Friday 18th Aug 2017 - Logistics & Supply Chain

The shocking truth

Here’s a heartening and timely little tale. During the past year, RWE Thames Water, the UK utility, has saved 161,000 litres of fuel – 10 per cent of its normal usage – by managing its fleet of 1,150 vehicles better.

OK, so the saving is modest but at a time when oil prices are heading inexorably north, any saving is worth pocketing. Thames reduced its fuel use by installing a GPS-driven tracking system which enables controllers to schedule vehicles more efficiently. Not rocket science these days, but I sense there are quite a few companies around that are not making these kinds of fuel-saving investments in the hope oil prices will come down.

Perhaps they will but experts are far from agreed on where the oil price will go next. I’ve been talking to a couple of economists who have diametrically opposed views on the question of the oil price shock. Julian Jessop, chief international economist at Capital Economics, is the optimist. He says: ‘Oil prices are unsustainably high. They won’t still be at $70 a barrel in a few months’ time.’

But Jessop is prepared to concede that the days of $25 a barrel oil are probably gone for ever. ‘The sustainable level of oil prices is now probably $40 to $45.’

A perfect storm
He says the present price spike is caused by a perfect storm of three factors – strong demand, supply problems and ‘a lot of speculative pressure’. He says: ‘It’s impossible to quantify how much of the rise in prices is speculative but probably at least $10 a barrel is pure speculation. This could be shaken out very quickly.’

Possibly, but Andrew Oswald, professor of economics at the University of Warwick, is the pessimist and is not so convinced. Oswald has made a special study of the economic impact of previous oil shocks in 1974 and 1979.

He says: ‘I expect high oil prices to persist.’ At the $70 a barrel oil touched shortly after the Hurricane Katrina disaster? ‘It’s not possible to say but the days of $20 are gone for ever. It would be much more sensible to plan for $70 but exact forecasting is impossible, partly because it depends on the politics of the Middle East.’

As George Bernard Shaw once remarked: if you laid all economists in the world end to end they wouldn’t reach a conclusion. So it’s perhaps not surprising even specialist energy market watchers take opposing views. But it’s also clear they are agreed the days of cheap fuel are gone for ever, though they remain at odds over where the new price will settle. Logistics professionals who continue to hanker for a cheap tankful are simply doing an ostrich act.

Future needs
All of this should have logistics and transport managers taking a fresh look at some basic issues. First, is the structure of the fleet, what the business needs in the future? Does it have the right mix of vehicles to perform the tasks required of it in the places where it has to go? It’s surprising how often this fundamental question is overlooked if only because many medium-sized and even large fleets grow on a piecemeal basis.

Second, is the fleet being well maintained in order to ensure vehicles are operating so as to use as little fuel as possible? Poor maintenance adds significantly to fuel consumption. Paying for better maintenance may seem like another unwanted extra cost but with fuel costs rocketing the maintenancefuel cost equation has changed in favour of the former.

Third, is your route planning as effective as it can be? Again, it’s easy to get stuck in a routine of following certain routes and procedures irrespective of whether they still meet optimum needs. Technology such as route planning software and vehicle tracking has moved on a lot in the past couple of years and, like Thames Water, it could be worth taking another look.

Finally, what about management information of fleet operations? Is the company collecting the right kind of performance data to allow it to see what’s going on? In particular, do its management information systems allow it to monitor the fuel efficiency of specific vehicles in the fleet so it can spot problems and put them right?

None of this is especially difficult, but it does take time. Rising fuel costs could make it time well spent. And, anyway, best to get on top of the issue before the board starts asking awkward questions – as they surely will if high oil prices continue.

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