|At a Glance|
Fleets are trying out new methods (or sticking with their tried-and-true approaches) to reduce fuel costs:
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.
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.
Consolidating Purchases & Changing Billing Methods
The City of San Diego is also making changes to its fuel purchasing methods. Previously, the fleet division purchased most of the City's fuel but some departments, such as Fire, purchased its own.
"We're consolidating all of those purchases under one contract and one administrative unit," said John Clements, deputy director of the fleet services division at the City of San Diego.
In addition, the City is switching its fuel billing procedures from a monthly rate (an average by class of vehicles) to direct billing. "We're hoping to incentivize our departments...We feel that by direct billing, they'll pay a little more attention and if they implement some of our fuel savings ideas we propose, that they can see the direct savings in their department budget," Clements said. This program is scheduled to take effect in July.
Hedging and Locking Fuel Prices
Keith Condra, fleet management director at the Town of Fishers, Ind., has found locking in fuel prices for gasoline is the most effective way to control costs. In 2010, Condra was able to lock in a price for the entire 2011 calendar year at $2.58 per gallon of gasoline, with taxes included. He roughly estimates retail price for fuel to have averaged $3.25 for the year. For 2012, he has only locked in January to March so far, at $3.14 per gallon, taxes included. At 56 cents higher than last year's price, it exceeds the fuel budget increase he requested this year - 15 percent. Condra said he hopes prices will lower before he locks in prices for the remainder of the year.
Condra plans to lock in 200,000 gallons of gas for the year. Fleet vehicles usually use about 10 percent more than that, which provides for some leeway in case prices fall temporarily or the fleet uses less fuel.
The City of Loveland, Colo., has been hedging fuel prices with the neighboring City of Longmont since 2008 in order to combine its fuel volume, according to Steve Kibler, ACFM, fleet manager for the City. He also purchases price protection insurance that pays the difference in case fuel prices fall below his hedge amount - in this case, he gets a refund for the difference.
In 2010, the City saved $17,000 over rack prices by hedging more than half a million gallons of gasoline and diesel. Kibler said while savings may not be great, the value lies in a stable fuel budget.
"The overall average [cost] allows me, the fleet manager, to project my budget for the year, and that's the value to me. I can project my budget and get it approved. If I save money, good. If I don't, it doesn't go over that budget amount," Kibler said.
Awarding the Lowest Bidder
Going out to bid can yield a variety of proposals, and fleets often choose the cheapest option - one city lucked out when the cheapest option was better than it expected.
The City of Beverly Hills, Calif., went out to bid for gasoline and diesel in July 2011. The previous contract was a three-year agreement with pricing based on a weekly OPIS average plus markup. Fleet services staff was pleasantly surprised to have a vendor bid below the OPIS price for gasoline - the daily average minus 0.0115 per gallon (1.15 cents).
"I had to verify it with them twice," said Rene Biadoma, fleet manager for the City.
According to Biadoma, the vendor considered the City's projected gasoline use for the year - 150,000 gallons - just a drop in the bucket. Although the bid for diesel was 0.0081 per gallon (0.81 cents) higher than it was under the previous year's contract, annual diesel use was less than gasoline - 90,000 gallons per year. After calculations, Fleet Services staff found this to be the best offer. The vendor won the one-year, renewable contract out of six bids.
Biadoma reported no issues with fuel quality or service.
Reducing Fuel Use
From phasing in new vehicles to changing driver policies, to testing aftermarket items, the following fleet managers are trying their own methods to reduce fuel use.
Changing Use Requirements
The State of Oregon, working closely with agency customers on better management of vehicles over the last year, has already removed 57 underutilized vehicles and reassigned more than 100 vehicles in the 4,300-unit fleet. For further optimization, Brian King, fleet manager for the State, said the fleet is in the process of changing minimum use requirements in order to improve utilization and possibly reduce fleet size. Department-assigned vehicles currently have a 590-mile minimum use requirement that King has yet to enforce. He's now looking at increasing the minimum use for hybrid vehicles to 790 and will go before a leadership team to obtain the reinforcement that will be useful in enforcing the regulation. This will allow the fleet department to identify low-use vehicles and take them away from user departments if they don't increase usage within two quarters, King said.
Modifying Rental Policies
The Oregon State fleet has also taken measures to reduce fuel costs in its motor pool. Fleet mandates motor pool users to rent compressed natural gas (CNG) vehicles when possible. The State has 123 vehicles in its motor pool, of which 35 are Honda Civics that run on CNG. "We're asking what their destination is when they're making a reservation, and if it's within range, we're giving them [a CNG vehicle] first," King said. Exceptions include a large number of passengers or a medical excuse.
Fleet began this mandate about a year and a half ago, and so far, King said the program has been going well. Although there are some driver complaints such as vehicle size and a natural gas smell, the overall result has been reduced fuel costs of more than $25,000 per year. A comparison of fuel costs in early November 2011 showed gasoline cost $3.24 per gallon, while CNG cost $1.20 per gallon. "We charge [drivers] for fuel based on use," in addition to standard use rate, King said, which means user departments benefit from the savings.
King estimated the use of CNGs in the daily rental fleet reduces emissions by more than 138,000 lbs. of CO2 annually versus E-10 vehicles of the same fuel efficiency.
Testing Aftermarket Products
While some fleet managers remain doubtful of the ability of aftermarket products to reduce fuel use, a few others are testing them out.
The Town of Fishers fleet services is piloting the engine anti-idling devices Idle Right and Priority Start, products that Condra hopes will reduce idling. Condra estimates if he can eliminate engine idling, he can reduce fuel use by 20 percent.
Condra explained that Priority Start is a battery saver, shutting a vehicle's electric load off before vehicle batteries are drained; Idle Right is a bigger investment and more time-consuming to install, but the system is designed to allow vehicles to self-start to maintain battery charge and reduce idle fuel use. The fleet has installed the products on a limited number of vehicles and expects to be able to analyze results by February.
Gary McLean, CPFP, fleet manager at the City of Lakeland, Fla., uses SCT programmers from SCT Fleet Solutions in 10 vehicles that run on gasoline and E-85. Although the fleet has yet to do an official analysis, McLean said he's seeing 9.5-percent average fuel savings. Police vehicles are re-programmed with a performance tuner rather than an economy tuner, but this does result in slightly better fuel economy.
McLean said vehicles that have been economy-programmed respond a bit slower, but it doesn't bother him if it gets better gas mileage.
McLean used the product on his personal vehicle in the past and was convinced to try it out when SCT began offering a warranty backup.
"We're going to capture the ROI potential on them before we tune any more vehicles," McLean said.
Is it Time to Get out of the Fuel Business?
If the amount of fuel fleet vehicles use is small, and fuel markup is high, it may be time to get out of the fuel business. According to Jim Wright, president and CEO of Fleet Counselor Services Inc., smaller entities that dispense fuel may want to do a financial audit of their entire fuel management program. Take into account the final marked-up price of gasoline. This number should include the cost of maintenance and replacement of all fuel tanks, dispensing equipment, the cost for an automated fuel system and leak detection systems.
"Their fuel markup, just to pay for being in the fuel dispensing business, may exceed the local price they can get from other stations," Wright said.
After analysis, some fleets that have stopped dispensing fuel begin buying gasoline and diesel from a nearby truck stop or local gas station.
To see results of the full fuel survey, click here.
- Rene Biadoma, fleet manager, City of Beverly Hills, Calif.
- John Clements, deputy director, Fleet Services Division, Public Works Department, City of San Diego
- Keith Condra, director of fleet management, Town of Fishers, Ind.
- Jeffery Hart, fleet superintendent, City of Oceanside, Calif.
- Steve Kibler, ACFM, fleet manager, City of Loveland, Colo.
- Brian King, fleet manager, State of Oregon
- Gary McLean, CPFP, fleet manager, City of Lakeland, Fla.
- Jim Wright, president and CEO of Fleet Counselor Services Inc.