Much has been said about timing and the rewards and lost opportunities that await you depending upon how good your timing is. Some seem to have a second sense for it, to know when to change and make adjustments, when an idea is ready to be embraced and when to step out away from the group.
There are good examples in every industry (my mind often goes to music, so I will use musical examples to illustrate). In music, David Bowie and Miles Davis come to mind. Bowie has a second sense for when the next big thing will happen, and adapts accordingly, often dubbed the great chameleon of rock music. He is not afraid to change his music and style to fit the prevailing winds as he played the part of folk musician, costumed glam space rocker, or blue-eyed soul singer.
Miles Davis often created the next movement in jazz by a magical combination of talent, drive, and perhaps most importantly, an uncanny knack for assembling the best combination of players for a session. He knew how to assemble and direct to obtain the best results and was able to achieve it countless times.
It may seem a bit of a stretch, but when managing your bulk fuel purchases to maximize fuel savings, we could all take a lesson from Bowie and Miles. For example, knowing when to schedule the next delivery is all about timing. Depending on market movements, it could make a big difference if your delivery is scheduled for today or tomorrow. In this case, the next big thing could be a single day price move of 10 cents / gallon. So, to be on top, you might have to move it forward or back for maximum savings. Depending on your timing, you could be saving or losing $800 per load that day.
Now, to pull of these chameleon-like movements, you will need a good team. Assembling the right team can be difficult, but is critical for a great performance. Much like Miles selected the best horn players, drummers, and bassists, you will need a fuel team with the right mix of market expertise, technology, and processes, to get the best performance.
However, when the right combination of expertise, technology and processes are brought together, great things can happen. And in this case, great things translate to fuel savings for your organization. (Speaking of timing and fuel savings, check out the replay of our latest webinar related to the timing of fuel deliveries.)
So, when the next market movement happens, make sure that you have your team ready to respond and be prepared to move those loads forward or back to take advantage of fuel volatility. You won’t get a gold record from the efforts, but the money you will save per load will make you feel you did.
Fuel price volatility is now a fact of life for those in the industry. Gone are the days of simply filling your tanks to the brim on a schedule to ensure that you don’t run out of fuel at your location. (That is not to say that you ever really want a tank to run-out, but it does occasionally happen.) I like to think of fuel volatility as waves coming in to shore, some of them small, many of them large, but certainly constant. As a fuel buyer, you are in a boat dealing with these waves, making adjustments, trying to stay on course, and navigate through them. In the days before constant price volatility, navigating your boat was much easier as the waters were considerably calmer, a bit like sailing on a smooth–as–glass lake, versus a choppy ocean bay.
Volatility has changed the fuel procurement process and put everyone’s boat in the bay. Now, if you decide to simply keep your tanks full all of the time, you’re sacrificing cost or margin for this simplicity. To illustrate how much this has changed, a price swing of 3 cents or greater only happened 6% of the time prior to 2004. Since 2004, it happens nearly 50% of the time. That’s quite a convincing statistic. If you think for a moment that basically every other day, the price is moving 3 cents or more, you definitely want to have a handle on that shift in price.
Whether you are a retailer trying to maintain margins, or a fleet based company trying to stay within budget, these cents add up. There are also days when the market moves dramatically, and with enough force to make a big difference to your budget. Think of it as a large wave coming towards your tiny boat. For instance, in June, the price for gasoline moved up over 32 cents in a single day in California. That’s a big wave, and one that although probably won’t sink your boat, can have you throwing pails of water overboard for a couple of days, rather than sailing on. But, if you imagine being hit by another wave while you are below deck trying to throw out water, things can get very bad very fast. For a move not quite as dramatic, but still impressive, gas was down in Chicago over 12 cents on that same day.
So, let’s assume you have a fleet of boats, with one in Chicago and one in LA. On that day in June, if you aren’t paying attention you could easily buy on the wrong side of both and get hit with a ‘wave’ on both sides on the same day. Needless to say, that could be a wet, soggy, and miserable day.
Now, as with many things, technology and an experienced team can help to mitigate these movements and put you back in control of your little boat. It’s kind of like trading your compass for a radio and electronic navigational equipment. It really makes it easier to sail your boat knowing that you are prepared for the next wave of volatility that may come your way. You know that there is little chance that the wave will catch you napping at the wheel or send you below deck to throw pails of water from your sinking boat.
Last summer, a major fuel retailer decided to build a new convenience store right at the entrance to my neighborhood. I watched with anticipation as the massive holes were dug, underground tanks were installed, lines were run, and dispensers began to be installed. I got really excited when I counted 6 fuel islands, anticipating a high volume, low price operation that would be very convenient for me and my family.
When the station opened, I was happy to see that its prices were a full 5 cents lower than the nearest alternative. Yee Ha! (I’m from Texas) Like many c-store customers, the price of fuel is my main purchase criteria, so I tried it. My truck (I did say I was from Texas) seemed to like it just fine, too. Fearing that this pricing was just a “new store special”, I kept an eye on prices. After about 3 weeks and considerable price fluctuations, this new c-store was still always the lowest around. Then, I let my guard down.
One day after filling the tank at my new favorite c-store, I was on my way to work and did a double-take as I drove by the gas sign for the grocery chain where I used to purchase fuel. Their price was a full 10 cents lower than what I had just paid! I had been betrayed. Even though I only paid $2 more than I could have, my trust was lost. I returned to my old favorite, the grocery store, on the next fill-up.
I still check the prices when I drive past the new c-store. They actually have the lowest prices around occasionally, but I don’t go there. With price volatility being the norm, even if the new c-store seems to have the lowest price, I’m thinking that it may still be lower elsewhere, so I don’t stop.
Sometimes I wonder about the pricing policy underlying the pump prices I see. In the case of this new c-store, I just can’t figure it out. They are sometimes the lowest, but other times the highest. Maybe I’m just not in their target market. More likely is that their pricing policy is not the issue, but they have problems in execution. Inconsistent pricing policy compliance is a common problem for c-store managers today (check out our recent white paper on The Seven Deadly Sins of Fuel Margin Management).
Building and retaining customer loyalty is a key strategy for most c-stores. Customers may decide whether to trust you based on a single day’s drive-by on your location. Inconsistent pricing sends a message that your c-store cannot be trusted. For a c-store owner, the pricing of fuel can affect more than just the margins for that particular day—it can drive loyalty or drive them away.