Alternative Strategies to Reduce Fuel Costs
January 2012, Government Fleet - Cover Story
|At a Glance
Fleets are trying out new methods (or sticking with their tried-and-true approaches) to reduce fuel costs:
- Consolidating fuel purchases.
- Direct-billing user departments for fuel.
- Using reverse auction for fuel purchases.
- Locking in fuel prices.
- Installing aftermarket products to reduce fuel consumption.
- Changing motor pool policy to make sure drivers use CNG sedans.
There's no doubt fuel costs have risen considerably in the past few years. At the same time, government agencies have been pressured to reduce expenses. Government Fleet conducted an informal fuel survey, which had 134 respondents, and found for public agencies, fleet fuel budget has increased for 82 percent of fleets in the past five years (from 2006 to 2011). Of these, 28 percent say it's increased by more than 25 percent.
There are two main ways fleets are reducing fuel costs: one is to change purchasing methods and the other is to reduce fuel consumption. The graph on page 11 shows statistics on fuel cost reduction strategies fleet managers have implemented. More common methods to reduce fuel expenses include purchasing more fuel efficient vehicles and enforcing anti-idling policies. However, other fleet managers are trying out alternative ways to reduce fuel costs.
In the past fi ve years, 82 percent of fl eets reported an increase in fuel budgets, and for more than a quarter of these, the fuel budget increased by more than 25 percent.
One of the most common methods of reducing fuel expenses is to purchase or phase in different vehicles. More fl eets reported purchasing smaller or fuel-effi cient vehicles than purchasing hybrids or alternative-fuel vehicles. More than one response was possible.
Changing Fuel Purchasing Methods
One concrete way for fleets to save on fuel is to make sure they're buying at the best possible price. Of agencies operating a fueling facility, the highest number reported purchasing fuel through an annual or longer-term bid award (44 percent), followed by those purchasing more frequently through distributors based on rack pricing (41 percent). Some combined their bulk purchases with a fleet fuel card.
Others are testing out new puchasing methods in the hope of achieving savings.
Jeffery Hart, fleet supervisor, City of Oceanside, Calif., discussed a new method the City is using to purchase fuel: reverse auction. Previously, three distributors faxed in their quotes to a purchasing agent every day, and the fleet looked through the quotes whenever it needed to purchase fuel, awarding the purchase to the lowest bidding distributor. Hart said the City's water company had been using an outside vendor, K2 Sourcing, to handle reverse auctions for chemicals, and Hart decided to test the program out for fuel.
The bidding takes place online and is open to all distributors, including those the City previously did business with. The idea is that various bidders will drive down the price. "We've agreed to give [the winning bidder] the contract for one year, so they can get the most out of winning the bid, and we get the most savings possible," Hart said. (The first contract will expire after six months to coincide with the end of the fiscal year; future contracts will be for one full year.)
The City has some flexibility with this type of contract. "We reserve the right to cancel at any time. We reserve the right not to go with the lowest bidder," Hart said. He explained that even if a distributor doesn't have the lowest bid, he may consider the bid if the company is local. In addition, the winning bidder pays any service fees.
Hart said the estimate he received from K2 Sourcing was between 5-7 percent in potential savings. In a one-year period, the City purchases about 236,600 gallons of gasoline and 88,900 gallons of diesel.