2. Why are we here?
Fuel and/or Gas represents a top four cost yet
most companies lack a strategic resource to
budget effectively.
How can I control my cost?
How can I maximize my opportunity to save?
3. Price Origination
All fuel enters the wholesale market at the “Rack”.
Rack pricing is linked to NYMEX trading
The price of every gallon in the Chicago market
has the same point of origination.
Since all prices are linked to NYMEX contracts, we
can secure a future price thru buying contracts.
4. Major Product Pipelines
Vancouver
Anacortes
New York
Minneapolis
Billings
Salt Chicago
Lake
City
Casper
Guernsey
Wood
River
Cushing
Patoka
Beaumont
Houston LOOP
6. What shapes the curve
Supply/Demand
Summer Gas- 28 different formulations
Infrastructure limitations
April 1st Construction-Farming- Driving etc…
7. Change our Thinking
Proactive Energy Management
Can I buy at the cheapest price for this year?
Initiate Cost Control Measures
Implement strategies that positively affect your fuel spend
Capitalize on historical price trends that reoccur each year.
Use the same strategies as Southwest, just a smaller playing field.
Budget fuel expenditures with accuracy
9. Change How you Buy Fuel!
$4.25
Not Here
$4.00
$3.75
$3.50 Buy Here
$3.25
10. Our solution
Lock in a portion of your expected fuel purchases
before normal inflationary factors kick in.
Based on historical trends, fuel will be cheapest in
the first quarter and increase from there.
You are not purchasing in advance or pre-paying.
Customer agrees to buy x gallons at $x.xx price at
a particular month in the future.
11. Fuel Freeze- Step 1
Identify your expected purchases for each month
Show March 2012 thru Feb 2013
Use previous year and adjust for budget and new
business forecast.
Identify seasonal variations.
12. Fuel Freeze- Step 2
Reduce each of these numbers by 50%
Feb 10, 2012- Lock in pricing for that 50%
Each month is a separate buying period, no
rollover. Accuracy is important.
Deliveries of locked 50% made first each month
Budget that number, plus 10%, into your jobs and
equipment rate
13. Fuel Freeze- Step 3
Fuel goes up- you see return on protected gallons
Fuel goes down, your unprotected gallons become
the hedge.
If it drops more, you can lock in another 25%.
Once you lock in, any decrease is a buying
opportunity.
Your jobs still pay the rate you locked in
Don’t be a Monday morning quarterback!
14. Important Dates
Jan 27, 2012- Mock Pricing #1
Feb 3, 2012- Mock Pricing #2
Feb 10, 2012- Lock in Date
Contract executed on Feb 10th.
No minimums
No upfront cash requirements
Customer has complete flexibility in what to lock in.
15. Sample Price Quote
2/7/2011
2011 Delivered
Rate
March Diesel 3.50
Gas 3.13
April Diesel 3.59
Gas 3.18
May Diesel 3.65
Gas 3.24
June Diesel 3.68
Gas 3.26
July Diesel 3.68
Gas 3.31
August Diesel 3.71
Gas 3.31
September Diesel 3.74
Gas 3.38
October Diesel 3.75
Gas 3.40
November Diesel 3.78
Gas 3.38
December Diesel 3.76
Gas 3.31
January Diesel 3.78
Gas 3.33
February Diesel 3.81
Gas 3.35
16. POC Requirements
Monthly Admin Fee based on volumes
10 Day ACH on gallons locked in
30 Day ACH on all other purchases
Signed contract
17. How has our strategy
performed?
Hedge Price represents locked fuel prices bought in Jan/Feb
Historical Hedge Price versus Average
Market Price: 1994-2009
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Avg Annual Price Hedge Price
Our strategy has significantly outperformed the market!
18. Financial Impact
ABC Corporation who bought 200,000 gals per year
under this method for the years listed would have
saved $828,000 or .23 cents per gallon.
In the years 2004-2011, that savings climbs to
$640,000 or .40 cents per gallon.
Price volatility has grown considerably over the last
five years and could continue to grow.
20. Bottom Line
It is not a question of “should I buy under this
method” but instead it’s a question of “How Much
should I buy under this method”
21. What are the results?
Past performance is no guarantee of future results.
In three years, our customers on the Fuel Freeze
program have saved over $2 million combined.
Most returning customers say the savings is
great, but the greatest benefits are:
1. Don’t have to worry about paying for increases.
2. Can concentrate on running our own business.
3. I can finally budget for fuel!
22. Palatine Oil Fuel Freeze Program-List of References
1). JA Frate
Joe Alger
President
815-459-0839
2). Illinois Central School Bus
Bruce Barr
Senior Contract Manager
815-416-1110
3). Rolling Meadows Park District
Bob Hartnett
Public Works
847-963-0500
4). Peapod
Bob Kruse
Senior Transportation Manager
847-307-8710
5). Acres Enterprises
Jim Schwantz
President
847-487-3000
23. Questions?
Please leave your contact info including e-mail.
Materials will be e-mailed out to participants.
Thank You!
