Fleet News

Managing your company cars: fuel

By Phil Williams, UK Fleet Sales Manager, euroShell Card - An extract from the Managing your Company Cars book edited by Colin Tourick and produced in association with Fleet News

Petrol and diesel prices are at an all-time high and continued volatility is predicted. What tactics can fleet decision-makers use to control their fuel bills?

Fleet operators must use every tool in their armoury to keep fuel costs under control and eliminate any unnecessary expenditure as pump prices continue their upwards rise.

At the time of writing, both petrol and diesel UK pump prices were at record levels – 128.60p a litre and 133.26p a litre respectively.

There is also unrest in the Middle East and a scheduled inflation plus 1p a litre fuel duty increase is due on 1 April 2011.

The Chancellor of the Exchequer is under pressure to axe the rise but the fact is that pump prices could be at least 5p a litre higher within weeks.

So why are fuel prices at the level they are?

The simple answer is to blame either the oil producers or the UK government for tax levels on petrol and diesel. But not surprisingly, the reality is that there is no simple answer.

It is suggested that as much as 80% of the rise in prices that we have witnessed can be attributed to growing demand, according to some economists.

This reflects a domestic investment boom in certain countries – the so-called BRIC countries and Brazil, India and China particularly – and, as such, is less damaging for economic growth than a rise solely attributed to falling supply.

But, while economic expansion in emerging countries is fuelling the world’s thirst for oil, prices are also being driven higher by supply uncertainties – such as that caused by unrest in the Middle East – that have recently forced the price of crude oil through the $100 a barrel mark.

In recent years other global issues that have impacted on the price of crude oil, which ultimately feeds through to the pumps, have included hurricanes and pipeline damage.

With numerous uncertainties impacting on the marketplace and global demand outstripping supply, particularly in relation to diesel, fuel prices will continue to be under pressure.

Recent years have seen booming new car diesel sales in the UK and across Europe.

In Britain, diesel car sales accounted for a record 46.1% share of the new car market in 2010, according to the Society of Motor Manufacturers and Traders, and on the continent the figure is even higher.

This has resulted in an imbalance between petrol and diesel fuel production.

Therefore, the world’s oil companies are investing in new sites and in their refineries to ensure more diesel fuel is produced to meet rapidly rising demand for diesel vehicles.

With so much concern amongst fleet managers and company car and van drivers about the current high price of fuel, it is impossible to write about the issue without explaining ‘where the money goes’.

Taking the average UK price of petrol at the time of writing (15 February 2011: 128.6p a litre) fuel duty accounts for 58.95p (45.8%), VAT accounts for 21.43p (16.6%), the wholesaler receives 39.3p (30.6%), the retailer’s margin is 7.42p (5.8%) and biofuel (paid for by the producer) accounts for 1.5p (1.2%). Tax – fuel duty and VAT – therefore accounts for 62.4% of the pump price.

Before tax, the cost of fuel in Britain is the lowest in Europe thanks in part to the reserves of North Sea oil.

However, add in government taxes, which collectively amount to 80.38p a litre, and it means that motorists face some of the highest pump prices in the world

So what can fleet decision-makers do to keep petrol and diesel budgets in check when, typically, fuel is the second-highest cost faced by transport departments after vehicle acquisition/depreciation.

Clearly, choosing vehicles with good mpg performance will deliver significant financial returns.

But, having introduced fuel-sipping models to the fleet, it is crucial that companies have a robust fuel management strategy to ensure that petrol and diesel bills are kept to a minimum otherwise potential savings will not materialise.

Unfortunately, anecdotal evidence suggests that some fleet decision-makers appear to believe that fuel is an unmanageable cost and that few cost-saving actions can be taken in the face of constantly rising prices.

But the opposite is true, with fuel cards and the management reports emanating from them enabling fleet bosses to take control over how company money is spent on fuel, gather accurate data about use, and then analyse that information to deliver savings.

As a result, even when forecourt prices are rising, the impact on fuel bills can be minimised.

And, while that means fleets should review vehicle choice lists to ensure that the most fuel-efficient vehicles that are fit-for-purpose are promoted to drivers, there are numerous actions that businesses can take to cut fuel use and typically save around £1,000 per vehicle a year, according to the Energy Saving Trust.

Fuel-efficient fleet management tactics to trim petrol and diesel use include:

  • Journey planning
  • Encouraging drivers to adopt a ‘smart’ or eco-friendly style of driving – drive smoothly, accelerate gently and brake sensibly
  • The regular servicing of vehicles including monthly tyre checks – under-inflated tyres can raise fuel consumption by up to 10%
  • Refining mileage reimbursement policies to discourage business trips.
  • Removing unnecessary weight from vehicles – an unused roof box can increase fuel consumption by up to 10%

The majority of companies are already using car carbon dioxide (CO2) emission figures in deciding vehicle choice lists.

And this trend should have a positive influence on fuel consumption as, generally, the lower the CO2 figure, the better a car’s mpg.

But, while the CO2 tax benefits of choosing low emission company cars will remain in place for the duration of the vehicle operating cycle, promised fuel savings could be lost for a variety of reasons without vigilant management.

With some company car drivers using up to 20% more fuel than the most efficient employees, a fuel management action plan to cut costs is a fleet management essential.

That is why industry experts suggest that by taking note of the ‘fuel eternal triangle’ – miles driven, the volume of fuel purchased and the cost of fuel – all underpinned by a disciplined fuel card regime, financial savings of 15-20% can be achieved.

However, the best fuel control starts with asking the question “is the journey really necessary?

If it is, the employee should be driving an efficient vehicle and drive efficiently.

The next step is to consider how much the fuel is costing you. Though if you don’t know how many miles are being driven and how much you are paying for fuel, you will find it impossible to start managing this expense.

Smart or eco driving is the buzz phrase being promoted to fleet drivers with the twin aims of encouraging greener, safer motoring and cutting operating costs.

On the road, eco-driving encourages motorists to anticipate what is ahead of them, drive as smoothly as possible, and avoid harsh and aggressive acceleration and braking.

Saving energy saves fuel, cuts vehicle emissions, saves money and improves safety.

With fuel prices at record levels, the AA calculates that for a medium-sized car on a 100-mile motorway trip, eco driving can cut fuel consumption by almost a third – saving around a gallon of fuel.

Multiply that across a fleet of vehicles and the savings are huge.

Speeding also increases costs – driving at 85mph rather than 70mph uses 25% more fuel.

For some employees, specialist eco driver training maybe appropriate.

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