How to tender for fuel
Fuel represents hypothetically 15% to 20% of your TCO, but often exceeds that reference percentage. Sow hile 2020 might have been a favourable year for fuel costs, establishing control has become more important than ever: fuel consumption is a valuable source of information for your transition to electric or mobility, as it tells you how your employees are using their company cars.
1. Measure the volume of fuel bought
Fleets find themselves in an interesting place; as most companies are transitioning into electric or electrified vehicles, which means they will need less fuel in future. Nonetheless, every fleet and procurement manager is still aiming for the best deals with fuel providers.
The use of fleet-wide fuel cards to record how much petrol or diesel (or ethanol in the LatAm region) is bought over a year is vital to negotiate any volume-related discount or rebate. This total realistically needs to be adjusted downwards to take account of the replacement of ICE vehicles with battery-powered vehicles.
The calculation base remains management information from your existing fuel suppliers plus expenses data to establish a total figure, for which potential fuel suppliers can tender.
Trying to estimate this volume from business mileage expense claims is time-consuming and much less accurate.
2. Assess where drivers need to buy fuel
There is no point channelling fuel spend through a small oil company that does not have filling stations in the areas where a fleet operates. Drivers need to be able to refuel their vehicles without time-wasting detours or inconvenience. In this regard, filling station coverage is more important than price.
Multi-national fleets may find that no individual oil company can satisfy their needs, and instead be obliged to appoint fuel suppliers on a country-by-country basis, or even select multiple vendors per country; again, a good reason to invest in a good fleet data warehouse.
3. Decide on a pricing mechanism
In broad-brush terms there are three ways to structure fleet fuel discounts.
- Firstly, to negotiate a fixed discount off the pump price, wherever a driver refuels within a network. However, it may still be cheaper to refuel at a supermarket than at an oil company’s high price filling station even with the discount.
- Alternatively, larger fleets might negotiate a discounted nationwide price for diesel, typically fixed for one week at a time, which means the fleet pays the same pump price per litre regardless of where their drivers refuel.
- The third option is to negotiate a ‘Platts-plus’ price. Platts is an index of diesel pricing, to which oil companies apply a fixed margin to cover the cost of fuel distribution, insurance and profit. Fleets then pay this fixed price nationwide.
4. Consider diesel bunkering
Depot-based fleets might consider operating their own fuel tanks, buying diesel in bulk and then controlling the refuelling of commercial vehicles. This is typically the cheapest way to acquire fuel, but other costs can be significant, including the investment in installing fuel tanks and pumps, the environmental safeguards to protect against fuel spills and pollution, and the management system and controls required to keep track of refuelling and guard against misuse and fraud.
5. Focus in the right areas
It is tempting to concentrate on the pump price when implementing policies to cut fleet fuel expenditure, but there is arguably far more to be gained from introducing tight control measures than negotiating a cent or two off the pump price.
Preventing drivers from claiming for oil, AdBlue, car washes, coffee and snacks on their fuel expenses can reduce ‘fuel’ expenditure massively. As such, consider what options your fuel provider offers: can you put limits on fuel types (regular versus premium, petrol or diesel only…), on the expenditure (restricting fuel expenditure to a lower amount for PHEV drivers can be useful) and on the items that can be purchased with the fuel card (fuel only, or also the sandwiches at the shop).
Likewise, auditing business mileages and making sure that drivers do not over claim when submitting their expense forms can deliver double digit percentage savings.
Large, decentralised fleets are always vulnerable to a rogue driver using a fuel card or claiming for fuel for a non-company vehicle, so controls such as only authorising a certain type of fuel, limiting each refuel to the maximum capacity of a vehicle’s tank, and combining fuel expenditure with mileages to monitor fuel efficiency (and create alerts for underperforming vehicles and drivers) are all important ways to curb fuel costs.
6. Improve fuel consumption
Management information from fuel cards can be used to create fuel economy league tables for drivers behind the wheel of the same make and model of vehicle. The load and territory of the vehicle both influence fuel consumption – a heavy cargo in stop-start urban driving will be less efficient than a lighter load on a smooth-flowing road – but the driver remains the biggest influence on a vehicle’s economy.
Identifying drivers with the poorest fuel consumption figures and introducing coaching to combat wasteful engine idling and promote eco-driving techniques can save fuel, shrink carbon footprints and improve safety.
7. Look ahead to electrification
Fuel cards can save hours of management time by consolidating fuel spend into a single VAT invoice per month, but electric vehicles require a completely new level of sophistication in managing their energy costs. With drivers plugging in EVs at home, at the workplace and at public rechargers, fleets need to find a way to calculate an accurate reimbursement rate for business miles. A number of traditional diesel fuel cards now also include a mechanism for drivers to pay for an electric recharge at a public charge point, but employers will also have to establish policies for charging at work (should this be free to all employees, free to company car drivers only, or should everyone pay?), and for controlling the costs incurred by drivers who use their own domestic electricity supply to recharge their company cars and vans.