Analyzing Fueling Costs for a Local Trucking Company
Posted by | Posted in Costs and Cash Flow in Local Trucking, Equipment Issues | Posted on 19-04-2011
With fuel costs skyrocketing, and customers resisting additional fuel surcharges, it is all the more important to find areas to save money. Your decisions about how trucks are fueled can have a significant effect on your profitability. There are three choices for local operations:
- Fueling off-site
- Fueling at on-site facility
- Contract for wet fueling
Each method presents positives and negatives, costs and benefits. By analyzing the variables, you can arrive at the best solution for your business. Let’s examine each one in turn.
1. Fueling off-site: This includes fuel card programs, off-site fueling facilities, etc. The direct costs are minimal, just the administrative cost of handling the cards and receipts. You will be paying retail price for the fuel, with some ability to shop around for a lower price, although sometimes the extra travel time eats up the savings. Many fuel card programs offer excellent reports for fuel tax purposes.
Indirect costs can be high. Consider the amount of time it takes a driver to fuel. There is (a) the added travel time to and from the fueling location, (b) the time spent dispensing fuel, (c) the time spent purchasing items from the convenience store, and perhaps (d) the time spent talking with other drivers who are fueling at the same time.
Example: you find it takes 10 minutes, on average, to detour for fuel. It takes 8 minutes to dispense the fuel, the driver averages 2 minutes in the store, and 2 minutes taking to others. This totals 22 minutes total. For a driver earning $15 per hour this costs the company about $20 after benefits and insurance (not including overtime). The 22 minutes cost $7.33, adding 18 cents per gallon to a 40 gallon fill.
2. Fuel at on-site facility: The direct costs are large. The capital cost must be calculated and amortized. If you build a fuel station costing $35,000 and expect to spend $15,000 in maintenance and interest over five years, your per-year cost is $10,000 or $27.40 per day. In addition, there is either the time it takes a driver to fuel and chat, or the expense of having another employee do the fueling. Administrative expenses include administering the fuel station, sales and fuel tax reporting, etc. The up side is you can obtain fuel at wholesale, saving perhaps 20 cents per gallon off retail. You must calculate your expense and translate into a cost per gallon, then compare the expense to expected savings. If the cost/benefit analysis looks good, check into local laws concerning on-site fueling facilities before proceeding.
3. Wet fueling: This refers to hiring a fuel supplier to fuel trucks parked at a single facility, usually at night. The direct and indirect costs are minimal. The supplier will provide details of how much fuel went into each truck. You will have no expenses for labor. The downside is that wet fueling usually, but not always, means a higher price per gallon. The price is usually expressed as a markup over a published, “wholesale” price. The markup could range from 10 to 30 cents per gallon. It is possible that this price, for larger fleets, could be less than average retail price. Even if price is higher, you must calculate your labor savings and compare to the added cost per gallon.
You may be surprised at how much savings can be realized with the wet fuel option. There are many other factors to consider. Some fleets have drivers pre or post trip their vehicles while fueling. Your municipality might not allow on-site or wet fueling. You may forge a great relationship, and discount, with a nearby retailer.
What’s the best fueling option for you? Performing a cost analysis on the three methods will help guide you to the most cost effective choice. Take a serious look at all three options, and you can not only make a good business decision but also know that you really looked at it from a number of angles. Tell us in a comment what your experience has been with any of the options listed above. We’d like to hear from you.
