Cutting costs

Fuel Costs

The cost of fuel in the UK is a highly emotive subject as the pump prices increase and company fuel budgets grow year on year. Interestingly fuel cost is seen by many as an inevitable expense and therefore often poorly managed. This is surprising as typically fuel is at least 25% of the total operational cost of a vehicle with depreciation usually being the only greater cost.

Diesel is now by far the preferred fuel type, represented in 86% of fleets (compared to 50% for petrol). A relatively ‘green’ diesel car can produce a tax burden 50% less than that incurred by a petrol equivalent. Low CO2 emissions coupled with diesel engines can result in dramatic increases in miles per gallon, helping to cancel out increases in the pump price. As a result, one in three companies now has a CO2 limit on vehicle choice.

Fuel Cards

Fuel cards are a popular and effective way of managing fuel purchases, which for many fleets can amount to a huge number of very small transactions per month. The fuel card provides a robust method of managing these frequent transactions via central billing. The fuel cards have the option to limit purchases (e.g. restrict those with diesel cars to purchase only diesel fuel) and reduce the potential for abuse. At present, only 40% of employers are either considering such a scheme or have implemented one although the figure is expected to rise during 2012.

The cards enable you to monitor accurately how much you are spending on fuel and where and when your drivers are filling up. Detailed fuel reports can also be obtained to help analyse both an individual vehicle’s fuel economy and consumption and that of the fleet overall.

This information is extremely powerful and can be used to identify high efficiency vehicles, poorly performing vehicles and those employees who are underperforming against expected fuel economy levels. The reports can be made bespoke just for your organisation and are an accurate way of monitoring fuel used in relation to miles driven.

As discussed above, the data that a fuel card system provides enables you to monitor expenditure and identify those drivers who appear to be using more fuel than would be expected. These drivers can then be targeted to find out why their fuel use is high and steps can be taken to reduce this.

Businesses should consider rewarding low fuel users and putting measures in place to lower the fuel consumption of those with higher than expected fuel use. Fuel card invoices are approved by HMRC for tax purposes so there is no need to collect receipts.

Fuel cards can also be used to detect fraud, for example drivers who are apparently filling up with more fuel than they could have used or filling up vehicles that are not part of your fleet. In addition, fuel cards can also be used to identify drivers filling up with premium fuels.

All the large filling station operators such as Shell and BP run card schemes offering fleet drivers pump price discounts. There is also the broader retail fuel cards, such as the Webcars fuel card operated by AllStar, which does not offer a saving at the pump but is less restrictive as it is accepted at the majority of garages rather than at just one chain. Its major benefit is that employees do not have to carry credit cards or cash; and data is more comprehensive and easier to monitor for tax purposes.

Another approach is that of independent agent Fuel Card Services (FCS), which buys fuel in bulk and sells it at a discount to businesses, which then know how much they will pay at the pumps over the next week. The cards provide savings of between 3p and 4p per litre and the price agreed is valid at motorway service stations too, where the cost of fuel can be higher.

Journey Planning

While a lot of emphasis is put on finding the most fuel efficient vehicles or driving down fuel consumption, it is often just assumed that all the journeys made are essential. There are many ways in which the number of journeys made each year by your fleet can be reduced which will ultimately save money by reducing fuel consumption but also by reducing wear and tear on the vehicles so reducing costs in other areas including servicing and tyres.

Driver Training

Driver behaviour has real impact on fuel consumption. Studies have shown that the average driver reduces fuel consumption by over 10% following fuel efficient driver training. Training drivers can be a quick and easy way to see an immediate decline in fuel consumption without having to spend any money upgrading to the most efficient vehicles. By using the information available from the fuel cards, you can monitor the effects of your training and offer incentives or prizes for the drivers who make the most progress in reducing fuel consumption.

Even businesses with just a few company vehicles can save a substantial amount of money by focusing on individual driver’s performance in this area.

The Diminishing Benefit Of Free Fuel For Private Use

Many employers have actively removed the benefit of free private fuel and the following are methods that can be used to remove the benefit. It is important to consider the potential cost saving against the impact on the employees’ benefits, and therefore determine the most suitable method to be adopted. However, if you are serious about reducing your fuel costs, this particular nettle has to be grasped as typically the private fuel element will cost you between £1,000 and £2,000 per driver per year.

Here are some of your options.

Voluntary surrender of free fuel – A communication programme, outlining the cost impact to employees will often encourage a significant number to opt out of their own accord.

Exclude new starters – The removal of the benefit to all new starters is a simple method, however its effectiveness is dependent on staff turnover and hence can take time. There will often be a ‘hard core’ of long service employees who will remain untouched by the new starter policy.

Buy out – Buying out private fuel for existing employees can be very effective. This will usually be a one-off, non-pensionable payment. Setting the payment level is an important consideration, in order to ensure that employees deem it fair. However consideration of the tax cost of free fuel to the employee often means the buy out does not have to be a very significant sum.

Withdrawal of free fuel – A further option is to identify a future date beyond which no employees will receive free fuel for private use. This will potentially achieve the greatest cost saving (albeit the benefit is deferred), but may be seen by employees as an erosion of benefits and result in staff dissatisfaction.

Monitoring And Managing Fuel

The techniques and maths behind managing fuel costs are extremely simple, however it is the large volume of data, and the accurate collection of the data that often proves to be the problem.

The following provide some key elements of fuel management:

Ongoing fuel monitoring – it is important to collect data on every mile, every litre and every pound spent for all vehicles on the fleet. This requires robust administrative systems and focused management, and is where fuel cards can bring added value.

Exception reporting – for larger fleets consider exception reports analysing the best and worst 5% – 10% of the fleet. If you can understand why the best employees are cost effective then you can target the worst employees to obtain best of breed results. This gives maximum benefit for least effort.

Spot checks of fuel data – this will demonstrate to your employees that you are taking fuel costs seriously and are monitoring them, which on its own can yield cost savings.

Frequency and volumes of refueling – unfortunately fraud can be common with fuel, so look for refuelling irregularities such as an individual vehicle taking on more fuel at any one refuelling event than the vehicle can physically hold. This could indicate filling two cars at once or filling spare fuel canisters, jet skis, boats, etc. Also consider the frequency of refuelling, as again partners’ cars can often be refuelled on a company fuel card if no one checks fuel reports.

There are a number of fuel consumption monitoring techniques that can be used to assess individual vehicles and drivers:

Against peers in similar vehicles – If there are a number of similar vehicles carrying out similar roles compare fuel economy performance and target the least efficient for improvement.

Against manufacturer’s official fuel consumption figures – Compare the actual fuel economy performance of individual cars against the manufacturer’s official combined fuel economy figures.

The Energy Saving Trust has calculated the average vehicle is about 15% less fuel efficient in actual daily use than the official fuel economy figures. This can provide an indication of how well your vehicles and drivers are performing.

Against peers in different vehicles but similar roles – This can be used to identify the most fuel efficient vehicle make and model for a specific role as long as you are confident that the drivers’ efficiency levels are similar. It should, however, be appreciated that when comparing light commercial vehicles’ fuel economy, careful attention is given to the individual vehicle’s load patterns as the vehicle’s gross weight will have a marked effect on fuel economy.

Some General Rules For Drivers

Make sure that your company car policy document includes details on which journeys will be reimbursed and which will not.

Ensure that all your employees know about fuel management and how to ensure the best possible fuel economy.

Make sure your employees are planning their journeys efficiently. Satnavs and online journey planners can make sure that they are travelling the minimum distance possible.

Remind your drivers on a regular basis to check and maintain the correct tyre pressures. It will make a noticeable difference to fuel consumption.

Encourage your drivers to keep weight out of the car, it saves fuel. Check the car boots from time to time, stuff just gets left there.

Telephone or video conferencing is an efficient time management tool which saves fuel as staff are freed up from the need to spend time travelling in order to attend meetings.

Fuel is a very significant element of the cost of running a vehicle and needs careful management. It is one of the few fleet cost areas where savings can be almost immediate, and with the cost of fuel predicted to continue to increase, there has never been a better time to focus on fuel.

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