The Best way To Buy Fuel

Bob Deierlein

What goes up, stays up, at least in the price of fuel for your vehicles. If the laws of gravity won't even help, then what will? First, you must know your options and the methods others have used to control this significant expense.

Practices vary fleet to fleet, depending on operation size, type and territory. Even though most waste trucks return to their facilities for fueling nightly, fleet managers still can cost effectively use outside fueling at distant ends of routes or at distant material recovery facilities.

Some companies' fuel purchases reach even farther. For example, Waste Management Inc., Oak Brook, Ill., discovered that purchasing fuel locally or regionally was too difficult, time-consuming and inefficient for its fleet of more than 17,000 which operate from approximately 500 locations. So, the company purchases nationally.

Dan Cowher, director of maintenance and purchasing for the Atlantic Group, Hampton, N.H., said his company established a National Purchasing Program in conjunction with Petroleum Source, an Atlanta-based fuel management company. "They have built a distribution network that provides the best price available and good, quick service," he said.

At the other end of the spectrum is Solag Disposal, San Juan Capistrano, Calif. Although its sole facility has one 10,000-gallon tank, it takes two 7,600-gallon deliveries a week to keep the fleet moving. "We keep track of rack prices through a publication and work with one distributor at 'X' cents above that price," explained Cameron Spicer, operations manager. "We are not brand-specific, so this gives the dealer more flexibility, and he can take off a little more money per gallon." Still, they continue to shop around occasionally to ensure they are getting the best deal.

Performance commitments are as important as price when selecting a fuel supplier, stressed Pat Mulrooney, fleet maintenance manager of Philadelphia Newspapers Inc., Conshohocken, Pa. And although his vehicles are not used for waste transport, his procedure can be can be applied to the waste industry.

Philadelphia Newspaper's fleet consists of 354 vehicles and range from small, mid-size vans to Class 8 combination vehicles - 200 of which are gas- and diesel-powered step vans. The fleet racks up approximately 7.7 million miles per year and consumes approximately 925,000 gallons.

"In the early 1970s, we had been buying all our fuel from one of the major suppliers in the Philadelphia area," Mulrooney said. "Following the fuel crisis, we started making our purchases on the spot market, buying from different dealers based on current pricing. We spent a lot of time on the phone, comparing prices, ordering six or seven truckloads of diesel and four loads of gasoline a month. This consumed so much time that there were days I wondered if I had saved any money at all."

This period became a learning experience for Mulrooney, who realized that fuel suppliers varied in service and quality as well as price. Dealing with many suppliers presented new challenges - diesel fuel that was mistakenly dropped in gasoline storage tanks; fuel that had high water content and on one occasion, he received contaminated fuel - and he decided it was time to look for a more efficient fuel purchasing method and establish a more confident position on quality and service issues.

In the late 1980s, local fuel dealers approached Philadelphia Newspapers with an offer of a six- or 12- month fixed price contract. "We felt if we could negotiate a reasonable price with some performance commitments tied to service and quality, it would be beneficial," Mulrooney said.

Under these arrangements, determining price is fairly basic, he said. "Number 2 fuel oil is listed on the New York Mercantile Exchange (NYMEX) but, low sulfur fuel oil is not. The dealer takes the current NYMEX price and adds a differential for low sulfur fuel, which is determined by averaging the difference between the published NYMEX price and the cost of low sulfur fuel over a period of time. Beyond that, the dealer adds a cost for profit and transportation from the rack to the delivery point."

A formal contract is drawn up, specifying price, quality and service arrangements over an agreed time period, which is typically six or 12 months, Mulrooney said.

However, he warned, this type arrangement won't work for everyone. "The contract will lock you into purchasing a specific amount over a particular period," he said. "For us, this was usually in excess of 42,000 gallons per month. If your operation consistently uses fuel in excess of the contractual amount, you may want to further explore this option. This is definitely a calculated risk, and you will not always be the winner."

Timing also is a factor, he continued. Fuel oil price historically has been lowest from April to August when demand is low and supplies are higher. However, other factors affect price, such as political unrest in the Middle East, a catastrophic event at a refinery complex or the economy.

"Gasoline also is available under similar arrangements," he said. "We try to lock in on gasoline in late fall or early spring, since this product's cost tends to escalate the closer we get to summer."

Philadelphia Newspapers has been fortunate in its experience with firm price contracts. "I'm not going to tell you that we've always paid less than the current rates," Mulrooney said, "but when we've paid over the current rates, the difference was tolerable. As long as we are even or lower than current pricing, we're ahead of the game. On the other hand, we have experienced periods when we were paying more than current prices. Don't judge your success by two or three month periods, but look at the big picture."

So, what does Mulrooney currently pay for fuel? Pennsylvania requires an addition of 0.4675 to the diesel fuel price - currently 0.628 - which equals $1.0955. Gasoline's 0.4075 tax is added to Philadelphia News-papers' current contract price of 0.573 for a total of 0.9805 cents per gallon.

Another Fleet's Approach In the Midwest, one fleet took a different approach to controlling fuel purchasing costs problems: It gave up on-site storage and fueling.

Its trucks purchase all their fuel from an unmanned fuel stop. The company it uses has 10 sites in the Milwaukee area, one 100 miles west and one 100 miles north. They also have sites in Illinois, Indiana, Ohio, Michigan and Georgia - a scope that covers the fleet's operating area.

The company's fleet manager said they can negotiate and lock in their price for one or more months. They pay for the fuel as they use it, and have no equipment to maintain or tanks to monitor.

Each driver has his own fuel card and pin number. When fueling, he enters the truck number, odometer reading and pin number. The company then receives a computer printout of the transactions. It also can access all transactions daily via computer.

A Proactive Program Roberson Transportation Services, Farmer City, Ill., a nationwide linehaul business that offers specialized carrier services, purchases fuel for a fleet of more than 1,000 units.

"Our fleet consists of Freightliner/ Cummins-powered trucks, with an expected fuel range of approximately 1,200 miles," said fuel purchasing manager Craig W. Hanlin. "We use QualComm communication equipment and NTS/EDS card services."

Although Roberson's fueling is mainly over-the-road, Hanlin believes that fuel purchasing must be a proactive program where every person is accountable and where fuel management starts with intent to purchase and ends following combustion.

"To determine the prices we should be paying, we analyze all factors involved, including political, seasonal, supply and demand, and then use available publications with appropriate information," he said. "Then, we decide where to buy fuel, how it gets in the truck, what pricing structure is acceptable and benchmark our position to the industry."

He cites four roles that are essential for this strategy: drivers, maintenance, operations and executive staff.

"Education is a factor," he continued. "Ours is two-pronged. First, we provide driver training on how to operate the equipment most effectively, because the drivers affect equipment, miles-per-gallon (MPG) and strategy. Second, we have a professional in-house MPG training specialist, a 17-year veteran who facilitates all the issues surrounding fuel economy.

"The program includes specing the vehicle appropriately and performing preventive maintenance that insures the equipment operates to potential," he said.

Roberson also publishes a fueling guide to ensure controls, coordinate responsibilities, monitor results, re-evaluate strategy and adapt and modify when necessary.

Roberson's fuel purchasing program has improved MPG by five percent.

Advice From The Trenches "Old methods included buy-when-needed, obtaining daily quotes and getting discounts from the posted price," said Roger N. Simons of Simons Petroleum, Oklahoma City.

"The advantages of these methods were the ability to obtain a low delivery price and more personalized service," he said. "On the other hand, there were many disadvantages, such as being a price 'taker' at today's market, limited purchasing power, lack of accounting uniformity, lack of data capture uniformity, over-paying taxes and administrative expense."

Pricing is the main factor. Strategies depend on having closed networks for specific gallons, using cost plus instead of cents off, indexing at terminals, comparing "apples-to-apples" facility quality and comparing on a pre-tax basis.

No matter what strategy you decide upon, the focus remains the same. "Management must make a plan, commit to an overall, centralized strategy and determine persons responsible for carrying it out," Simons said.