5 Steps to Reduce Fuel Procurement Costs and Improve Fleet Margins
The Big Picture
Fuel remains one of the highest operating costs for motor carriers, yet purchasing strategies often lag behind maintenance optimization. According to the American Transportation Research Institute (ATRI), fuel costs accounted for between 19% and 28% of fleets' average marginal costs from 2018 to 2022. In 2022, the average cost of operating a truck surpassed $2 per mile for the first time in the history of ATRI's Operational Costs report.
While diesel prices have fallen by roughly a third compared to early last summer, complacency is a risk. Operating costs increased by 21% in 2022 over the previous year. Even excluding fuel, the cost of trucking increased by 12%. For fleet managers, any savings found on fuel spend directly improve the bottom line, especially during the down side of the freight cycle. Procurement is not just about filling tanks; it is about managing a significant portion of your total cost of ownership.
Key Details
To secure favorable pricing, managers must understand the components driving diesel prices. The price structure starts with the cost of crude oil. Refining costs, transportation costs, taxes, and profit margins are added on. While crude, refining, transportation, and taxes are largely non-negotiable, a supplier's profit margin may be negotiable and should be reviewed on a regular basis.
The source outlines critical steps to ensure fair pricing and explore opportunities for better rates:
1. Know Your Fuel-Buying History: You must know the volume of fuel purchased and where those transactions occur. This information is critical before taking further steps. If data gathering is difficult, implement a system to track fuel purchases, monitor prices, and provide data for analysis.
2. Request Quotes: Once historical purchases are understood, request quotes from multiple fuel suppliers in your area. Suppliers need to know anticipated buy volume based on historical trends and operational changes. Ask for a detailed breakdown of prices, including taxes, transportation costs, and additional charges to identify discrepancies.
3. Review Your Current Contract: If you have an existing agreement, review terms and conditions to ensure they are fair and competitive compared to new quotes. Engage in negotiations to secure more favorable pricing or terms if necessary.
4. Seek Professional Advice: If analysis and negotiation exceed internal capacity, consult with fuel procurement professionals.
> Fleet Impact: Cost Components
> * Negotiable Factor: Supplier profit margins vary by volume, location, and market conditions.
> * Non-Negotiable Factors: Crude oil, refining, transportation, taxes.
> * Risk: When wholesale prices fall rapidly, supplier margins may increase if savings are not passed to customers.
Operational Impact
Implementing a robust fuel procurement strategy requires operational discipline. Tracking fuel purchases is not merely an accounting task; it is a maintenance and efficiency imperative. Without accurate data on volume and location, negotiations lack leverage.
When wholesale fuel prices fall rapidly, it is not uncommon to see suppliers' profit margins go up if they do not pass along all the savings in the price charged to customers. This discrepancy directly affects your cost per mile. By demanding a detailed breakdown of fuel prices during the quote process, you can identify significant discrepancies between suppliers.
Knowing the cost of the various components puts you in a better position to negotiate favorable terms for new agreements. This transparency ensures that margin expansions do not erode fleet profitability during periods of lower wholesale costs.
> Fleet Impact: ROI and Margins
> * Potential Savings: Targeting the negotiable profit margin component directly reduces cost per gallon.
> * Operational Risk: Failure to track purchase locations limits ability to leverage volume discounts.
> * Bottom Line: Fuel savings offset the 12% increase in non-fuel operating costs observed in 2022.
What to Watch
Market conditions dictate leverage. The profit margin component can vary depending on volume being purchased, geographic location, and overall market conditions. Fleet managers must monitor the freight cycle. When the cycle is down, every cent per gallon counts toward maintaining liquidity.
Additionally, regulatory and tax components remain fixed costs within the fuel price structure. While these cannot be negotiated, understanding them prevents suppliers from bundling them into inflated margin categories. Compliance with purchasing protocols ensures that tax reporting remains accurate while maximizing commercial leverage.
Bottom Line
Fuel procurement requires the same rigor as preventive maintenance schedules. Start by aggregating your fuel-buying history to establish a baseline. Use this data to request detailed quotes from multiple suppliers, focusing on the breakdown of taxes, transportation, and margins. Review existing contracts against current market rates and negotiate where margins appear inflated.
If internal resources are constrained, seek professional advice to handle the analysis and negotiation. With fuel representing up to 28% of marginal costs, optimizing the purchasing process is one of the fastest ways to protect fleet margins without cutting corners on equipment or safety.