The idea of a fixed price strategy is to minimize the uncertainty of final prices or costs that are impacted by conditions such as fluctuating markets, time frames or changes to a planned project.
As a retail fuel supplier, signing onto a fixed price contract is like buying insurance for your business. It gives you peace of mind because you know what your costs will be and that you will be protected when prices increase.
A good fuel distributor will have a supply and risk marketing manager who is knowledgeable and experienced. They are experts in evaluating fuel markets and forecasting prices, and will meet with customers individually to find what works best for them.
First, they will discuss and determine:
- What are your operational budget needs?
- What are your objectives?
- How important is price protection to you?
From there, they will then be able to advise you on:
- How much to lock in;
- Which months to lock in; and
- Risks involved.
What happens if market prices drop below the rate you have locked into with your contract?
This situation is still a better position to be in than if prices went higher and you didn’t have a fixed price strategy. You know what your fuel costs are going to be and on average, you will still be paying less than if you had not locked into a contract at all. If your business objective is to have price protection as opposed to beating the market, then there is still potential for profit margin on your production.
For example, a customer with his own storage facility signed onto a fixed price contract when prices were lower and locked in 157,000 gallons over a six-month period. During that time, market prices fluctuated an average of 21 cents per gallon more than his locked in rate. As a result, he realized $33,000 in savings, which equals to one free truckload of fuel.
Invest in your business by investing time with a great fuel distributor. With all they have to offer, a fixed price strategy is worth considering.