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    Managing your fuel cost

    The top 3 concerns when buying fuel in bulk
    Instead of buying gas and diesel at the pump, many companies choose to purchase fuel in larger quantities. The companies buying fuel in volume either have a tank or contract to acquire a certain amount of fuel at an agreed upon price over a defined period of time.

    Companies mostly buy bulk fuel and have a tank for very practical reasons; they want to make fueling easy for their drivers and to control how the fuel is used. For them it is important that they balance this convenience with the cost to purchase and maintain the tanks, the increased property insurance and the risk of environmental issues due to leakage.
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    Other companies buy fuel in bulk for financial reasons. When you buy in bulk you can generally negotiate a discount so you are purchasing at a price lower than the current pump prices. This can be an attractive strategy but it is important to understand and manage the risks.
    Cash is locked up with an obligation to buy
    When you buy in bulk you are obligating your business to buy a certain amount of fuel over a set period of time. Some contracts require that you pay in advance while others allow you to pay as you go. In either case, you are impacting your cash flow and if the business does not perform as you anticipated you may be obligated to pay for fuel you don't use.
    Purchasing only the amount of fuel you know that you can comfortably use over a short period of time but purchase a cap or fixed price swap to protect you from fuel price increases for the long term.
    Prices will increase with your next bulk purchase
    If the amount of fuel you purchase only covers a short period of operations or if your bulk purchase is based on an index then your cost of fuel will increase when fuel prices increase.
    Purchasing a cap, collar or fixed price swap to protect you for longer periods of time such as the length of a project or through the busy season. Having greater certainty about your fuel costs will enable you to bid more aggressively for new business.
    Fuel prices drop and you are locked into a fuel price
    If fuel prices decrease during the term of your fixed price bulk contract, or if you have just filled your tank, your competitors will be paying less for fuel than you are. This may make it harder for you to compete for business.
    Buying smaller bulk amounts but purchase a cap for the total amount of fuel you need. You will have locked in your maximum fuel spend but will still benefit when fuel prices fall. Alternatively, if you prefer to buy in bulk to get discounts, you can either, base your bulk purchase on an index and purchase a cap to protect yourself against price increases or do a fixed price bulk purchase and purchase a "floor" or "put" which will pay you when fuel prices decrease to offset the difference in cost.

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