For companies that use a high volume of diesel fuel each year, there may come a time when they consider signing a bulk fuel contract to ensure they have a long-term supply of fuel throughout the year.
Bulk fuel contracts allow companies to buy their diesel fuel at a fixed guaranteed price over a length of time instead of purchasing it regularly at a different price each time. This means a business can order a set amount of diesel fuel that is delivered gradually over the course of 12 months, and each delivery will cost the same fixed price, even if the market price of diesel goes up or down.
For many businesses and industries, this can be a great option to reduce fuel costs, secure a steady supply of fuel, and eliminate the need to shop around every month for the best deal. But is it the right choice for all businesses?
Benefits of Diesel Supply Contracts
Diesel supply contacts are ideal in many scenarios, especially when the cost and availability of fuel fluctuates over time. Some of the main benefits include:
Stable & Competitive Diesel Pricing – One of the biggest benefits of a fixed fuel contract is that it locks businesses in at a low and competitive rate with their fuel vendor. Buying in bulk already lowers costs, and buying in bulk within a contract has the additional advantage of shielding the customer from the fluctuating costs of fuel. This allows businesses the ability to accurately project their yearly fuel costs and not have to adjust their budgets based on fuel price volatility. If fuel prices go up, which they usually do, the customer is guaranteed the lower rate they signed for. If fuel costs go down temporarily for lower volumes of fuel, they could still be saving money due to their low bulk rate.
Predictable Fuel Supply – Another benefit is that businesses are guaranteed the amount of fuel stated in their contract. This means they can plan ahead and not have to worry about running out of fuel at inconvenient times. Even during natural disasters or market shortages, the contract gives the customer a constant and consistent supply of the diesel fuel that is available. This is especially important for emergency response fleets that need to ensure they have diesel at the ready for a quick response.
Time Saved – Businesses will also benefit from the ability to plan for the long term so they can save time in the short term. This means they won’t need to be constantly researching the best diesel prices each month or shopping around for available vendors. Everything is taken care of ahead of time when the contract is signed, including the delivery scheduling and amount delivered. This gives businesses extra time to focus on other priorities.
Cons of Diesel Supply Contracts
The main drawback to fuel supply contracts is being locked in to paying a higher price if fuel prices go down and stay down for a long period of time. This may or may not happen due to the unpredictability of fuel costs, so businesses are taking the risk of potentially paying more than if they were to purchase fuel on a monthly basis.
Another downside is the amount of fuel purchased also stays fixed. When you commit to a certain number of gallons and don’t end up using them all, you are still required to buy them from your fuel company. In these cases, fuel tank rentals can help prevent excess fuel from going to waste.
However, if you buy too much fuel, don’t want to store it, and prices have increased (which they usually will), most fuel companies will happily buy back your extra fuel at the fixed price you paid so they can sell it to others at a new higher price.
What Choice Is Right for Your Business?
Diesel fuel supply contracts are a great option for established businesses that are able to accurately estimate how much fuel they will consume each year. If your company’s fuel needs are unpredictable, a contract may not provide as much benefit.
The best solution for many companies is to buy about 75% of their projected fuel needs through a contract, and then buy the remaining 25% at market prices. This allows companies to enjoy the best of both options – they get the same benefit of stability in pricing without the risk of being left with unused fuel at the end of the year. Buying the remaining diesel fuel at market prices can also save you money if you contact your fuel vendor when prices are low.
If you think a fuel contract would benefit your business, contact our team for a quote today!