For as long as anyone can remember, until recently that is, diesel fuel was always less expensive than gasoline which made things easy for fleet fuel managers.  Why then have diesel fuel prices risen to the point of being higher than gasoline causing your fuel management upside down? 

 There are many factors that have contributed to this significant price rise.  Certainly the evolution of efficient, small and medium duty diesel engines has increased demand for diesel.  The acceptability of diesel powered automobiles and light and medium duty trucks worldwide, with the exception of the United States, has increased demand for diesel fuel.  The tide has changed from a gasoline powered world economy to a world economy powered by diesel fuel.  Diesel powered cars in the U.S. have not been accepted as it has in other parts of the world, in particular Europe, even though these engines are more efficient that their gasoline powered cousins.  This rejection in this country can be attributed to the fact that Detroit has never pursued the development of diesel power and have concentrated more on the development of hybrids and electric powered cars.  This may be due in part to the debacle of the Cadillac diesel in the 80’s that was a converted gasoline engine that was plagued with problems.  Couple these factors with the higher price of diesel relative to gasoline and the public perceives that diesel power for everyday commuting is a no win proposition.

 Let us now take a look at another factor that contributes to the supply issue.  We all hear about crude oil being sold in barrels.  What exactly is a barrel of crude and what can be produced from that barrel?  A barrel of oil is 42 gallons of crude.  As this 42 gallon barrel is refined into usable product, 19.5 gallons of gasoline is refined as opposed to only about 9 gallons of distillate which includes both diesel fuel and heating oil.  The balance of volume includes jet fuel, kerosene, asphalt, lubricants among other products.  Now we can really see how all these factors influence the rise in the cost of diesel fuel.

 All things considered the diesel fuel price rise could have been worse.  However, between 2002 and 2007 the U.S. refining industry tried to keep pace with the shift in product demand by increasing the net production of distillate fuels by domestic refiners by 15 percent and at the same time increased production of diesel fuel by more than 33 percent. This surely helped contain the price of diesel fuel somewhat.

So what does the future hold for diesel fuel prices?  It is doubtful that we will ever see diesel prices fall behind those of gasoline considering all of the influencing factors stated above.  World demand will only continue to increase and they can only squeeze so much diesel fuel from a barrel of crude.  Government mandates for increased use of bio blends will also contribute to continued high and higher diesel fuel prices in the foreseeable future.

What a difference eight years makes in the world of fleet fuel.  In May 2002 the average diesel fuel price was $1.30 a gallon and the percentage of that price collected in federal and state fuel taxes was 37%.  At that price many of us complained about the high cost and the high tax rate.  As the price of fuel rose through the years, taxes remained relatively stable in most states based upon a cents per gallon tax rate.  Throughout the subsequent years as the price of fleet fuel increased the tax rates as a percentage shrank to less than 10% of the total cost of fuel in July 2008 when diesel fuel prices hit its all time high of $4.70 a gallon, to the current rate of  15% in May when the average national price was $3.06.

 Legislators, both at the federal and state levels, have always been reluctant to increase these fleet fuel taxes to protect their electability.  After all they would be vilified if they were to even suggest such increases when the cost of fuel was skyrocketing.  This inaction combined with more fuel efficient vehicles such as hybrids and more and more electric vehicles has lead to a dilemma, substantially decreased revenue to fund highway and public transportation programs.  Federal, state and local governments are not immune from the impact the high cost of fleet fuel has on their operations.  Like any fleet operations, large or small, their diesel fuel prices have substantially increased. Combining the high cost of fuel and the greatly reduced revenue from less fuel being consumed means that cuts have to be made somewhere to remain solvent, if there is such a thing as solvency for a government entity.

 Discussions now focus on a fair and equitable way to insure that enough tax revenue will be collected being that the cents per gallon fuel tax may be a thing of the past.  Increased fuel efficiency for both cars and trucks means more miles travelled on highways while paying less to the governments to travel those miles.  Fuel efficiency will continue to greatly improve over the next few years exacerbating the problem unless drastic changes are made in the taxing structure. 

 Department of Energy (DOE) Chairman Chu announced in January awards totaling more than $115 million being made to Cummins, Navistar and Daimler Trucks of North America for three projects that will focus on cost-effective measures to improve the efficiency of Class 8 long-haul freight trucks by 50 percent.  An additional six awards were made to improve automobile fuel efficiency by 40 to 50% by 2015.  Considering all of these factors we can clearly see the shrinking fuel tax revenue.

 We’ve looked back, looked at the present; now let’s take a glimpse into the future.  What is the most fair and equitable way to collect enough fuel tax to fund all of the highway and public transit projects?  How do you tax alternative fuels such as electricity or hydrogen?  Hydrogen is easy since it would be doubtful anyone could refuel their car at home so it could be taxed at the pump the same way fuel is currently taxed.  Electricity presents a different problem since it is readily available almost anywhere.  Do you equip the car so it can only be fueled through a specific charger and meter so that it could be taxed by kilowatt hours used?  Should fuel be taxed on a percentage basis rather than a cents per gallon basis?  Another option that is on the table is the Vehicle Miles Travelled (VMT) tax which would track mile travelled using on board GPS and tax according to class, type of road and when they drive.  Regardless of the system chosen we know something must be done to make up for the revenue shortfall.  If not be prepared for continued bad highways, falling bridges and delayed projects. 

I don’t think any of us want to pay more for in our diesel fuel prices or gas prices but if road conditions were better meaning wider roads, less bottlenecks, less potholes, etc.  How much fuel, labor time and truck repair cost would we save? Until next time, keep thinking about your fuel management systems and if they are working.

Every day we deal with thousands of fleet fuel transactions.  Some fleet fuel card companies are better than others for customer service, discount deals, acceptance and information.  We see this all of the time as we analyze fuel transactions for our fuel management clients.  We are well aware of high diesel fuel prices and transaction fees that we see on a daily basis. How about the fees you pay when you pay by credit card and not cash?

This issue happens a lot more than most of you think it does.  If your company is not using a fleet fuel card but instead using a AMEX, Visa, MasterCard, or Voyager to name a few you are probably paying more than that posted price sign in front of your favorite truck stop.  The sign out front is for cash customers.  The credit card price can be anywhere between 5-20 cents more per gallon on your diesel fuel prices. 

Your driver probably doesn’t know it because he sees what is posted in BIG Numbers out front and thinks that is today’s price per gallon.  The fleet fuel manager is normally just checking for things on the invoice like what time did his driver fuel or did the truck take the proper amount of gallons compared to the distance it travelled.  Seldom the fuel manager has the time to check diesel fuel prices. 

During a fuel analysis if you were comparing posted diesel fuel prices to the price you paid or to OPIS or some other third party resource you would see that you are overpaying with that credit card you were using as your fleet card.  There are fleet fuel cards and with most of them at truck stops you get charged a transactional fee for using the card. This charge is a pass through from the truck stop operator back to you from your fleet fuel card provider.  Paying a couple of dollars on a transaction or less is not terrible if you are buying 100 gallons of diesel fuel.  Think about what it would cost you if you were using an AMEX and you were paying 20 cents more per gallon.  That fuel transaction just cost you $20. Yes, Mr. CEO or President who might be getting points from one of these credit cards is saying I won’t get my points.  If you have 10 trucks being charged $20 a fueling, five days a week it just cost you $1,000.  They might even rebate you 1%.  Let’s say diesel fuel prices are $3.00 and 1% of that would be 3 cents, you are still 17 cents in the hole.

It’s not just at your truck stops either.  I was out of town for the fourth of July and was in New Jersey.  Living in Pennsylvania where we pay a lot more in gas taxes than they do in New Jersey, fuel appeared to be priced significantly lower than my home state.  However, the buyer should always be aware, because things aren’t always as they appear.  The BIG sign at this retail location, which I won’t mention but I will not visit again, said $2.449.  I pulled in and in New Jersey they feel like the human population isn’t smart enough to pump their own fuel, so all stations are full service.  No, not really full service, they just pump the fuel for you, no windshield wiping or any of that goes on.  I gave the attendant my fuel card which is a fuel card at truck stops and a MasterCard, which is a credit card everywhere else and say fill it up.  To my surprise the price was $2.609 a gallon when he handed me the fuel receipt.  I said, the sign says $2.449 a gallon.  He informed me that was the cash price.  I said it’s not posted anywhere that the credit price is different, he said sorry have a good day.  It was a beautiful day out and my car only took 10 gallons so they took me for a cup of coffee in price.

The moral of the story is if you are not watching each penny that is spent on your fuel management, I can assure you that you are paying way too much for your diesel fuel.

My guess is that most of you have a fuel management program.  It is either real or it’s in your head but you believe you have an effective fuel program that is money saving when it comes to buying fleet fuel.  You might really have that type of program, most of our research shows that most companies don’t have a comprehensive program when it comes to their fuel management needs.  

One thing that I know we can agree on is trying to predict diesel fuel prices, weather and the unpredictable acts of god.  We have talked about diesel fuel prices in the past and you bet it will come back up again in this column but today it’s weather and acts of god.  I’m not talking about sunny weather or snowy, cold winter weather; though you want to make sure you have a good fuel additive program during those cold winter months.  I am talking about the weather that you don’t see coming, even some that you might see coming and the crazy things that happen every day in this world that could affect your fuel management solutions. 

Hurricanes, mud slides, heavy tropical storms, tornados, power grind disruptions, floods, frozen rivers, broken pipelines, you get the picture.  These things happen and they happen more often than any of us want them to happen.  The key for your company to be successful when most of things do happen is to have an emergency fuel management backup plan in place.  If you operated in Nashville recently when the river flooded like it did and your trucks were in water five feet deep, there isn’t a lot you can do, as far as your fleet fuel goes.  That was a very out of the box situation and sometimes no matter how hard you plan there just isn’t anything you can do.

Here is a short list of emergency fuel management tips:

• If you have bulk fuel tanks. Work out a contract with one fuel vendor and establish a relationship with them.  This is critical when an emergency happens.  If you are trying to beat the fuel market each day and where the lowest diesel fuel prices win, you will lose when an emergency happens.  The fuel vendors will be as loyal to you as you are to them.
• Keep your bulk fuel tanks as full as possible.  This way you have a couple of day’s supply.
• Make sure you have a backup generator for your pumps or you won’t be pumping diesel fuel out of your bulk fuel tanks if the power is out.
• Have your generators in all parts of your building kept full.  The diesel fuel used in a generator should be well treated with fuel additive and should also be run through several cycles per year.  Don’t let it be during the emergency when the first time using your generator since the last emergency.  Diesel fuel can go bad if it sits around too long.  
• If you don’t have mobile fleet fueling at your location, establish a relationship with a mobile fueling vendor.  This can help with your generator fueling, mobile fueling directly into your fleet of trucks as well as possibly bringing you in a short load of diesel fuel into your bulk tank if you have one.
• Fleet fuel cards.  You might already have them because you buy most of your fleet fuel over the road but if you have bulk tanks or mobile fueling, having fleet fuel cards in a drawer that work can really help you out in a pinch.  You are not going to be able to order fleet fuel cards during an emergency and expect to get them anytime soon.  It takes time to process them and who is going to deliver them to you FedEx, UPS, USPS or others they are all battling the same issues you are during this period of time.

As a fuel manager, you need to make sure your fuel management systems are in place before the problem happens.  There is also no reason why during a crisis you should sign off on all your fleet fueling bills like any diesel fuel price is acceptable.  Yes, to deliver during a crisis does take more time and effort and there is a price to pay for that but a fuel analysis after the fact won’t do your company much good.  Get your emergency fuel management pricing deals in place ahead of time, like everything else.

Good luck.

I had a pretty moving experience last week and it has led me to think about a lot of things in life.  As I have been thinking about these things, I realize how similar fuel management and maybe any profession are close to your life.

During life most of us, like me, sort of take every day for granted.  If we are grumpy we are grumpy.  If we are happy then we are happy.  We really don’t realize how lucky most of us are with the lives that we have.  With fleet fuel purchasing most companies just take for granted that they are getting the price that was quoted to them, the taxes are correct and there are no extra service fees.  In fuel management what most people don’t realize is how much real effort it takes to run a really good fleet fueling program.

My brother in law had that type B personality if you were comparing it to a commodity it would be silver.  Easy going, happy go lucky, his range of trading didn’t change much over time, most outside things didn’t change how he performed.  Me on the other hand, I am much like the job that I perform everyday, fuel management.  Type A plus, even when I am at the beach.  Everything affects fuel prices and pretty much in my life everything affects me.  The only place I can sit still is on an airplane and it’s only because they have me seat belted in and I am worried if I get up they might think I am a terrorist.

As I write this article, crude oil prices are over $76 a barrel.  April 6^th they had an 18 month peak at $86.54 and by May 21^st they hit an 8 month low at $68.03.  Who would have seen that coming?  Even the best out there did not predict that this would happen.  Now, crude oil looks ripe to take back off to the mid $80’s or maybe $90’s.  That fuel, with its crazy type A personality, lets our economy, China’s economy, jobs reports, housing reports, Sheik’s bank accounts, weather, you name it, have it whenever it has a chance.

Silver in the last year has moved a little.  It went down a few dollars and back up a few dollars.  It’s lovable, fun, type B personality.

Take 45 days in most of our lives, they all seem the same.  Can you take a snap shot and think of the best 45 days you ever had?  You probably had some good days that you remember but nothing outstanding.  With diesel fuel prices, crazy things can happen in 45 days.  My beloved brother in law, found out he had cancer and was dead  45 days later.  He was way too young and too good of a person.  So when you think your day is lousy, it’s probably not; I can’t image how Jeff felt.  When you think fuel management is easy with its type A personality, it’s not.  Get working on it today and save your company some money.

Jeff, I will miss you and we love you.

Few things are out of the hands of fleet fuel managers, while the price of fuel itself maybe one of those things there are other ways to still have a handle on your fleet fuel management. Take for instance the WAY that your fleet fuels. Do you use mobile fueling or fuel at a retail station? Mobile fueling could just be of the details that a fleet fuel manager has under control and its convenience is unmatched.

Fueling at retail may not just incur the price of the fuel your driver purchases. Take in to account the miles it may have taken for the driver to find or get to that station. Consider the time and miles used to detour from the designated route to find that station, those miles did not have to be wasted. Also the unpredictability of the fuel prices at that fuel station may not accommodate your planned fuel budget. Imagine too if the station was busy and the truck had idled for more then a few minutes, there goes more fuel down the drain.  Mobile fueling will essentially bring the fuel to you. The trucks will be tanked up and ready to go each day, now there is no reason to have drivers deviate for fuel.

Another factor to contemplate is the driver and labor costs. If that detour for fuel took half an hour, including fueling time, how much were you paying the driver to diesel fuel up? If that vehicle had more then one occupant, that would have doubled the wages you paid for a simple fleet fuel stop. Mobile fueling would negate the need for a driver to use precious drive time to fuel up and allow a more efficient and productive trip.  We all know how difficult hours of service can be to comply with.

Mobile fueling also would help to keep the fuel budget under control as there maybe volume discounts a possibility of price negotiability or have the ability to be locked in, in some cases. Invoicing will be easier as all the fuel is from one source. Don’t be overwhelmed by fuel prices and worry about your drivers fueling on the road, in fact mobile fueling may even offer peace of mind. 

If you look at the whole picture cost to fuel, that is fuel cost and drivers labor, what are you really paying.  If your fuel margin at a retail location is 15 cents and your paying your driver $16 a hour and it takes him ½ hour to fleet fuel, it just cost you $8 for him to fuel your truck.  Take that one step farther and let’s say he fleet fueled that truck with 50 gallons.  Your cost for your driver to fuel that truck was 16 cents a gallon.  You paid the driver 16 cents a gallon and the retail location another 15 cents a gallon in fuel margin for a total of 31 cents a gallon.  You might be able to have a mobile fueling company fleet fuel your trucks for 25 cents, saving you 6 cents a gallon on every gallon.  On a 50 gallon fuel up that is $3.00 if you have 30 trucks, that is $90 a day and now we are talking fuel savings.

Mobile fueling might not be for every operation or for all areas of the country but it is something to think about as you look toward saving money in total fuel cost in 2010.

Have you have been to Las Vegas, Atlantic City, or the horseracing track? Have you ever bet on a football game? Do you ever feel like you’re going to win?

Of course you do or you wouldn’t go for the action. You go for the entertainment dollar, fun and glitz, but really we all know that those places weren’t built on winners. They were built on people losing money.

Now, you’re sitting at your desk and you’re putting together your fleet fuel budget for the next few months or all of next year. Do you have that same sense of fun and adrenaline that you have when you’re playing those games? Are you betting that diesel fuel prices won’t go higher or are you betting that diesel fuel prices won’t go lower?

Let’s not bet on diesel fuel prices doing anything. It is the one commodity that will kill you every time because when you think it can’t go up anymore, it goes higher, and just when you thought your fleet fuel price was going to be high, it falls like a brick. Instead of having this happen, do what most of the larger companies do in the United States and what almost every company does in Europe; manage the fleet fueling risk that you have with diesel fuel prices.

You can call it hedging, futures, fixed pricing or buying a call opinion or a putt on fleet fuel, but I like to call it buying fuel insurance. Here is how it works, and I feel it is the easiest way to explain to people who are both gamblers and non-gamblers. Let’s think about diesel fuel prices the same way you do about truck insurance, but let’s take the part out that is required by law.

Your company buys truck insurance to protect the asset: the truck. The truck is worth a lot of money, and if the driver causes an accident or your truck gets hit by an uninsured or underinsured motorist, your company wants cover to cover the costs of getting the truck fixed. You pay a few each month or year to the insurance company for your coverage, and your coverage is more expensive if you have a lower deductable.

With your diesel fuel prices, you make your budget and go out to fleet fuel market to determine what fuel is selling for over the period of time that you are budgeting for. Let’s say it’s $3 a gallon for next month but for 11 months from now it’s $3.15 a gallon. Your average price works out to be $3.07 a gallon. The fuel supplier will likely add a couple of cents a gallon for themselves, so overall you’re paying $3.10 for all of next year. If the price of fleet fuel is sold for more than $3.10 during the year, your company looks like a winner. If the costs of fleet fuel are sold for less than $3.10 during the year, and let’s say it’s $2.70, you look like a loser by 40 cents per gallon but are you?

You buy tens of thousands of dollars each year for truck insurance. It’s a big number on your profit and loss statement at the end of the year if your trucks were only in a couple of minor accidents or no accidents at all. Do people look at you and say “That guy is a loser. We never should have had truck insurance”? No, of course not because by having the insurance, you mitigate risk against the company. If you didn’t have insurance and a big accident happened, then what would happen?

Buying fleet fuel at $3.10 and it only costs $2.70 a gallon a year doesn’t make you a loser. How can you lose, you budgeted $3.10? You paid $3.10. You took the risk out of your fleet fuel program by having this insurance in place. Let’s say the opposite happened? For a truck it would be an accident; for fuel it would be high raising diesel fuel prices. Have you ever seen fleet fuel prices high? How about this, from February 2007 to September 2007 diesel fuel prices increased 55 cents a gallon, and from October 2007 to July 2008 diesel fuel prices increased $1.71 a gallon. From August 2008 to March 2009 prices fell by $1.40 per gallon. Then from March 2009 until March 2010 diesel fuel prices went up 95 cents. With that said, the accidents for your fleet fuel prices are out there. They happen all of the time. We don’t recommend trying to beat Vegas. Nor do we expect or think you should jump into this lake with both feet at the same time.

We do believe since prices have moved down by 30 cents a gallon for diesel fuel prices and crude oil has lost over 22 percent, now might be a good time to start talking about the next steps. All economic indicators in this country are strong and on the uptick. Yes, Europe is having issues, and that along with excess supply has caused the oil market along with the stock market to fall, but don’t be fueled (fooled).

These diesel fuel prices are going to shoot up like the BP rig in the Gulf. Once it starts going, it might be hard to stop.

April showers bring May flowers … but you might already have water in your fuel tank!

This happens more than just in the spring time. You may have an above ground fuel tank, or the saddle tanks on your truck may sit in the sun all day long. On your saddle tanks you have warm fuel running back through them, then what happens? At night it gets cool and causes a little bit of a rain forest in your fuel tank.

The approach of spring seems to bring this problem of issues with water/moisture in fuel storage tanks the most. If your winter fuel supplier used an alcohol-based winter additive (we hope they didn’t) or a demulsifier to remove water from your diesel fuel the question you have to answer is, “Where did the water go?”

The answer is, all of that water is now sitting on the bottom of your tank. So what are you going to do about it?

You have a couple of ways to take care of it. It is smart just to have good housekeeping anytime you are talking about fleet fuel or gas. A little extra effort put in on the front end saves you a lot of time and expense on the back end.

Option 1: Pump off the water. The best option. How much is the cost to pump off the water and dispose of it? If you don’t have enough water to pump off what are you going to do?

Option 2: Forget about it. This could be very costly in the long run. ULSD has no natural biocide and eventually you will have an algae/fungus/mold outbreak that will stop your equipment or stop your customers, giving you a reputation for having “bad” fuel. The long-term effects are tank corrosion and then tank replacement.

Option 3: Treat your tanks with a “drying” agent. This is economical and can rid storage tanks of excessive water buildup with multiple treatments. What type of drying agent to use? The use of an emulsifying agent will allow the water to move into suspension in the fuel and pass through the combustion process. My fuel additive friend Dusty Wright is always talking about this.

ULSD has more moisture than diesel fuels of old. Tank maintenance is now more important than ever. And we’re not talking just about bulk storage. Equipment that sits for long periods can have the same issues of tank corrosion and “bugs.”

The proactive approach of using a year-round fuel additive program can consist of two very effective programs:

Program 1: Early Spring-treat all tanks with a drying agent to remove moisture accumulation from the winter season. Follow up this treatment in late spring with a maintenance dose of an algaecide to prevent algae/mold/fungus growth as temps begin to rise. Follow up an additional drying agent treatment in late summer/early fall to remove excess water prior to cold weather to help fuel performance as temperature drop.

Program 2: Begin treating/using a premium package from your fuel supplier or purchase one yourself and treat your fuel year round. Some premium diesel packages have been shown to reduce emissions by as much as 45 percent, provide lubricity to critical fuel components for longer life, lower soot contamination in oil, and provide fuel economy increases all while helping to manage moisture in your tanks from bulk storage to individual units.

Like with most programs, you want to talk to someone who understands what you are trying to accomplish. Be careful; not all fuel additives are the same. If you deal with a professional fuel additive person or fuel consultant, you should get what you are looking for at a good price.