Harvest ahead: Complacency Costs When Buying fuel

Every time you buy fuel, it pays to get prices from the whole market.

We have helped UK businesses source fuel for over two years now, and over this time have developed a rich database of prices and trends. One fact which has become crystal clear is the value in shopping around the market systematically, every time you need to buy fuel.

Our analysis of a longstanding farming client shows the evolution of farm gate quotes for red diesel from a range of suppliers. In the chart below, you can see the progress of the fuel market which has risen sharply in the last months before dipping again in June.

The critical insight from this chart however is to dig into the detail of quote dynamics at any given period. By zooming into e.g. March 2018, we see that the supplier with the cheapest quoted price changes on nearly every transaction.

This pattern is repeated over the entire history of this buyer. The most competitive supplier overall is most competitive only on one third of transactions, with the rest of the business spread across nine other suppliers.

Why?

Fuel is a commodity: standardised, exchangeable, plenty of availability. The prevailing price strategy in fuel is Cost Plus: suppliers will add a margin on top of the full cost of supply to your business.

This is in stark contrast to other industrial inputs such as agrochemicals, where we have seen highly discriminatory pricing strategies. The cost structure of a fuel supplier contains the following:

Wholesale terminal price

At any given time, local fuel suppliers will face into a similar wholesale price from the fuel terminals. However, fuel is a highly time-volatile market, and so the time at which a supplier buys their bulk fuel will be the largest impact on farm gate price. Wholesale prices can easily shift half a percent over a day, especially where global events are turbulent.

Inventory

The volume of stock held by a supplier will affect their pricing to you. Suppliers who are running short on stocks will raise prices to slow outflow until they have restocked. This can put some suppliers out of the competitive picture for short periods of time. On the other hand, suppliers with high volumes of fresh stocks will look to sell quickly at keen prices in order to keep the balance sheet turning over.

Logistics

Much like stocks, suppliers face constraints from their logistics capacity. A supplier facing heavy demand, such as through harvest, will increase price to limit the extra workload needed from their stretched fleets. Alternatively they might arrange third party logistics to fulfil demand, but this often comes at an added cost of third party margins and mileage driven.

Sales target cycles

As ever in business, it is important not to underestimate the importance of short terms sales targets on price. Sales reps facing the end of their months may need to push significant volumes at reduced margin to hit their objective – meaning opportunities for cheaper prices for the buyer.

Keep sharp over harvest this year

With these significant cost variables, it is impossible for any one supplier to maintain cost leadership even for a short period of time – as we have seen in our example in East Anglia.

As the hot dry weather continues, the UK is rapidly heading into harvest time. Through this busy period for supply, it is more important than ever to understand these market dynamics and systematically shop around the widest range of quality suppliers possible – those with high standards of service who will ensure your fuel is delivered exactly as required. By connecting into a wide range of such suppliers through technology, Yagro Marketplace is helping hundreds of businesses get the best market rates for bulk fuel at the click of a button.

'Yagro introduced us to new, more reliable and competitive suppliers. It’s saved us thousands of pounds and even days of time!'
~ Geoff Flather, Norfolk

'To get the best price you have to get a quote from everyone, but to ring them takes considerable more time and effort than using Yagro. With Yagro the job is done in a click, always guaranteeing the best price with none of the effort.'
~ Tim Merry, Dorset