The answer to soaring global fuel prices

Organisations that use fleets need to rethink traditional approaches to fuel management in the face of a paradigm shift in global energy prices, advises TMC’s Paul Jackson

Last month’s short-lived drop in the price of oil – the biggest one-day fall in history – caused plenty of excitement in the markets.  
    
However, how many businesses noted that this record "plunge" merely moved the base price of oil from $120 a barrel to $108, even though either figure would have been considered stratospheric four years ago?
    
Oil prices are now three times higher, in real terms, than they were in 2002, although the UK’s high fixed fuel taxes mean that British businesses now pay "only" 45 per cent more for diesel and petrol than they did then.

Falling oil exports
Even so, 45 per cent is still a big cost increase to absorb or pass on to customers, and the fundamental reason for it is that there is not enough oil to go round.
    
It’s all to do with exports. Although total world oil production is still increasing fractionally, the exporting countries use more and more of their own production domestically every year to support their own growing economies.  
    
Jeffrey Brown, a Dallas-based geologist, calculates that world oil exports reached a peak of 46 million barrels per day (mbpd) in 2006 and have since fallen by four per cent. However, because China and India have rapidly increased their share of exported oil in recent years, the actual volume of exports available to the rest of the world has reduced by around 20 per cent since 2006 and shows no sign of making a significant recovery.
    
That certainly helps to explain why we’ve seen a paradigm shift in energy costs since 2005. Global oil consumption wants to grow by some 4mbpd every year while supply increases by only 0.8mpbd. Businesses everywhere face a paramount requirement to prepare themselves for further increases in the price of imported oil.   
    
Britain is a net oil importer and, as petrol and diesel will continue to power virtually all fleet vehicles for at least the next decade, effective fuel management will be critical for fleets.

Accurate measurement
At this point, articles often shift the focus on to practical actions fleets can take to minimise their fuel costs, such as driver training, targeting low-cost fuel sites, capping vehicles’ CO2 ratings, and so on.
    
Don’t get me wrong, they are all valid responses to the growing fleet fuel cost crisis. But for them to be effective, fleets implementing them need to know, in detail, what they currently achieve in terms of journeys, purchase price of fuel, volume of fuel used and, of course, mpgs and pence-per-mile for all cars and drivers.
    
Unfortunately, the traditional method of processing fuel and mileage costs actively prevents a majority of businesses from knowing where to start.
     
In fact, shockingly, around 25 per cent of the average fleet’s fuel and mileage spend is simply wasted on unproductive journeys, excessive payment rates and paying claims for mileage that only ever existed on paper.     
    
This figure comes from Mileage Audit, TMC’s proactively monitored journey reporting product. It is the average reduction that customers’ see in their fuel and mileage expense bills when they make sure that journey information is completely transparent.

The key to controlling fuel costs
It goes without saying that mileage activity drives all other fleet costs. However, this lack of clear, checkable journey data is frequently the Achilles Heel of companies’ efforts to manage their fuel use.
    
Traditional expenses processes, as well as being tremendously opaque, deliver extremely poor oversight of actual journeys and costs. Let’s face it, if you were tasked to design a fuel procurement process from scratch, would you come up with one where your company bought its fuel from employees instead of fuel retailers, and didn’t ask them what they paid for it?
    
Even more bizarrely, would you also ignore the actual cost of the fuel used on business and instead ask the taxman to tell you what you should pay via the HMRC Advisory Fuel Rates? Does the taxman set your company’s stationery costs, its heating bills or office rents?
 
Vital data hidden
Of course not. Pay-and-reclaim, especially when used in conjunction with fixed-rate fuel mileage payments, is almost guaranteed to hide the true cost of business mileage. It is often impossible for businesses to know what they’re spending as a whole, let alone at the level of individual vehicles and drivers.
    
Audited, mileage-driven fuel management enables businesses to spot rogue vehicles and employees easily; identify unproductive journeys; streamline the expenses process; pay no more than actual cost for business fuel; involve drivers in campaigns to cut fuel volume and CO2 emissions; fine-tune choice lists, and avoid stiff fines for failing to comply with HMRC mileage recording requirements. In other words, to prevent unnecessary costs.

Powerful tools
It’s what businesses don’t know that prevents them achieving their goals. And the reason why so many businesses struggle to contain mileage bills is that they rely on processes that pre-date computers and the internet.
    
Fortunately, powerful tools such as mileage audit and the new generation of fuel cards now offer fleets the ability to respond swiftly and decisively to the effects of the new fuel price paradigm. Wise businesses will move quickly to take advantage of it.