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The Best way to control your fuel costs

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  1. 1. Managing Fuel Costs <ul><li>Presented to: </li></ul><ul><li>John Q. Fuelbuyer </li></ul><ul><li>ABC Corporation </li></ul><ul><li>July 1, 2010 </li></ul><ul><li>Joe Fell </li></ul><ul><li>Director of Procurement </li></ul><ul><li>Palatine Oil Company </li></ul><ul><li>847-358-3600 </li></ul><ul><li>[email_address] </li></ul>
  2. 2. POC Price Risk Management <ul><li>Proactive Energy Management </li></ul><ul><ul><li>There are strategic tools that can be implemented to significantly affect your Total Fuel Spend . </li></ul></ul><ul><ul><li>Utilize these tools as an overlay against historical price trends that reoccur each year. </li></ul></ul><ul><ul><li>Buy effectively and maximize your opportunities to save. </li></ul></ul><ul><ul><li>Increase the predictability of future cash flows. </li></ul></ul><ul><ul><li>Assist in the strategic planning process. </li></ul></ul><ul><ul><li>Budget fuel expenditures with accuracy </li></ul></ul><ul><li>Marketplace Dynamics </li></ul><ul><ul><li>In 09’ crude went from $30 to $80 per barrel. Insulate your business from factors that can erode profit margins, such as Global Petroleum volatility. </li></ul></ul>
  3. 3. What’s Driving Volatility <ul><li>Economic Forces </li></ul><ul><ul><li>Supply & Demand </li></ul></ul><ul><li>Refining capability </li></ul><ul><li>Speculation </li></ul><ul><li>Currency Valuation </li></ul><ul><li>Middle East unrest </li></ul><ul><li>Weather </li></ul><ul><li>Geo-Political </li></ul><ul><li>Recessionary </li></ul>
  4. 4. Change How you Buy Fuel! <ul><li>Gas Prices </li></ul><ul><li>Diesel Prices </li></ul>Buy Not Here Buy Here Not Here Buy Here
  5. 5. Analyze Current Methods <ul><li>Most do not actively pursue a buying strategy for their third or fourth largest expenditure. </li></ul><ul><li>The industry dictates how this is done. </li></ul><ul><li>The largest percentage of fuel is purchased between the months of May and October, when prices are the highest. </li></ul><ul><li>Target the months your usage peaks, and lock in prices prior to the time frame the increases occur. </li></ul>
  6. 6. Historical Pricing Trends <ul><li>Crude and refined products are cheapest in the first quarter </li></ul><ul><ul><li>Focus changes to gasoline production </li></ul></ul><ul><ul><li>Refineries enter maintenance period </li></ul></ul><ul><li>Prices Rise in 2 nd Quarter </li></ul><ul><ul><li>Boutique formulations of gasoline </li></ul></ul><ul><ul><li>Summer driving season starts </li></ul></ul><ul><ul><li>Fuel costs peak in the Summer </li></ul></ul><ul><li>November 1 starts initial slowdown </li></ul><ul><ul><li>Farming and Construction finish up. </li></ul></ul>
  7. 7. Fuel/Gas Price Origination Cost of Commodity at NYMEX Transport to local marketplace $-Price Lock takes place here Trucks deliver from terminal Product sold at retail
  8. 8. Fuel Cost Mitigation Strategy <ul><li>Lay out expected fuel volumes for each month of the upcoming calendar year. </li></ul><ul><li>Reduce each monthly number by 50%. </li></ul><ul><li>Lock in Pricing for that 50% in January </li></ul><ul><ul><li>History shows, this is when fuel is the cheapest </li></ul></ul><ul><ul><li>We are not buying the fuel, only locking in the price. </li></ul></ul><ul><li>POC Risk Management will provide customers with a locked price per month, each month, for up to a year in advance. </li></ul><ul><li>We now have a blended rate which is 50% locked and 50% market rate in the month it is used. </li></ul>
  9. 9. Fuel Cost Mitigation Strategy (continued) <ul><li>Physical Fuel Deliveries </li></ul><ul><ul><li>POC fuel customers will be invoiced the locked in rate. </li></ul></ul><ul><ul><ul><li>FIFO method is utilized with locked in gallons billed first. </li></ul></ul></ul><ul><li>Financial Reconciliation </li></ul><ul><ul><li>Those customers who do not receive fuel deliveries from POC or buy retail, will settle up financially at the end of each month based on the volume agreed on at contract signing. </li></ul></ul><ul><ul><li>If prices increase at the pump, POC pays you the difference. If prices decrease, you pay POC. </li></ul></ul>
  10. 10. Fuel Cost Mitigation Strategy (continued) <ul><li>Customer invoiced monthly </li></ul><ul><ul><li>Billed FIFO at rate secured by POC </li></ul></ul><ul><ul><ul><li>Market rate prevails thereafter </li></ul></ul></ul><ul><li>POC provides “Fuel Cost Scorecard” </li></ul><ul><ul><li>Monthly Reports and Review </li></ul></ul><ul><ul><ul><li>Program Cost of Fuel vs. Market Price </li></ul></ul></ul><ul><ul><ul><li>Year end results and cost management </li></ul></ul></ul><ul><li>No fuel supplier change </li></ul><ul><ul><li>You purchase fuel at existing providers </li></ul></ul><ul><li>Palatine Oil Manages risk solution </li></ul>
  11. 11. How has our strategy performed? Hedge Price represents locked fuel prices bought in Jan/Feb Locking in a percentage of your fuel in the first quarter outperformed the market in each year but 98’ & 99’.
  12. 12. Financial impact <ul><li>ABC Corporation who bought 200,000 gals per year under this method for the years listed would have saved $558,000 or .23 cents per gallon. </li></ul><ul><li>In the years 2004-2009, that number climbs to .40 cents per gallon. </li></ul><ul><li>Price volatility has grown considerably over the last five years and could continue to grow. </li></ul><ul><li>Which side of the numbers do you prefer? </li></ul>
  13. 13. If we bought gas in 2009 under this method, what would the outcome have been?
  14. 14. What Are The Results? <ul><li>Reduce exposure and Variable Costs </li></ul><ul><ul><li>Leverage POC’s Scale & Buying Power </li></ul></ul><ul><ul><ul><li>Over XXXX customers </li></ul></ul></ul><ul><ul><ul><li>Total Volume XXXXXX </li></ul></ul></ul><ul><li>Minimal time requirement </li></ul><ul><ul><li>POC manages and executes contracts </li></ul></ul><ul><ul><li>Issues monthly reports invoices and credits </li></ul></ul><ul><li>Budget predictability – Manage future costs </li></ul><ul><li>Risk Mitigation </li></ul><ul><ul><li>High side “blow out” </li></ul></ul><ul><ul><li>Concede some down side opportunity. </li></ul></ul><ul><li>Capitalize on Historical Trends </li></ul><ul><ul><li>Fuel is cheapest in the first quarter. </li></ul></ul>
  15. 15. Bottom Line <ul><li>The future becomes predictable </li></ul><ul><ul><li>Price Volatility Removed </li></ul></ul><ul><ul><li>Fuel costs can be budgeted </li></ul></ul><ul><ul><ul><li>No “budget blowouts” </li></ul></ul></ul><ul><li>You’re not buying fuel in advance </li></ul><ul><ul><li>Securing future price of fuel today </li></ul></ul><ul><ul><li>Never take delivery of fuel </li></ul></ul><ul><ul><li>Buying at seasonal low </li></ul></ul><ul><ul><ul><li>Offsetting summer price increases </li></ul></ul></ul><ul><li>Creating a competitive advantage </li></ul><ul><ul><li>Margin and earnings more predictable than competition’s </li></ul></ul>