The smartest will survive: so stay focused

Issue: Spring 2009

The concept of reducing running costs is paramount in the minds of commercial vehicle operators. Businesses across every sector have found trading conditions tough since the global recession started to bite, but what can be done to ensure your business is lean and agile enough to manage the drop off in demand?

By Simon Champman

Fuel should be a key target for cost reduction activity by vehicle operators. Even for a 7.5 tonne rigid, fuel will represent 20% of costs. For an articulated vehicle it can account for up to 40% of costs. Operators struggled to contend with unprecedented swings in world oil prices last year, bringing the issue to the fore. On top of this, the Treasury effectively landed the UK logistics industry with a £533 million bill last year when it announced a succession of fuel duty rises.  In a sector where the margins are already notoriously tight – made tighter by the grip of recession – the real cost to commercial vehicle operators of the re-introduction of the fuel duty escalator is the difference between survival and insolvency.

Essentially, the escalator automatically increases fuel duty rises above inflation, and means having to absorb a two pence per litre (ppl) rise last December, a 1.84ppl rise in April this year and a further 0.5ppl rise from April 2010 on top of inflation. The Government’s reluctance to listen to an industry that, literally,  keeps UK plc running and employs some 2.3 million  people, means it is now down to operators to ensure  their own survival. 

Spot the difference 

When fuel prices fall because of an over-supply, spot purchases can work out cheaper than sticking to a contract for all oil purchases as they reflect current supply and demand and not previous price movements.  By the same token, in a period of sustained rising prices, contract purchases will be more competitive.  The problem, of course, is that accurately predicting the price of volatile commodities like oil is difficult. 

Spot purchases are becoming less attractive than contract prices as daily product prices and local supply and demand issues will influence the price, making it less predictable. Getting the best price on a particular day also requires time and effort by the operator. Agreeing a contract with a supplier for some or all of your fuel requirements provides supply continuity and a self-managing, transparent system of fuel prices. Remember that some fuel supply companies may have a stronger presence in a particular region than others and will reflect this in the lower prices they charge. 

There is nothing to stop you setting up a contract deal based on, say, 80% of annual usage as a minimum purchase to achieve a good contract price. Spot purchases for the other 20% can then be used as and when the market conditions are favourable. 

For smaller operations, a dedicated bulk diesel facility may be cost prohibitive but if such a company is  located close to others then a co-operative could be organised to share the costs. Another alternative is to use a bunker card that will allow access to refuelling at various networks around the UK. This can be worthwhile as typically bunker card premiums are just 1.0 to 1.5ppl above bulk prices. Similarly, forecourt agency cards are usually between 4 and 5 ppl higher. Fuel dispensing systems are now sufficiently sophisticated to record drawing details of all fuel used from the site accurately. 

Technological solutions 

Technology offers two real advantages for reducing fuel costs: vehicle efficiency and fuel-efficient  driving. In-cab technology can provide an early warning of component wear or failure for workshop. Tackling these early ensures periods of poorer fuel consumption are minimised and vehicle downtime linked to workshop activity minimised. For those underperforming vehicles where diagnostic checks have been inconclusive, the reason behind poor performance may lie with the driver.  However, tackling poor driving performance is best tackled when other explanations have been exhausted. 

Technology that can detect poor driving performance is becoming more mainstream. Vehicle-to-driver telemetry provides valuable information, which can reveal a link between a driving style and fuel consumption and flag up the need for training. Fuel efficiency targets can also be set to reward good drivers.  However, they must be credible. Consider establishing targets that compare performance to the previous year rather than averages, to reflect cyclical business activity and conditions that can affect fuel performance. 

Before purchasing a new vehicle, fuel performance estimates should be analysed.  Overspecifying a vehicle on urban work may return less than optimal fuel consumption, as will a vehicle with insufficient power undertaking trunking activities. 

When new vehicles are introduced they should be accompanied by training to reflect changes in recommended driving style. Vehicle suppliers can provide this training free of charge but, as with many things, if you don’t ask you don’t get.

Fuel–saving devices

It is best to take an objective view when identifying whether to use an add-on fuel saving device. Further consideration should be given to the practicality of each device for its intended purpose. For example, if the device is most effective on long-distance runs (such as aerodynamics), think carefully before using it on local operations. 

The Government-sponsored Freight Best Practice Programme evaluates add-on devices that are available to operators. However, it recommended that operators should be cautious about any claims made by the manufacturer that seem too good to be true. Also check the extent of in-service operational trials of any product and how closely these trials mirror your own activity. 

Conclusion 

Fuel represents one of the most significant parts of an operator’s costs, and becomes more significant as miles per gallon and truck sizes increase, so it pays to be committed to fuel management. With freight under fire from discretionary government costs at all angles, the need to chase down cost saving, particularly in relation to fuel, is greater than ever.  Using the many tools that are now at the commercial vehicle operator’s disposal, survival and success are made much more realistic. 

● Simon Chapman is Chief Economist at the Freight Transport  Association. For further information, visit: www.fta.co.uk 

Published: 02/03/2009