percentage.
Since most of these surcharges will be based on some sort of weekly, biweekly, or monthly index, a drastic jump in fuel prices will come out of your pocket until the index is adjusted to what you are paying at the pump.
Keep in mind as you are negotiating fuel surcharges, that a fuel surcharge is not an opportunity to make profit, it is an opportunity to protect the profit you have already established in your carriage rates.
Now is a good time to get these agreements in place, as not every other carrier in the world is trying to get them at the same time.
I'm not going to go as far as to say that now is a good time to be investing in fuel optimization software, but check out the market and be aware of the solutions that are out there. There are several companies that provide services that allow you to send them the locations and destinations of your trucks, and in return provide you with the best places to fuel and recommended quantities at those locations. Some of these services claim they can save you up to .08 per gallon over time.
Check them out, determine which of these services (if any) most fit your budget and circumstances so that when and if there is a need, you are ready to sign up.
TruckMaster provides a free online service, the TruckMaster Fuel Finder, that lets you find the cheapest diesel fuel at truck stops all across the US. In many cases this may be all you need, and doesn't cut into your fuel savings.
If you do not already have it, find trucking software to help you manage your fuel surcharges. I've posted an article on selecting trucking software to manage fuel surcharges on our trucking software blog, so will not cover this topic in detail in this post. Suffice it to say that you should be able to ensure easy maintenance of the different fuel surcharges you have in place with your customers, as well as insurance that you accurately billing your fuel surcharges, and more importantly, not missing them altogether.
You are saving an average of $1.95 per gallon of diesel fuel over what you were paying for the same gallon 4 months ago. If diesel fuel prices stayed the same as what they are today, putting 10% of this savings away in a hole in your back yard would give you $3167 after a year's time, assuming one truck at 100k miles and 6 mpg. Taking it out of the hole and putting it in an interest bearing (safe) bank account will give you a little bit more.
Force yourself to only use the funds in this reserve account for the eventual increase in diesel fuel prices, and you have allowed yourself a buffer for the lag that you will see between price increases at the pump and fuel surcharge indexes being adjusted.
I hope that I am wrong, and diesel fuel prices will stay where they are or lower, but just in case I am right, it may be a good idea to consider some of these suggestions.
I welcome your feedback on my thoughts. If you have other suggestions that I haven't listed, please share!
I hope you find my post accurate and relevant.
TruckMaster Logistics Systems, Inc.
TruckMaster Your Trucking Company™
|<< <||> >>|