In just one week, Breakthrough clients collectively saved $6.6 million in fuel spend by utilizing a market-based approach called Fuel Recovery to reimburse their carriers for fuel. This savings was driven by the fact that fuel prices dropped rapidly, and Breakthrough clients align to a program that accounts for these market changes as they happen.
Holiday seasons usually mean increased costs and expenses—for families and businesses alike. While consumers look to fill their kitchen tables, gift baskets, and tanks full of gas for sprawling travel plans, shippers, too, increase activity to meet the demands of consumers.
Much like manufacturing, production, and distribution costs fluctuate throughout the year, most shippers naturally expect freight and transportation costs to rise and fall as well. But individual markets within that ecosystem—in this case, the diesel fuel market—operate independently based on key market drivers. When shippers manage inputs like diesel fuel with a market-based approach, fluctuations that defy the norm may lead to significant impacts to your organization’s bottom line.
On October 3, 2018, crude oil prices reached four-year highs at $76.41 per barrel, but by November 15 prices dropped to $56.46 per barrel. This change alone is significant, but the dynamically changing price fluctuations in all the time between—that continues today—is of equal value. Breakthrough’s Fuel Recovery solution captures daily fluctuation in the diesel fuel market, leading to millions in savings for our clients every week, and far exceeding typical savings in down markets such as today’s reality.
Here’s how it happened:
From High Highs, to Low Lows
October’s high price environment was due to a host of market drivers. Tight global crude oil supply and production struggles were exacerbated by Iranian sanctions sending prices into a bull market throughout the first half of October.
OPEC’s decision to “produce as much as they can,” however, flooded the supply side of the market sending prices into a downward spiral through November. Premiums on oil (and consequently diesel) were not as high as anticipated due to waivers granted to eight importers of Iranian oil, and OPEC and IEA forecasts of decreasing demand for crude and refined products.
This is an excellent example of how unexpected changes in the global market have drastic implications on shippers’ bottom lines. Most compelling for our clients is that fuel prices dropped significantly in a short amount of time, which is typically great news for the transportation industry. Traditional fuel surcharge programs, however, did not account for that degree of daily change in their reimbursement calculations.
Why Choose The Breakthrough Advantage?
Breakthrough clients using Fuel Recovery calculate fuel reimbursements using a market-driven approach. Traditional fuel surcharge program calculations use a fuel surcharge schedule with the national average diesel fuel price provided by the Department of Energy, which is only updated once weekly. Without daily price updates, shippers using traditional surcharge mechanisms miss out on a large amount of day-to-day variability. The chart below shows the difference between the average DOE price and average wholesale price every weekday between November 7 – November 15.
The “average spread” represents the savings per gallon our clients saw on that particular day across their collective networks. While on any given day the benefit Breakthrough Fuel Recovery clients see is around 30 cents per gallon, we are seeing a 45-55 cent spread window resulting in elevated savings across our client base.
This is, however, an average savings metric. When you drill down even further into individual lanes traveled, that savings number varies even further illustrating the need for an even more granular look at diesel fuel market dynamics. Look at lanes traveled from Chicago to key markets across the United States on November 14 to recognize the magnitude that fuel price variability has across a network:
While across the country the discrepancies seen between traditional fuel surcharges and Fuel Recovery were stark, the degree of change was not equal in every market. From Chicago to Newark savings—though still impactful on the overall fuel management strategy of a shipper—settled in around $0.31 cents per gallon, whereas the spread from Chicago to Dallas was $0.58. Savings are savings, but more importantly, we believe that accuracy in fuel reimbursements is the best way to elevate your fuel management strategy.
Over thousands of freight movements traveled each day, our clients save millions of dollars annually because of Fuel Recovery—it’s called the Breakthrough Advantage.
Diesel fuel, like any other commodity, has price dynamics that ebb and flow with the market. Under current conditions, the fuel market is demonstrating unprecedented levels of volatility, making transparency in fuel price data imperative to ensuring your fuel strategy is fair and accurate, and that you never overpay, or underpay, for the fuel that moves your goods to market. It is in moments such as this where the true value of opting “in” to an ongoing fuel management strategy ensures long-term success. Clients can rest assured that they, as well as their carriers, are made whole on fuel, never missing out on savings opportunities driven by fluctuating market prices.
This is only the beginning of what Fuel Recovery and Breakthrough’s suite of solutions can do to drive continuous, data-driven improvements in your supply chain. For more information about how Fuel Recovery or any of Breakthrough’s other industry leading solutions can elevate your transportation strategy, contact us!