By Shane Dyer
As we once again witness a major cyclical decline in fuel prices, the question arises as to what impact it will have on marketing commercial fleet fueling services.
The most obvious impact is that lower prices will diminish the psychology of fear that drives fleets to implement a fuel purchasing policy in order to avoid slippage. The financial impact of 15% abuse is far less at $1.50 per gallon than it is at $4. As a result, business owners are not as inclined to change programs simply for better control. Employee productivity, reduced labor cost during fueling and reporting services will carry more weight in the decision making process.
However, history has shown that in periods of low fuel prices, business owners soften their view on fuel management only to reinstate controls again as prices rise. They need to understand this is not a good approach as it undermines management’s authority. Remember, the process of adopting and enforcing a fuel purchasing policy is a cultural change for any company. If management relaxes and then hardens their positions with the cyclical price of fuel, employees will determine that management really doesn’t care about that policy. This could actually lead to an increase in abuse.
Believe it or not, it’s actually a good idea to adopt and enforce a fuel purchasing policy for the first time when prices are low. It allows business owners to be more forgiving as they work to change the culture to a tighter environment—one that is battle tested and prepared for the time when extremely high fuel prices return. So as you work to educate potential customers on your service, be sure to incorporate these concepts into your approach. Spend less time talking about slippage and more about the benefits of efficiencies and implementing the system as an insurance policy for when fuel prices return to painful levels.
The second major area we see being impacted is in how the major universal fleet card providers charge for their services. Generically speaking, their revenue comes from a combination of merchant fees (interchange) and cardholder/accountholder fees. When fuel prices were high, these companies made more on the interchange and were able to waive traditional fees in order to acquire or defend accounts.
All of that has changed! There has been a major tightening of belts in these companies, including layoffs and restructurings as they prepare to deal with the declining revenue. Their only other method to compensate for the lower interchange revenue is to begin raising the fees they charge their customers. The fact that fees are going to be increased has already been telegraphed in certain earnings calls with investors and most equity analysts are considering this in their financial modeling.
We’ve spoken with several fleet managers lately who are noticing that their waived fees have been reinstated. Others are alleging situations where it seems nearly impossible to pay their bills on time in order to avoid late fees.
Fleets need to understand that the list of how these fees are being assessed is complex and amounts to substantial revenue for the card issuers. For example, according to Fleetcor’s 2014 10-K report: “We derive a significant portion of our revenue from program fees and charges paid by the users of our cards. Our card programs include a variety of fees and charges associated with transactions, cards, reports, optional services and late payments. We derived approximately 66% of our consolidated revenues from these fees and charges during the year ended December 31, 2014.”1
In 2015 they had “derived approximately 72%” of their consolidated revenues from these fees.2
This implies the revenue related to fees greatly exceeds the interchange revenue. As interchange goes down, fees logically have to go up to cover any shortfall. After all, publicly traded companies are being measured primarily by their earnings.
As I’ve stated in past articles, the very best place for fleets to purchase fuel is directly from a petroleum wholesale company that owns and operates their own locations and/or are in participation with other wholesalers allowing mutual access for their customers under a resell agreement. These companies enjoy enough revenue on the sale of fuel in these locations to typically avoid the aggressive fees others are assessing who have to live on interchange.
Recognizing all of this, as you work to deliver this important message to the fleets, consider the following lines of discussion.
- Now is as good a time as any, if not better, to implement a fuel purchasing policy backed by a highly controlled, efficient fueling system.
- Reassess the fees that you think you may—or may not—be charged by a major card issuer.
- Focus on eliminating potential points of irritation related to fees, for example, eliminating late fees caused by received payments not being processed in time, etc.
In the end, fleets need to understand that there is a true value in implementing a qualified commercial fleet fueling solution for their business, even in times when fuel costs are low. They also need to understand the difference between petroleum wholesalers and those who are simply issuing cards that work in the petroleum wholesaler’s locations, and how that affects their total fueling costs. Finally, they need to be careful when selecting a fleet fueling provider to ensure every potential “non fuel” charge is transparent. Avoid those providers who obscure fees in their credit application with general statements and who don’t clearly delineate each potential charge that will be assessed.
With the right knowledge and proper research, a business should be able to find a program that fits their needs and delivers the most value. That value can be related to reduced slippage as a result of system controls, employee efficiencies and increased productivity gained through expedited fueling environments, reporting services, and finally, access to wholesale pricing models. Your job is to help guide them through this process in a consultative manner.
1. Google Inc. (2016). 10-K Report (2014). Retrieved from http://www.sec.gov/Archives/edgar/data/1175454/000119312515073581/d831300d10k.htm
2. Google Inc. (2016). 10-K Report (2015). Retrieved from http://www.sec.gov/Archives/edgar/data/1175454/000119312516485752/d18451d10k.htm
Shane Dyer is the president of PowerUp Fleet, Inc. He possesses over 32 years petroleum automation, operations and executive management experience with a focus on commercial fleet fueling and cardlock networks. PowerUp Fleet, Inc. provides sales force automation/CRM solutions specific to the petroleum industry along with sales training, sales management and executive consulting services. Contact: (541) 388-5120 or email@example.com and visit PowerUp Fleet at: www.powerupfleet.com