Portland’s tips to protect against fuel prices
Portland Fuel has issued guidance for fleet operators to help safeguard their operations against the effects of rising fuel prices.
“UK diesel prices are currently at their highest level in eight years, with current national average fuel card rates at c. £1.20 per litre for the first time since 2013,” said Simon Hudson, fuel manager at Portland, last month.
“Commercial fuel prices in the UK are calculated using wholesale prices based on trading in Northwest Europe, plus a ‘supply premium’ consisting of transport/ network costs and profit margin.
“Fuel cards are generally priced on a weekly rate, referred to as a ‘floating’ price, whereby suppliers use an average of the previous week’s wholesale price to set the base rate for the week, plus a calculated supply premium.”
Supply premiums on a floating mechanism are not fixed, explains Simon, meaning prices do not necessarily rise and fall in line with the wholesale market.
“To address this, buyers may use a price monitoring service to benchmark weekly prices against the published wholesale price of fuel, to ensure supply premiums remain consistent and prices accurately track the market rate,” said Simon.
Certain fuel card suppliers will offer a ‘fixed premium’ agreement, he adds, whereby the supply premium (including profit margin) is fixed in place, meaning prices rise and fall in line with the wholesale market.
“Although this cannot protect fuel buyers against a rising market, it ensures they receive a fair weekly price, protecting against potential hikes in profit margin as the wholesale market rises.”
Simon continued: “Alternatively, unlike a fixed premium agreement, a long-term fixed price provides a single, unchanging price for up to twelve months in advance.
“Fixed price purchasing offers protection against fuel price volatility and enables companies to accurately set fuel budgets. A price is agreed based on the current forward market, based on a nominated volume and period.
“This is protected using a financial instrument known as a ‘swap’. As the price is locked in, movements in the wholesale price do not affect what the buyer pays.”
Simon advised: “In a rising market, a fixed price can protect buyers against increasing wholesale costs, however it is important to note that should the market fall, the price will remain the same, meaning buyers will be unable to take advantage of falling costs.
“As a result, fixed pricing is not a tool used to ‘beat the market’, but to know exactly what will be spent on fuel over a given period, allowing buyers to accurately budget and forecast costs.”
Portland Fuel is a specialist fuel supplier and fixed price provider, offering a range of services designed to offer greater price transparency to fuel buyers. The company offers long-term fixed pricing up to 12 months in advance, in addition to fixed premium agreements pegged against a transparent, online price information service.
