Pit & Quarry, January 2014
Smarter fill ups Aggregate producers should develop purchasing strategies for todays volatile fuel price market F uel costs can make or break the bottom line Fleet operators sometimes build fuel cost assumptions into their budgets making it difficult to adjust to increasing or decreasing fuel costs Effective fuel cost management is a critical success factor Starting in 2004 a new normal asserted itself within U S fuel markets Day to day price swings of 3 cents or more swings that previously occurred only 6 percent of the time now happen almost half the time Swings of 5 cents or more went from happening 16 percent of the time to happening 25 percent of the time This volatility is now embedded within wholesale fuel markets and it shows no signs of abating Unfortunately some fuel purchasing managers use pre 2004 buying strategies that do not sufficiently address daily fluctuations in fuel prices Many use spreadsheets and heuristics to time the market or they lack diversification in their fuel portfolio They believe they have adequate contracted supply options Some assume price swings eventually even out or there is too much risk in adjusting to shortterm market movements Others believe they need energy trading capabilities or they require hedging expertise to protect against price volatility But these views are not consistent with industry best practices achieved in todays fuel market Contracting 100 percent of supply means purchasing managers cannot take advantage of spot market opportunities in a volatile fuel market Although fully contracting supply ensures access to fuel it also raises total costs For instance it precludes managers from taking advantage of periodic fire sale FUEL PRICES BY GARY DAVIS Fuel managers must make purchase decisions daily based on spot price availability not just once a year at contract renewal time 54 PIT QUARRY January 2014 www pitandquarry com ISTOCK COM JIMMYJAMESBOND
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