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FUEL COSTS: Fleet measures to counteract the spiralling price of petrol and diesel

Date: 05 May 2011

Fuel prices have risen by a third in the past year, placing an additional financial burden on fleets that is clearly unsustainable. So what can businesses do to minimise fuel costs? Rachel Burgess investigates

In real terms, a fleet of 500 cars averaging 12,000 business miles will spend £210,000 more on fuel in 2011 than it did in 2009, according to TMC managing director Paul Jackson. That's an extra £400 per car to do the same job.

It's no wonder fuel remains one of the largest costs attached to running a vehicle fleet.

"Fuel prices have always been a factor for consideration for any business fleet, large or small," says The Fuelcard Company sales and marketing director Jakes de Kock. "However, with such a rapid increase in price, fleet managers are having to critically review their refuelling solutions. Some of our customers have reported a reduction in their fuel usage because certain journeys are just not worth making."

However, according to Stuart Williams, ALD Automotive's account development manager, corporate sales, more than 30% of fleets surveyed by the leasing firm said they weren't concerned by fuel prices. "The research shows a split where over half deem it very important while there's still a significant proportion that aren't worried."

Minimising costs

There are many ways to reduce fuel costs, but "focusing on the price of fuel is probably the least effective way," says Paul Hollick, general manager - sales development at Alphabet. "Car policy, choices lists, driving training and fuel cards all have a major impact on fuel costs," he adds.

The simplest answer to reducing fuel costs is to think twice about each journey, says Leaseplan commercial director Matt Dyer. "Many companies have been able to successfully reduce their mileage by up to 20% through increased video-conferencing or by better planning their journeys. However, for many firms, travel is a necessity, not a luxury so cutting journeys is not an option."

He continues: "The most effective way to reduce fuel expenditure lies in choosing the right fleet vehicles. Fuel-efficient, low-carbon vehicles are cheaper to run, and also bring taxation savings, reducing overall fleet costs. We encourage fleet managers to assess vehicles based on whole-life costs, rather than just leasing value, so that fuel costs, NIC and write-down allowances are taken into account." ALD's Williams agrees: "We see it as our job to make clients realise what fuel is costing them. The first thing we look at is vehicle-choice policy. We've got to stop people being able to choose high mpg and CO2 vehicles, and a lot of people are looking at that now - it's been the biggest area of activity in the last 12-18 months."

Training is another great way of encouraging more efficient driving, adds Dyer. For example, staying in a high gear, or taking your foot off the accelerator earlier rather than braking sharply at traffic lights, can have a significant impact on fuel consumption.

TMC's Jackson says visibility is key: "Even at a time of dangerously rising fuel costs, there are still fleets that work on the premise that it's too difficult or controversial to take real control of their fuel and mileage costs.

"In reality, the tools fleets need to minimise their fuel costs are tried and tested, extremely effective and costs fleet a tiny amount compared to their overall fleet fuel bills. The most effective method gaining visibility is to use audited online mileage capture in combination with fuel cards."

He continues: "By itself, mileage-auditing strongly deters drivers from overstating expense claims. Businesses that use mileage audit together with fuel cards and/or uploaded receipts find they have the information they need to eliminate obvious waste and can plan long-term steps to run the fleet more efficiently."

Arval's sales director Jenny Powley says: "To identify cost-saving opportunities and set realistic savings goals, fleet managers must be clear on how much they are spending today. Visibility of where drivers are purchasing fuel, the volumes they are purchasing, the price they pay and their mpg performance is crucial, which is where fuel-card reporting comes into its own."

Fuel card savings

"Prices can vary by several pence per litre from forecourt to forecourt, so implementing a clear fuel policy that specifies where drivers should buy their fuel is a very simple way of cutting fuel bills," says Powley. However, not all fuel cards can support this approach because they operate on a restricted network, she warns. "The fleet managers should encourage drivers to plan fuel purchases in order to achieve cost savings. Drivers that travel out of their way to purchase fuel are wasting time and fuel, so to avoid this, appropriate refuelling should be planned into journeys."

Powley continues: "Fuel card reports should be used to identify those drivers that are spending more than the average on fuel. This could be because drivers are purchasing fuel from high-cost outlets, it could be because they drive aggressively, or even because of a problem with the vehicle. Once identified, these drivers can be communicated with and monitored to track improvement."

The Fuelcard Company's de Kock says its reports for customers "analyse exactly where there costs are going".

"By having a fuel card," he says, "businesses can ensure that their money is being spent solely on fuel; there is no change to be spent on sweet treats! Additionally, we can review vehicles' fuel efficiency. It is not enough for businesses to monitor their fuel bill and get a couple of pence discount any more. Now they need to make sure that their fuel is literally taking them as far as possible. By recording vehicle mileage on an invoice we can calculate whether the fleet is driving at an efficient rate and can also provide top tips for fleets to get the most out of their tank."

Regarding volume-related discounts for fuel cards, Arval's Powley says they can be less flexible, restricting drivers on where they can purchase, and therefore potentially increasing costs through route deviation. "The Arval fuel card operates on the Allstar network, which covers all major brands and low-cost sites," she says. "This means that customers have the convenience of using any site and can access the lowest price on the day, making significant cost savings by choosing where to buy their fuel."

However, customers of The FuelCard Company who travel frequently "really benefit from its fixed rates" says de Kock. "This means that you only pay one price across the country, providing control and savings for fleets. Savings do depend on the previous refuelling solution, where in the country they are travelling and how much is being spent on fuel."

Leaseplan's Matt Dyer concludes: "When operated in conjunction with a considered travel and expenses policy, fuel cards can be a way for organisations to reap savings - potentially bringing around a 15% reduction in costs, mainly through a combination of better administration, management and control of expenditure by the organisation of fuel."

Telematics tracking

While fuel cards certainly have a place in fuel management, telematics is also absolutely essential, says ALD's Williams: "With a telematics device, firms have no excuse not to ask drivers to attach the mileage and journeys. If you want to measure trips, that is the only genuine way to do it. And it can also measure aspects such as the amount of idling time and harsh braking. We're saying to companies that telematics should form part of a fuel strategy." Alphabet's Hollick agrees: "A complete fuel solution for a mixed car and commercial fleet requires a combination of low-CO2 vehicle acquisition, fuel cards linked to mileage capture and audit, driver training, telematics and in many cases, changes to the expenses process. There is no effective piecemeal solution."

Despite the Government's 1p fuel cut in the Budget last month, fuel costs continue to climb and no respite is expected in the coming months. Fuel is the second-highest fleet cost after depreciation, and with rising prices it will only continue to move up the agenda. Of course, fleets' other concern is risk management and there is a lot of overlap between that and fuel-cost management, according to TMC's Jackson. "Both are about getting increased visibility over where and when staff drive and how they drive," he says.

Hollick agrees: "Cost reduction and risk management are still major preoccupations for Alphabet's customers. They are hoping for some relief from high fuel costs soon but there is an increasing understanding that expensive fuel will be a fact of life from now on. Tackling these issues is keeping our consulting team busier than ever. Wherever possible, we look at implementing solutions designed to address both cost and risk issues."

He concludes: "There is a lot of crossover between the two areas. High annual mileages and heavy-footed driving increase fuel consumption as well as risk. More efficient cars and drivers who are motivated to drive more efficiently to avoid unnecessary pain at the pump are both good for keeping fleet costs down."

Calculating the effect of duty

The following is based on a 500-car fleet, 70% diesel, covering an average of 12,000 business miles a year, which the fleet audits using TMC Mileage Audit and pays via payroll deduction at actual cost (i.e. it incurs minimal waste and minimal processing costs on top of the fuel bill). The calculation assumes that the price of oil remains above $75 per barrel, meaning that the Government will not impose additional 1p increases above inflation next year.

How Government changes to duty and VAT impacts fleets
DateChangeEffect on fleet
March 20111p cut in dutySaving of £5500 in duty and VAT on duty between April and December
April 2011April escalator rise scrapped, avoiding increase of about 4p per litreIncrease of £19,000 in duty and VAT on duty notionally avoided between April to December 2011
January 2012Duty increases by inflation - about 3.1p per litre on pump priceCombined increase in duty and VAT on duty of £17,500 over 12 months (£2900 VAT recoverable)
August 2012Duty increases by inflation – about 3.2p per litre on pump priceFurther combined increase in duty and VAT on duty of £8500 to fuel bill over five months (£1400 VAT recoverable)
Net effectDuty and VAT increase by just over 1p a litre by the end of 2012Fleet pays £20,500 more in duty and VAT on duty by end of 2012

Compared to this fleet's total business fuel bill of getting on for £1 million a year, the actual saving from cutting duty (£5500) in March was negligible. The two duty increases scheduled for next year will increase the fleet's fuel bill by around 2% but that pales beside the hike in prices due to rising oil prices.

Source: TMC