Liquid gold

With the ever increasing price of oil, the need to manage the purchase and use of diesel and petrol becomes increasingly critical, says the Chartered Institute of Logistics and Transport

By February 2011 the pump price for diesel had reached £1.34 per litre and the bulk price paid by industry in the UK market had reached a staggering 107p per litre. These bulk prices were over 65 per cent higher than those which triggered the demonstrations and blockades of the fuel crisis of 2000 when many commentators regarded UK industry as being only days away from paralysis before the actions were called off.

Fortunately there seems little or no appetite for such actions in 2011. The reality is that UK industry is suffering as a consequence of fuel prices which are amongst the very highest in Europe and the world.

Fuel duty
The rise in duty in January 2011, brought the rate on diesel up to 58.95p per litre, and the total contribution by transport operators to the Exchequer to over £7.3 billion per year. And this to be followed by the promise of a further increase of 1p per litre from April (though at the time of writing there seems to be a hint of a possible concession in the offing from the government).

Clearly the coalition government has a major economic problem on its plate in its need to deal with the financial deficit. And there appears to be a widespread view throughout UK industry that the sooner that problem is dealt with the better, and that there will inevitably be some pain and hardship in the process of achieving that.

However, is the long held practice of charging a heavy tax on commercial vehicle operations the best approach? After all, the use of diesel to power UK transport could be said to be an operational tax on industry. Certainly commercial vehicles must cover their costs to the maintenance and operation of the roads network. And certainly they must contribute towards the development and construction of new infrastructure. But commercial vehicle operations pay far more than that. And operational taxes do not apply to other items of industrial production or operation – computers, lathes, electricity, telecommunications etc.

Indeed, the government appears to recognise the issue in its attitude to a lower rate of duty used for off road use by vehicles and plant used in the construction and agricultural industries. And some fuel duties are rebated for parts of the passenger transport industry. Might there be the opportunity for a similar approach to commercial vehicles?

European market
Little wonder that UK transport operators are finding it tough to compete with, and are losing business to, European rivals who never buy a drop of fuel in the UK. Why would they when they can arrive with a full tank of cheaper continental diesel, carry out their work, and return to Europe to fill up again?

A tax duty which amounts to over 56 per cent of the price of industry’s diesel is certainly a heavy burden. After all, absolutely everything has to be delivered, either to industry or to the consumer. For some time there have been calls for the government establishing a different means of taxing commercial vehicle operation, and decoupling it from the same system that applies to private cars. But, for the moment, such plans seem to be a long way off and the attitude of every commercial vehicle operator must be to manage their use of fuel in the very best way possible. The stuff is now so expensive that its prudent management – or perhaps its wasteful management – can make an enormous difference in the bottom line results of companies operating in an industry which has sadly always suffered from low margins.

Effective and efficient fuel management should apply to almost every aspect of the operation – procurement, vehicle maintenance, routing, scheduling and utilisation, driver behaviour, and security.

Purchasing policy
Fuel purchasing policy will clearly differ from company to company dependent on the size of the fleet, the total consumption, the territories and distances involved, and the restocking requirements.

Efficient management and record keeping regarding home depot bunkering arrangements and overall fuel card control and analysis are vital in terms of utilising information and controlling consumption.

Clearly, the better the understanding and quality of pricing information and trends, then the more efficient a buying operation will be. A crystal ball has not been required in recent months and years as the price of oil on the world market has remorselessly increased. But the market can be volatile – indeed during February this year a small reduction was registered in the midst of pricing turmoil.

A number of price information and advisory services are available, including a service from the Freight Transport Association, and the use of such information forms an important element in both creating operational budgets and, if appropriate, setting haulage rates. Sadly, many operators throughout the transport and logistics sector do not always have a firm understanding of their operational costs. With fuel usually constituting over a third of the costs of running a vehicle it is absolutely essential to understand and, as far as possible, control its costs.

Theft & security
Sad to say it is not unknown for drivers and other personnel to pilfer fuel either from depot bunkers or from vehicle tanks. With the spiralling cost of fuel it can be anticipated that this problem will get worse before it gets better.

In order to reduce or avoid such experiences operators should consider the use anti-siphoning units, drain locks, fuel meters, anti-theft apparatus, or even diesel dye. Failure to protect against the practice of ‘skimming’ small and undetectable quantities of fuel into personal containers, can result in substantial losses, much of which is avoidable. There are a wide range of products and suppliers offering preventative equipment.

Vehicle maintenance
For road safety reasons the operation of commercial vehicles is very heavily regulated. Fortunately the safety record of lorries and vans is amongst the best of all vehicles on UK roads. Effective vehicle maintenance is paramount and, of course, the terms of the Operators Licence demand a programme of regular inspection and assessment to ensure that vehicles are kept and driven safe and sound.

Such arrangements are not merely box ticking, however. Well maintained vehicles are clearly less likely to be involved in accidents, less likely to suffer from in-service breakdowns, and are also likely to enjoy better rates of fuel consumption. The lesson is simple – the time and expense required to properly maintain vehicles is more than compensated by efficient operations and fuel savings.

Routing & scheduling
Smart traffic office routing and scheduling, resulting in maximum vehicle utilisation and minimum empty running, are clearly vital factors in the efficient and economic operation of any logistics enterprise.

The operational demands on a vehicle fleet frequently differ on a day to day basis dependent on customer requirements, locations, price fluctuations, seasonal trends, even weather conditions. Added to which are the complications of pre-set distribution constraints such as time windows and access restrictions.

A large range of software programmes are available designed to support the traffic office by creating route plans and delivery schedules able to maximise fleet utilisation and efficiency. In addition to improving overall efficiency and reducing vehicle and driver costs, such schemes obviously result in substantial fuel savings.

Drivers
It is often said that the biggest opportunity available for vehicle operators to cut fuel costs is by reducing the weight of the driver’s foot on the accelerator pedal. There is something in it. It has been estimated that fuel efficient training programmes for drivers have resulted in savings of over ten per cent of fuel costs. This reality must not be ignored.

In the past, after basic training and qualification many lorry drivers have undertaken years of work without any refresher training. This has often resulted in the development of driving habits that can lead to increased maintenance costs and higher than necessary fuel consumption.

Since September 2009 HGV drivers have been obliged to undergo 35 hours of training during a five year period – the Driver CPC. Many in the industry have suggested that eco-driving should be a compulsory element of this process, but that is not the case at present. However, although the content of such mandatory training programmes is discretionary, fuel efficient driving is clearly a key ingredient that will feature in the vast majority of cases. And the cost of such training is self funded by the resultant reductions in fuel bills.

Much of the advice offered above is self evident to the professional fleet manager. But, with little sign of any fundamental reduction in either the cost of diesel, or the high duty levels applied to it, then the need to review fuel management and to monitor consumption is obvious.

It is a fact of life that all operations should be analysed and reconsidered at regular intervals. There are real savings to be made by a close examination of what an operation does well, and what it does badly, and with an open mind as to how it can do better.

Whatever the size of operation a saving of ten per cent on a fuel bill will be very substantial – and well worth the time and trouble of an in-house, or even external audit. In 2011 diesel really is liquid gold!

For more information:
Tel: +44 (0)1536 740104
E-mail: membership@ciltuk.org.uk
Web: www.ciltuk.org.uk