Fuel costs require a rethink by businesses

Fuel price increases have been relentless over the last few months, resulting in higher operating expenses for businesses who are forking out more money for the same amount of fuel.

Standard Bank fleet card transaction data shows that fleet users paid an average price of R14/l for diesel in January, which means that it cost R3,360 to fill up a 60l tank four times in a month. Now, however, with the price sitting at R20/l, that fleet user would have to cough up over 40% more (R4,800) for the same amount of fuel. When extrapolating the cost for 11 months, that’s an extra R15,000/year. 

Today’s per barrel price of Brent crude oil ($75) is a far cry from the $18/barrel that Brent crude fetched in April 2020, then due to a glut in the market amid the outbreak of the Covid-19 pandemic. 

Drivers behind the fuel price hikes

Now an undersupply in the market is largely driving the price of crude oil up. While the Organisation of the Petroleum Exporting Countries (Opec) wants to sell at a high price, many of its members are wary as they believe if Opec doesn’t bring the price down, it could speed up the transformation from petrol or carbon-fuelled vehicles to electric vehicles. As such, there is reason to believe that there could be a reduction in fuel prices in the months to come.

The US and China have what are known as strategic reserves, some of which they will be releasing into the market and, though not guaranteed to materialise, this could also result in prices easing.

More businesses take to the road but face high costs

There has been an increase in road users and a rise in fuel consumption for logistics purposes, especially since the arrival of Covid-19, driven by the resultant spike in online shopping and demand for home delivery for essentials like groceries.

While fuel consumption by typical passenger vehicles is down by 30% due to the shift to remote working, for operators of medium and large commercial vehicles that move everything from inputs for production to goods and services, consumption is up significantly.  

Changes in consumer buying behaviour over the past two years has made it critical for businesses to gear up to provide home delivery, or beef up existing fleets. But the cost of fuel for transportation, up 41% between January and December with inflation over that period running at 5%, is placing serious pressure on businesses, particularly those unable to pass such increases on to their customers. 

In addition, toll fees went up by 4.8% in March while maintenance has risen by 5%, not to mention other cost pressures that businesses are facing outside the sphere of transportation.  

Bringing the rising cost of fuel down 

In the current environment, where fleet capabilities remain a business imperative but rising transport costs and expenses continue to weigh on cash flow, focusing on savings and efficient ways of managing fleets is critical to retaining key assets like people and vehicles.   

One way of keeping fuel expenses down is by participating in a diesel savings programme. Through partnerships with leading oil companies, Standard Bank’s diesel savings programmes save their client base millions of rand by enabling them to procure diesel at preferential prices across the country.

A fleet of 10 vehicles using 20,000 litres a month typically saves about R15,000 a month or R180,000 a year on a Standard Bank diesel savings programme.

Standard Bank also recently launched Visa Fleet Card, SA's first chip and PIN fleet card. Visa Fleet Card is secured by a PIN,  is very difficult to clone and is being issued to petrol-powered vehicles with a dedicated driver. In addition to the heightened security, the cards have the added benefits of reduced fees.

Another area where businesses often miss savings opportunities is by not managing and controlling risk. This comes down to having information available on day-to-day fuel consumption and driver behaviour. When introducing a fleet card to a fleet, analytics reports are made available in real-time that highlight if a vehicle is being driven uneconomically and help determine the causes, allowing an appropriate response to dampen the impact of fuel cost increases on the business. 

• About the author: Derick de Vries is executive head of Standard Bank Vehicle Asset Finance.

This article was paid for by Standard Bank.