Traditionally, fuel prices have been decided by supply and demand, but the market has become increasingly volatile in the face of geopolitical influences. With the fuel market unpredictable, businesses must be able to navigate these external drivers. Paul Holland, chief operating officer at FLEETCOR, explains how fleet operators can arm themselves with the right insights and strategies to better manage their costs.
Fuel is one of the largest expenses that fleet operators face, and with prices reaching a four-year high in 2018, keeping costs down presents an ongoing challenge. Petrol and diesel accounts for the biggest proportion of operating costs for any business vehicle, from around 10% for the smallest vans, to as much as a third of total operating costs for the largest vehicles. With commercial vehicles in the UK travelling 116.9billion miles per annum, the costs soon add up.
What were the influencing factors throughout 2018?
Historically, supply and demand factors have had the biggest influence on fuel price. Throughout 2018 however, this became increasingly decided by a range of geopolitical changes which made petrol and diesel costs particularly volatile last year.
Factors including US sanctions on Iran, Venezuela’s drop in production, as well as Russia and OPEC’s decision not to increase production led to a four-year high in petrol and diesel costs during 2018. Brexit has also had a significant impact. Following the June 2016 referendum, the foreign exchange rate (FX) plummeted and remains markedly reduced. Reflecting this, the price of fuel has increased by 9.14ppl, with 5.19ppl of that amount directly related to FX.
In the last quarter of the year, we saw the value of oil drop by 30% due, predominantly, to the evolving US-China trade war. Moving into 2019 however, we have started to see an increase in fuel prices, as OPEC and Russia attempt to cut supply.
Fleet operators must protect their budgets against further uncertainty
If the current economic and political trends continue, it is likely that we will be operating in a less globalised world in the near future. As such, fleet managers will need to adapt their approach when it comes to managing costs and navigating regulation.
Thankfully, there are steps that businesses can take in ensuring they reduce their overall fuel spend and mitigate any unexpected changes. These include:
- Read the news
Global issues drive commodity prices, so if the price of crude oil is driven up, it is likely that the price at the pump will too. There are issues closer to home that will also influence the price we pay, such as UK government policies, Brexit, and the impact of FX. Keep a close eye on the news for any mention of changes in at-source oil pricing. Similarly, any major fluctuations in the foreign exchange rate as a result of current affairs will be reported in the national or financial trade press.
- Avoid speculation
While the price of fuel has risen in recent years, it’s important to note that oil prices do go down as well as up. Where possible, avoid speculating about fuel pricing, particularly when it comes to setting out the annual budget. Instead, plan for what you know, and include a contingency for any unexpected downturns.
- Maximise the positive impact on fleet budgets
Global politics and the economy are non-negotiable. Instead, focus on the factors within your control and look to maximise the impact they can have on the company budget. Review how the company purchases fuel and assess if there are any tools that your company is not currently utilising, such as a fuel card that offers access to discounted fuel at the forecourt.
This is something that Allstar Business Solutions offers with its Allstar cards, which provide clear reporting to better understand driver behaviour, as well as controls across driver spending, including cost limits, volume of fuel purchase, location and fuel type.
- Equip your business with the right insights
While 2019 is predicted to be turbulent, there are strategies that fleet operators can put in place to navigate any volatility in the fuel market and, ultimately, protect their budgets.