Controlling Your Trucking Company’s Cost of Fuel
Keeping your costs under control is crucial to the financial success of your trucking company. An increase in revenues doesn’t always translate to an increase in profitability. However, a dollar saved from operating costs goes directly to your bottom line – it’s money in the bank!
Fuel remains the largest operating cost on your ledger, and the cost of diesel is rising again. The average commercial truck burns $70,000 or more in fuel annually, representing about 35% of the unit’s operating costs. Burning less diesel through the benefits of technology enhancements, improved driver habit and aerodynamics have a significant impact on reducing this cost, but much more can and should be done.
The best action to take is to implement an effect fuel management strategy. Controlling your trucking company’s cost of fuel should involve a three part plan – where to buy the cheapest fuel, how to buy it, plus how to track and control fuel expenses. Use of a robust fuel card designed for trucking companies that features discount pricing will go a long way to improve fuel management.
Where to buy the cheapest fuel
Fuel management is different and much more complicated for trucking companies than it is for most consumers. The difference is in federal and state taxes. Most consumers buy their fuel in the same state, the same region and often at the same location for each fill-up, not so for trucking companies. Not only does the cost of fuel vary widely from state to state, but so too do the associated taxes. Individual state taxes differ significantly contributing to vast differences in the cost of diesel from one side of a state line to another. When planning your route for each haul, make efforts to predetermine the best states and truck stops to refuel. There are numerous websites and apps available to assist with this research to make it quick and easy.
How to buy fuel
Because the cost of fuel has such a huge impact on your bottom line, most trucking companies spend significant resources in trying to reduce this expenditure. Typical efforts include searching the cheapest location to purchase fuel to improving truck driver habit and acquiring improved fuel efficient equipment. Yet, despite these extensive efforts, almost two-thirds of owner operators use credit cards for business expenses, including the purchase of fuel. Seldom is it realized that this method of payment comes at a great expense! If you compare cash prices to the price you paid using a credit card, you will see that you are charged an additional usage fee – an average of $0.06 per gallon. A typical tractor/trailer unit consuming 1,500 gallons per month can spend over $90.00 extra just for the privilege of using a credit card.
Some company owners get reward points, or a 1% rebate or on purchases using their credit card and think this is a great incentive program. Do the math – if it costs you an additional $90.00 per month, per truck to pay by credit card and you only get $45.00 worth of reward points, you’ll find yourself digging your own hole to fall into.
If you insist on using credit cards to pay for fuel and other over-the-road expenses, be sure to pay the balance off before month’s end. The interest that accrues each month will drag you into an even deeper hole! A much better payment option for carriers is to use a fuel card with discount pricing.
Pro tip: Avoid using a credit card to buy fuel
Use a fuel discount program to buy fuel and save
Few fuel purchasing strategies provide the substantial savings that are easily managed through the use of fuel cards with discount pricing – a fleet card solution designed for one truck companies, small and mid-size fleets.
Significant fuel discounts have traditionally been available only to larger fleets. Their aggregate consumption provided them the leverage needed to negotiate volume discounts with fuel providers. This cost advantage then played a substantial role in allowing the larger fleets to compete more aggressively when quoting on freight. To counterbalance this one-sided advantage, a number of industry suppliers have come to the table with a solution for small and midsize carriers – they combine the collective purchasing strength of their entire client base to secure discount pricing, then pass the savings onto their trucking customers. A prime example are freight factoring companies such as eCapital that provide fuel cards featuring discounts at thousands of major truck stop locations. The features and benefits of the program combine to provide much more than just savings, they also provide improved cash flow, cost control and convenience.
- Savings: Save up to $0.20/gallon off the cash price. Depending on the size of your trucking company, you can save $1,000s on the cost of fuel every month.
- Improved Cash Flow: Credit terms allow for delayed payment on fuel purchases.
- Convenience: Accepted at major truck stop locations across North America, eCapital’s fuel cards can be used to purchase items with much the same convenience as a debit card including cash advance options to cover over-the road-expenses. Easy qualification ensures these benefits are available to any fleet size.
- Cost Control: Complete control of your EFS fuel cards is found via an easy-to-use Fuel Management Portal.
From the above list, cost control deserves further discussion.
It is a proven fact that expenses are controlled better when they are tracked and analyzed. A fundamental rule of business is that if you can’t measure it, you can’t manage it. Without the tools and resources to maintain tight controls, your business is at risk of inadequate fuel management, which could result in thousands of dollars in wasted expense.
Fuel consumption can vary heavily due to road conditions and load weight. Driver habit and mechanical condition of the working equipment also plays a major role in consumption. These variables create an extremely difficult situation for conducting month-over-month analyses. Evaluating fuel expense by dollars spent provides little value for this analysis as it does not take into account fluctuations in miles driven. Instead, track fuel costs as a percentage of revenue. This method provides more insightful metrics allowing you to gauge whether fuel costs are increasing or decreasing at the same rate as earned income.
What makes your fuel expenses so difficult to control for companies with more than one truck, is the simple fact that you are not there 24/7 watching over the operation of your working equipment. In addition to providing a secure and simple way for drivers to pay less for fuel, receive cash and other necessities, fuel cards provide detailed information about spending activities and driver progress.
Fuel card programs are an extremely effective means to control expenses with real time monitoring of transactions, easy access to detailed historical data and by issuing alerts when balances, credit limits and security issues are triggered. If a driver makes a purchase outside of the parameters set by management, this information is recorded instantly along with the driver’s name and vehicle number. By establishing fueling policies and limits, such as number of purchases per day, your company is protected against unauthorized expenses that threaten the profitability of your company. In addition, with the aid of concise reporting, fuel related tax preparation becomes a straightforward process.
Creating company fueling policies and utilizing a fuel card program to govern day-to-day governance is a significant step in gaining real control over fuel management and cost saving measures. Once policies and systems are in place, communicate these work practices to your drivers and provide them with the cards for use. Let them know that all diesel fuel purchases are being monitored. Inform them of what fleet products and services are permitted and what are restricted with their diesel fuel cards. This will help to control costs, quality and consistency of the commodities and services that support your working fleet.
Extensive security controls
Ensure the fuel card program you choose includes extensive security controls including the need to enter a unique password for each transaction. In the event a card becomes lost or stolen it is a simple matter of closing out the compromised card, thereby retaining full security of your account. Each card that is issued to your drivers can be individually activated or deactivated instantly by the authorized account manager.
Above and beyond the cost savings and control measures provided by fuel cards, the additional benefits can be extensive. With the eCapital fuel discount card, see your savings in real time with our Current Monthly Rebate Calculator that automatically updates on their fuel portal every time you swipe your card. Every month your rebates will be automatically deposited into your external bank account so there’s no need to worry about transferring your funds. Decide how you want to reinvest your savings to promote the growth of your company! Most importantly, eCapital provides credit terms to qualified trucking companies allowing your trucking company the flexibility to postpone payments on your fuel account – a tremendous advantage to improving your trucking company’s cash flow.
Combining delayed fuel payments with the benefits of freight factoring’s same-day funding creates the ideal cash flow scenario for busy carriers. Discount fuel cards are amongst the most powerful financial tools available to trucking companies engaged in the pursuit of expense management and fuel cost reduction.
eCapital is an invoice factoring company that specializes in the trucking industry. We know trucking. For more information about eCapital’s Fuel Discount Program and factoring your freight bills, visit eCapital.com.
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