Are you sure that you are buying fuel at the lowest cost?

The SWP have been working on a number of fuel procurement projects recently and a number of factors are evident

• Fuel card handling charges vary by as much as 0.8 ppl
• The price companies pay for fuel on any given day can vary by as much as 6 ppl
• The margins charged by the same fuel suppliers change on a daily basis  
• The largest companies do not necessarily buy fuel at the lowest cost
• Few suppliers charge less for delivering into a card bunker system vs on site storage, even though they enjoy considerably lower costs.

It is suprising - given that fuel accounts for around a third of a transport companies total costs - that most buyers cannot be sure that they are getting their fuel at the lowest available prices in the market.

In our experience, most companies use a similar process for buying fuel, they have 3 suppliers and ring them all to get a quote, buy from the cheapest of the 3, and the volume purchased is based on the information given at the time as to the likely price trend over the subsequent days. Buyers tend to be very senior in an organisation, and in the SME sector are quite often the owner. Ironically these are the very people who tend to have the least time, and very very few ever benchmark their performance against their peers (let alone the Platts cost price).

Fuel suppliers are becoming a little like soap powder manufacturers .. lots of brands but with consolidation a reducing amount of competition (also hindered by a lack of refining capacity in the UK). Some of our clients were not aware that two, and in one case three of their three suppliers were in fact all owned by the same company. That fact that all have quoted a different price gives the illusion of competition.

Of course, it is not all about price. Credit terms are also a vital consideration affecting cash flow, and have been considerably tightened in the last two years. Companies should nonetheless attempt to renegotiate these terms and the best threat is to take your business elsewhere. Of course healthy trading figures and results make a huge difference, but credit terms may have been set when the business was in a less positive position than may currently be the case.

So why is there such a mystique surrounding the fuel buying process, and how many companies would be willing to undergoe an independant benchmarking excercise? How many buyers would admit internally, let alone externally that they don't really know if they are getting the best price available.?
 
I will talk about hedging in another blog .. in the meantime have a good week .. all comments welcome