By examining three key criteria, waste fleet operators can maximize the investment in their new CNG vehicles and fueling stations, gain greater visibility in their operations and ensure they are effectively insulated from the pricing volatility that has become the norm in today’s fuel market.
Ryan Mossman
Natural gas and, specifically, compressed natural gas (CNG) fueling stations and vehicles running on CNG were all over the industry news in 2012. Organizations such as Republic and Veolia added CNG collection vehicles to their fleet makeup in Pennsylvania, Texas and Wisconsin, while Waste Management opened more than a dozen CNG fueling stations to support its growing fleet of CNG vehicles. While the adoption of CNG and other alternative fuels in select markets makes a great deal of sense and can lead to savings, the fuel portfolio for these organizations and others like them is becoming more complex and difficult to manage. A number of factors make managing this expanding portfolio a unique challenge including regional availability and pricing differentials for each fuel. Other factors such as managing supply agreements with a larger number of suppliers in each region, monitoring inventory levels for each fuel, and reconciling all of these transactions with pricing agreements will increase the administrative workload. To manage this complex mix of fueling activity and components, fleets need to use technology to help streamline the transactions and activities associated with these fuel purchases. In addition to these considerations, fuel price volatility increases the difficulty of managing these fuels and creates the need to make these decisions at the proper time.
Evaluating Your Supply Portfolio
Differing fuel alternatives, like CNG, are being adopted by waste fleets across the country. The complexity around determining the proper supply portfolio mix and managing fuel forecasting, ordering, dispatching and financial reconciliation will rise greatly due to this mixed supply portfolio. Companies have made the decision to adopt CNG and other alternatives to traditional diesel fuel due to cost considerations and other company initiatives. Perhaps one unintended consequence of these moves has been to create a fuel supply portfolio that is more sophisticated and difficult to manage. Fleet operators with a mixed supply portfolio will face greater complexity in determining the proper supply portfolio mix and managing fuel forecasting, ordering, dispatching and financial reconciliation as compared to managing a single fuel for the fleet. With this greater complexity comes a greater operational cost due to a diversified supply portfolio that includes CNG and other alternatives to traditional diesel fuel.
The Impact of Fuel Price Volatility
Besides the logistics needed to manage your fleet fueling needs, fuel price volatility is the elephant in the room that makes every logistical step in the process more critical. Given recent research reported in Forbes1 last year, volatility is here for the foreseeable future, on the increase, and something companies must attempt to manage. With daily price swings of 3 cents or more per gallon of gasoline happening nearly 50 percent of the time, it is something that all fleet managers have to be concerned with.2 In addition to the frequency of these movements, daily price swings of 5 cents to 25 cents are expected each month for ULSD (Ultra Low Sulfur Diesel).
With such dramatic changes, one can only imagine what a number of purchases on the wrong side of this swing can do to monthly fuel budget. An experienced fuel management team can effectively manage against these movements and fully take advantage of the opportunity that they present. The right purchasing decisions could mean the difference between a great quarter and year or a lackluster one. In just one example of the impact fuel volatility can have, the nation’s largest waste company lowered earnings in the first quarter of 2012 in part due to higher fuel prices.
Natural gas is exhibiting similar market volatility and, as an example, increased in price more than 10 percent from June to July last year. However, prices overall were much lower than the previous year, according to the Energy Information Administration’s report, U.S. Natural Gas Wellhead Price.
Employing Technology to Gain a Competitive Advantage
The best path towards reducing the financial impact on operations and minimizing the effect of price volatility is through fuel management automation. By employing this technology, fleet operators can solve these increasingly difficult problems and gain control of the expanding fuel portfolio. Fuel management automation technology enables fleet managers to streamline and automate the tasks associated with managing a diversified portfolio, such as multiple supplier invoice reconciliation, product procurement and dispatch, and monitoring of tank levels.
However, many organizations don’t have the internal expertise or desire to manage this technology internally because it is not core to its business. For those organizations, outsourcing is a great option as it enables them to take advantage of best-in-class people, processes, and technology, allows them to focus on things more central to the business, and save money on fueling costs.
Fuel Management Technology as a Service
Outsourcing provides organizations the ability to take advantage of leading technology, as well as leverage the experience of a team of dedicated fuel managers. This third-party provider assumes responsibility for optimizing and directing all fuel management activities for all types of fuel needed for the fleet, and then provides reporting on the results of these activities. These activities can include everything from supplier and distributor selection and demand forecasting and ordering to fuel, freight and tax reconciliation.
When outsourced fuel management is approached in the right way, fleet-based companies can have more favorable supply agreements in place and gain the advantages of a large fuel buying network. Greater supply options and more sophisticated buying techniques mean lower costs that companies can pass along to their customers.
Another important aspect of outsourced fuel management is the ability to leverage the collective experience and best practice expertise that third-party fuel management professionals offer. Coupled with cutting-edge technology, the combination is difficult to recreate internally
Finding the Right Provider
When examining fuel management technology solutions, fleet managers should examine some key areas to find the provider that best fits their needs. First, find out if the outsourced suppliers supply fuel themselves. At times, fleets may not get the best supply arrangements due to conflicts of interest inherent if the supplier owns the fuel. Supplier independence ensures that an outsourcing provider has the company’s best interest at heart.
Second, examine whether the outsourcer has the ability to evaluate the multitude of supply options including alternative fuels, available prices indices, historical pricing trends, regional pricing differences and other factors that will create a truly strategic, cost-reducing supply portfolio.
Finally, explore whether the vendor has a deep understanding of fuel volatility and can effectively manage against it. Given the recent trends in fuel price volatility, it is important that a vendor be able to demonstrate its understanding of volatility in the fuel market.
By keeping these three key criteria in mind, waste fleet operators can maximize the investment in their new CNG vehicles and fueling stations, gain greater visibility in their operations and ensure they are effectively insulated from the pricing volatility that has become the norm in today’s fuel market.
Ryan Mossman is vice president and general manager of FuelQuest’s fuel services, and leverages his years of experience applying technology and business process improvements to help energy, retail, commercial and industrial clients. He has been published or quoted in many industry and has presented at leadingconferences. Ryan can be reached at [email protected].
Notes
- Forbes, November 12, 2012
- FuelQuest, Fuel Market Analysis, “The New Normal”