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Lower Fleet Cost Forecast in 2016

Save FuelFuel is the largest component of total fleet operating costs. The stability of fuel pricing over the past 24 months has been the No. 1 factor contributing to keeping fleet operating costs flat. Not only that, but lower fuel prices have helped decrease overall fleet expenses.

“Lower fuel prices have led to a significant reduction in fleet spend over the past 12 months,” said John Bauer, manager, fleet analytics at Wheels Inc.

There has been a double-digit percentage decline in nationwide average pump prices for both diesel and gasoline.

“From January 2015 to September 2015, versus the year prior, the average cost of diesel fuel decreased approximately 19.8 percent and gasoline prices have also decreased 23.2 percent,” said Dale Jewell, director, North American maintenance operations for EMKAY.

As with most commodities, fuel prices fluctuate, driven by seasonal driving demand and weather conditions.

“Fuel prices have helped fleets reduce cost on a year-over-year basis. To date, the average price for regular unleaded has declined 83 cents from the 2015 average of $3.36. This represents a 25-percent savings; however, during 2015, prices have followed a familiar seasonality curve and are currently 14-percent higher than the beginning of the year, on average,” said Steve Jastrow, strategic consulting manager for Element Financial Corp.

However, plummeting prices at the pump have been a double-edged sword for many fleet customers over the past 12-18 months.

“On the one hand, lower retail prices for both gasoline and diesel have been a welcome relief for fleets that, in some cases, have seen their costs reduced by 25-30 percent. On the other hand, industries directly or indirectly attached to the price of oil (upstream to downstream) have experienced a real squeeze in revenue and cash flow,” said Steve Durdin, manager, garage management systems (GMS) & fuel programs at ARI.

Truck Fleets Benefit the Most

The largest beneficiaries of reduced fuel prices have been diesel-powered fleets, resulting from the significant narrowing in the gasoline versus diesel price gap. “The difference in price between diesel and gasoline is nearly indiscernible in some markets,” said Durdin of ARI. “While this pricing gap may widen as temperatures fall, diesel buyers have enjoyed an even greater price break over much of the year.”

 

Total Consumption vs. Price

One welcome relief to this multi-year period of fuel price stability has been the minimization of unpredictable pricing volatility that resulted in unanticipated price spikes that ravaged fleet budgets in past years.

“With domestic production at high levels and the need to import trending downward, outside factors are less likely to have an impact on fuel prices than we’ve seen in a long time. For that reason, it is likely that fuel costs will have a negligible impact in how companies select the vehicles for their fleet,” said Singer of Merchants Fleet Management.

 

Fuel-Spend Reduction Strategies

There continues to be the normal seasonal cyclicity in fuel prices in the fall and spring, but the key factor is that this pricing cyclicity does not have an upward trajectory and prices are behaving very similar to those in 2014. However, one factor with a growing impact on moderating fuel spend is the overall increases in vehicle fuel economy. A variety of acquisition decisions are contributing to increased average fleet fuel economy and reduction in overall fuel consumption.

“Fleets are right-sizing their vehicle selectors to take advantage of fuel-efficient technologies, weight-reduction measures, higher-speed transmissions, and appropriate drivetrains to meet their business necessity,” said Jewell of EMKAY. “Furthermore, the importance of driver behavior is essential. According to the EPA, a driver can impact fuel efficiency as much as 33 percent. The implementation of driver behavior trainings to reduce speeds, idling, accident avoidance, rapid deceleration, etc., continue to gain momentum within the industry. When paired with technological GPS solutions, route optimization can reduce miles driven, scheduling, speeds, and personal use,” added Jewell.

 

Fuel-Spend Reduction Strategies

There continues to be the normal seasonal cyclicity in fuel prices in the fall and spring, but the key factor is that this pricing cyclicity does not have an upward trajectory and prices are behaving very similar to those in 2014. However, one factor with a growing impact on moderating fuel spend is the overall increases in vehicle fuel economy. A variety of acquisition decisions are contributing to increased average fleet fuel economy and reduction in overall fuel consumption.

“Fleets are right-sizing their vehicle selectors to take advantage of fuel-efficient technologies, weight-reduction measures, higher-speed transmissions, and appropriate drivetrains to meet their business necessity,” said Jewell of EMKAY. “Furthermore, the importance of driver behavior is essential. According to the EPA, a driver can impact fuel efficiency as much as 33 percent. The implementation of driver behavior trainings to reduce speeds, idling, accident avoidance, rapid deceleration, etc., continue to gain momentum within the industry. When paired with technological GPS solutions, route optimization can reduce miles driven, scheduling, speeds, and personal use,” added Jewell.

 

 

Forecast of Fuel Prices in 2016

All fleet management companies base their fuel price forecasts on those projected by the U.S. Energy Information Administration (EIA).

“The EIA currently projects that U.S. pump prices will decrease slightly in 2016 as compared to 2015,” said Lucien of Element Financial Corp. “Their October Short-Term Energy Outlook includes forecasts for gasoline and diesel of $2.42 and $2.72 per gallon, respectively, for 2015. ‘Lower economic growth in emerging markets, expectations of higher oil exports from Iran, and continuing growth in global inventories’ are cited as the main reason behind the projections. The EIA gasoline pump price outlook in 2016 is 4 cents per gallon below the 2015 projections. The cost of diesel is expected to increase by 5 cents to $2.77 per gallon.”

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