Shippers evaluate pre-buying fuel for carriers
A handful of shippers are testing the possibility of starting their own fuel hedging programs to better control fuel costs for their motor carriers and the fuel surcharges that are being passed onto them, according to Brad Simons, vice president of Simons Petroleum.
Hedging is a form of risk management commonly used by many trucking companies, airlines and other transportation providers to lend some predictability to their costs for a commodity known for volatile price swings. Through various types of market trading mechanisms, companies can lock in the price they pay for fuel months in advance if they think prices are likely to rise faster than accounted for in their budgets.
Simons, who spoke at the National Industrial Transportation League’s Highway Committee meeting in Toledo, Ohio Monday, said a few large shippers have gotten together with their core motor carriers to develop a joint hedging strategy and reduce unplanned costs.
The challenge of a shipper-initiated hedge is determining who is ultimately responsible for making the call on when to exercise the hedge option, at what price and volume, and where to physically buy the fuel. Under a scenario in which the shipper locks in the futures price instead of the carrier, it remains unclear whether the shipper can direct where the carrier should buy its fuel. The situation is easier if the shipper were to have its own bulk tank facilities for the carrier to fill up its trucks, he said, in a follow-up interview.
Another complication is sorting out the hedge savings between shipper and carrier.
Simons Petroleum is a petroleum marketing company that serves the trucking industry and industrial accounts. It offers various fuel-buying programs designed flatten out price fluctuations.