Position Your Organization For Competitive Advantage When Diesel Prices Drop
ByJenny Vander Zanden
November 29, 2018
Achieving transparency, removing distortion, and establishing fairness; the three core principles Breakthrough applies to clients’ transportation networks on every movement, every day, through the adoption of a strategic fuel management strategy. Actual lane-level fuel prices made visible by Breakthrough Fuel Recovery create a competitive advantage in your supply chain, while simultaneously reducing the cost, consumption, and emissions in your transportation network.
Thanks to these principles, Breakthrough Fuel Recovery clients avoided an additional $11 million in over-reimbursement of diesel fuel due to the current price environment to date in November.
When prices are unpredictable, Breakthrough clients are confident that the price they pay for the fuel that moves their goods to market is accurate on every movement, every day.
Read our previous commentary about the market dynamics seen at the beginning of November here.
Establishing Confidence Through Data in Volatile Markets
The graphic below uses a September 3rd baseline to measure the comparison of change between the DOE retail price and average wholesale diesel price across the United States. The peaks and valleys of wholesale price behavior give a recent snapshot of the volatility in the two price points. This chart also shows the daily fuel price volatility carriers experience, ultimately accounted for in Breakthrough’s solution, but ignored in traditional fuel surcharge programs.
Of importance is the dip seen in early October. Shortly after the DOE Retail index jumped, the wholesale market went on a steep decline—a trend that will take time for the market to adapt. In this time, savings were significant, and were only amplified by November’s bearish crude oil and refined products market.
During the week of November 19th through the 26th, DOE Index to wholesale spreads remained at, or above, 50 cents per gallon. In any price environment, accuracy and transparency are valuable for shippers’ transportation strategies, however, with market dynamics like we are currently experiencing, the significant cost benefit Breakthrough Fuel Recovery clients experience becomes even more stark.
Aligning Fuel Costs to Fluctuating Market Dynamics
To capture savings, Breakthrough weeds out distortions in current fuel surcharge practices to bring accuracy and fairness to the shipper-carrier relationship.
Paying for fuel is the responsibility of the shipper, and should ultimately be a pass-through expense, rather than a profit center for carriers.
While carrier fuel procurement tends to align with wholesale prices that fluctuate daily, the value added by near-real-time pricing data remains unparalleled throughout the industry. The chart shown below highlights the DOE average retail and national average wholesale prices for diesel fuel for 2018. The average spread, or the difference between DOE Retail Index and wholesale prices, exemplifies the distortion within traditional DOE-based reimbursement mechanisms.
While this spread—also representative of an average savings per gallon Fuel Recovery clients see—tends to be around 30 cents per gallon, in November it has consistently exceeded 50 cents per gallon.
Since fuel accounts for 25-30 percent of total transportation spend, effective fuel management strategies that capture this spread help move the needle in terms of cost avoidance, emphasizing the extensive value of Breakthrough’s core service offerings that prioritize roadmaps for change.
The number of gallons within your transportation network, agreed-upon fuel efficiency, and other variables among the shipper-carrier relationship impact total fuel spend and the resulting cost avoidance opportunity. While the actual wholesale price differs from state-to-state, station-to-station, and can sometimes exceed the national DOE price, the value of transparency into the actual costs and the drivers of those costs have proven invaluable time and again for Fuel Recovery clients.
The moral of the story? Breakthrough provides accuracy on every gallon within your transportation supply chain every day, so that our clients are poised to reap the benefit of rapid dips in the market before they happen—providing a substantial return on investment.
Interested in reducing the cost, consumption, and emissions within your transportation network? Contact us.