Fleet News

Protecting fleet budgets against volatile fuel prices

Paul Holland chief operating officer, Allstar Business Solutions

By Paul Holland chief operating officer, Allstar Business Solutions

Geopolitical influences had an increasing impact on fuel prices throughout 2018, rendering the market volatile – and this year looks to be no different.

Fuel 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.

So, how can UK businesses avoid getting caught up in the politics and better manage fuel costs?

Historically, supply and demand factors had the biggest influence on fuel price. Last year however,  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 fuel costs. 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.

Moving into 2019 however, we have started to see an increase in fuel prices as OPEC and Russia attempt to cut supply.

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 to managing costs and navigating regulation. Some tips to ensure they reduce overall fuel spend and mitigate any unexpected changes include:

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. Closer to home, UK government policies, Brexit, and the impact of FX will also influence the price we pay.

Any major fluctuations in the foreign exchange rate as a result of current affairs will be reported in the press, as will changes in at-source oil pricing.

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.

Global politics and the economy are non-negotiable. Instead, focus on the factors within your control and 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.

Despite a turbulent forecast for the coming year, fleet operators can use these tips to focus their strategy when it comes to navigating a volatile fuel market. 

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