Purchasing Fuel | How Portland Fuel Could Put You In The Driving Seat
For vehicle operators, the costs associated with the buying of fuel and in particular diesel, make up a large proportion of operating budgets. Yet all too often, the actual process of buying fuel is an afterthought or relies on a process that has neither been reviewed nor updated for many years.
The aim of this article is to provide an overview of the different options available to you when it comes to buying fuel. Of course we all know that the price of fuel is shaped by numerous factors, many of which are beyond anyone’s control. But that doesn’t mean that there is nothing to be done.
As a minimum, a full understanding of the whole fuel supply chain can help buyers at least look in the right place for savings. Plus, it will enable them to properly evaluate the most suitable procurement methods for their own fleet operations. Fuel pricing is usually seen as an overly complex process, but the team at Portland Fuel simplifies this and guides the buyer to make the best choices when it comes to fuel procurement.
How are fuel prices calculated in the UK?
Fuel prices in the UK can be broken down into three basic elements: the wholesale price, duty and taxes, and the supplier premium.
- Wholesale Price – The wholesale price reflects trading in North West Europe, and determines the price at which fuel can be purchased by a fuel supplier in the UK. Wholesale prices are made up of the combined cost of base product (e.g. diesel) and renewable bio-fuel. Bio content is set by the UK government in order to meet carbon reduction targets.
- Duty and Taxes – Fuel duty in the UK is set by HMRC and is among the highest in Europe, making it the largest portion of the total fuel cost. In addition, VAT must be paid on every litre of fuel, effectively creating a double tax (although most commercial fuel users are able to claim this back).
- Supplier Premium – The supplier premium is made up of transport and supply costs, plus profit margin. As a fuel user, this part of the fuel price is where potential savings could be made through negotiating with your supplier. When it comes to calculating fuel prices, suppliers use different methodologies dependent on how you choose to purchase your fuel.
What purchasing methods are available?
Timing when and how you buy fuel in a volatile market can have a significant impact on the price you pay for your fuel. There are three main fuel purchasing methods available: Spot Purchasing, Contract Purchasing and Fixed Price Purchasing.
- Spot Purchasing – refers to fuel bought on the live market, meaning fuel prices change minute-by-minute throughout the day. Buying fuel on the spot market allows you to take advantage of sudden drops in the fuel price. There are no contracts required, so you are not tied into using one supplier. This gives you greater flexibility and the ability to ‘shop around’ for competitive quotes. You purchase fuel as and when you need it. However, supplier premiums are not fixed, which means supply quotes may not necessarily fall in line with the market. Contracted volume is favoured by suppliers, so in the event of a disruption in supply, contract customers will be prioritised. Spot supply premiums are generally less competitive than contract premiums, as suppliers will make up for the lack of volume guarantee with an increased premium.
- Contract Purchasing – refers to fuel purchased within a pre-agreed framework between the buyer and seller. An example of this would be when a fixed premium is offered in exchange for a volume commitment. Based upon a published price index, prices are calculated on either a daily basis using the previous day’s wholesale price, or a weekly basis using an average of the previous week’s wholesale prices. As a result, your prices are ‘pegged’ to the wholesale price. Supplier premiums remain consistent, meaning prices move in line with the wholesale price. Contracted supply premiums are generally more competitive than spot premiums, as suppliers have a volume guarantee. There is a reduced administrative burden, as there is no need to contact several suppliers for a competitive price. However, nominating a weekly or monthly volume will reduce the flexibility in placing orders. You are unable to take advantage of sudden, short movements in the market, and limited to using one supplier for the duration of the contract.
- Fixed Price Purchasing – refers to fuel purchased at a consistent, long-term rate. For example this could be a single, fixed pence per litre price for a twelve month period. Fixed Price Purchasing provides protection against fuel price volatility and enables companies to accurately set fuel budgets. A price is agreed based on the current forward market, plus a nominated volume and period. As your price is locked in, movements in the wholesale market do not affect what you pay. You know exactly what you will pay for fuel up to a year in advance, so can budget accurately. You completely remove your exposure to the fuel market by turning a variable cost into a fixed cost. This removes the requirement for price checking and benchmarking as you only receive one price. However, this means reduced flexibility. Once a price is agreed, you are locked in for the duration of the contract and unable to take advantage if prices fall. Most fixed price providers have a minimum term of one month, meaning you cannot fix for a shorter period.
Whether you choose Spot, Contract or Fixed Price Purchasing, the fuel experts at Portland can assist you to get the right deal for your business.
- Portland Pricing’s online Fuel Price Toolkits enable spot purchasers to monitor live wholesale fuel prices and order when prices fall, and contract purchasers to ensure they’re getting the deal they’ve signed up to. Prices start at just £30 per month https://portland-fuel.co.uk/pricing/
- Portland Analytics work with large commercial fuel users to reduce their fuel spend. We help them to get the right deal for their business, then maximise the savings generated https://portland-fuel.co.uk/analytics/
- Finally, if fixed price fuel is your choice, speak to Portland as we would be delighted to discuss how this service works. https://portland-fuel.co.uk/fuel-price-protection/
Founded in 2009 by fuel industry ‘lifers’ and with over 100 years combined experience in the oil industry, Portland have been helping businesses to achieve fuel price stability in a volatile market for nearly ten years. Operating across Europe and North America, Portland works with both logistics providers and users of logistics services. We currently serve almost 50% of the Motor Transport Top 100 and offer fuel advisory services to several companies within the FTSE 100 Index.
Portland takes complex data and issues in the fuel arena and makes simple recommendations that are easy to understand and act upon. Having earned a reputation for providing market-leading intelligence and being totally independent, Portland regularly appears on BBC News and BBC Radio to comment on fuel-related matters.