Get Transportation Budget Certainty with a Fixed Price Fuel Solution
ByJenny Vander Zanden
November 16, 2017
The process of developing an annual transportation budget for a company that moves a large amount of goods to market can be challenging. Perhaps the toughest question to answer is how much should be budgeted for fuel.
“Many organizations assume that they have little if any control over their fuel costs. They may include a few cents of cushion in their budget, but if fuel prices fluctuate, they know they will have an issue.” says Mark Mullins, Vice President, Finance at Breakthrough.
While fuel will be one of the largest items in the budget, the unpredictability of fuel markets leaves a lot to chance. Natural disasters, geopolitical events, refinery outages, and OPEC production cuts cause market disruptions and throw off your budget, but you have no idea if, when, or where they will happen.
The right fixed price fuel solution, however, can make budgeting easier, eliminating concerns about unforeseen disruptions. Mullins helps us understand why a program like T-Fuel can be transformational.
Adding Budget Certainty
What if you no longer had to guess what your organization’s transportation fuel expenditures would be next year? What if you could lock in a fixed price for fuel and pay that amount no matter what disruptions occur?
That’s what a fixed price fuel solution like Transformational Fuel (T-Fuel) can do. But not all such programs are equal. Having the right data about how much and where fuel is consumed is needed to accurately provide budget certainty, and that’s where T-Fuel stands apart from traditional fixed price fuel services.
“Many companies do not have visibility into how much fuel they consume in their supply chain … for a year, a month, or in a specific region of the country,” says Mullins. “Even if they have a fixed price fuel solution, they’re often working with averages and conservative estimates of their actual fuel consumption. They often estimate gallons on the low side to avoid locking in the cost of more gallons than they actually consume.”
Breakthrough is different because we do have the data. Our clients can take advantage of budget certainty with T-Fuel® thanks to the detailed and accurate information that’s gathered via their Fuel Recovery programs.
Fuel Recovery brings transparency with fair and accurate pricing. Adding T-Fuel provides budget certainty.
“It’s a unique and elegant solution because Breakthrough already has visibility into every single client shipment, which means we know how much fuel a company is consuming,” Mullins explains. “We can see exactly where a client’s goods are moving. So, we know where gallons are being consumed by day, by state, and by region and we can match this consumption to the client’s network with a high level of accuracy.”
With T-Fuel, shippers can lock in at a set price and avoid the hassles of market volatility. Fuel prices will go up and down, but you can rest easy because you already know what you’ll be paying.
Removing Complexity and Reducing Risk
As Mullins describes, the task of determining transportation energy costs for an annual budget can be intimidating because the cost of fuel has a major impact on overall costs. While a consumer may barely notice an increase of a nickel at the gas pump, it’s a different story for many shippers.
“It’s a big undertaking to estimate what an organization’s annual fuel cost might be. A change of five to ten cents is significant for companies who consume millions of gallons of fuel,” Mullins says. “It’s challenging to estimate fuel costs and even then, there’s no guarantee that it’s accurate without the right data.”
The issue with other fixed price fuel programs is they usually require the client’s transportation and finance teams to do a lot of estimating and number crunching.
“In traditional settings, the shipper takes on all the complexity and a lot of the work,” Mullins explains. “Not only does that take up valuable time, there is also the risk that the assumptions are inaccurate.”
With T-Fuel®, Mullins says clients pay the fixed price and Breakthrough takes care of the rest.
“Carriers don’t even notice T-Fuel is implemented because they will continue to be reimbursed based on market pricing,” Mullins says. “Breakthrough® handles all the complexity, we do all the calculations, and we provide the reporting needed by our clients. The shipper pays one fixed price for locked in gallons while the carriers are reimbursed based on the client’s Fuel Recovery program.”
Customize a Fixed Price Fuel Solution with T-Fuel
T-Fuel provides Breakthrough clients a unique opportunity to refine their transportation energy strategy. Because they are already managing their network with Fuel Recovery, clients have access to their unbiased, accurate lane-level data in real time. This gives them the ability to fully customize a fixed price fuel solution based on volume, geography, and seasonal patterns with confidence.
“If clients want to apply a fixed price fuel solution across their entire network, we can certainly do that,” Mullins says. “If clients only want to use T-Fuel for certain time periods, within certain regions, or spot markets, we can do that as well. The design of your fixed price solution is totally up to each client.”
For example, Breakthrough clients could choose to apply T-Fuel in the New York Harbor spot market during the winter months when heating oil, which is commonly used to heat homes in the Northeast, is in high demand. A spike in the demand for heating oil often results in immediate pressure on the supply and price of diesel.
“Since Breakthrough has fuel consumption data for every load, it’s possible to design a fixed fuel solution for specific traffic lanes and/or shipments to specific customers,” Mullins adds. “Overall, our T-Fuel solution is very customizable.”
Breakthrough’s fixed price fuel solution starts with launching a Fuel Recovery program, which brings transparency to fuel surcharges and ensures shippers and carriers are paying fair and accurate fuel prices. The data from Fuel Recovery delivers further insights that power the T-Fuel® solution.
“Clients who are setting next year’s budget can lock in a price for fuel without having to worry about disruptions from hurricanes, refinery outages, or anything else that can disrupt the price of diesel,” Mullins says. “The market will go up and down, but you’ll have complete confidence because you already know your cost of fuel.”