Impact of Rising Oil Prices on Road

Transport Operations Management

Prepared for: Glen Morgan

Prepared by: Student Name
June 09, 2019
MEMO

DATE: June 09, 2019

TO: John Smith, CEO

FROM: Student Name

CC: Transportation Management Group

SUBJECT: Effect of rising fuel prices on transport management

As per your recent approval of my research proposal, please find attached my report on the impact of
rising oil prices on the management of road transport operations. I have cc’d the Transportation
Management Group on this report as I feel it may be of value to them.

Please read the attached report and provide me with any feedback you deem pertinent.
Table of Contents
MEMO.........................................................................................................................................................2
Executive Summary.....................................................................................................................................4
Background..................................................................................................................................................5
Introduction.................................................................................................................................................5
Diesel Fuel Prices Chart...............................................................................................................................6
Fuel Consumption Factors...........................................................................................................................6
Management Challenges.............................................................................................................................7
Seasonal Variation...................................................................................................................................7
Maintenance...........................................................................................................................................7
Tire Pressures..........................................................................................................................................7
Technological Factors..............................................................................................................................7
Driver Behavior........................................................................................................................................7
Strategies.....................................................................................................................................................8
Industry Strategies...................................................................................................................................8
Company Strategies.................................................................................................................................8
Conclusion...................................................................................................................................................9
Recommendations.......................................................................................................................................9
References.................................................................................................................................................10
Executive Summary

This report covers issues surrounding the effective management of transport fleet operations in order to
combat rising fuel prices. It includes background data on fuel trends including adjustments for inflation.
The intent of this report is to provide information and recommendations to anyone involved in the
management of road transport fleet operations.

Once the current fuel price trends have been discussed, this report covers the major factors affecting
fuel efficiency with examples and explanations of each factor. There are examples of real-world
management strategies used to create an efficient fleet operation.

Fuel consumption factors are then used to create a list of recommendations for the target audience.
This list of recommendations is broad in nature and intended to focus the target audience so they can
adapt this to their own operations.

Increasing fuel prices is one of the biggest challenges facing the transport industry, and it is critical that
we, as an industry, become familiar with the best ways to mitigate these increasing costs. The ability to
operate efficiently will become essential to operating a successful, profitable business.
Background
Over the past two decades oil prices have been rising at a significant rate (Petroleum & Other Liquids,
2019). The management of road going fleets of commercial vehicles has had to undergo a significant
shift in management objectives and process to try and counter this and remain profitable.

There are several different methods being used to curb excessive spending on fuel, and this report will
focus on giving an overview of these methods. For the purpose of this report the diesel fuel efficiencies
will be the focus, as most large commercial transport vehicles are run on diesel fuel.

This study will focus on determining the changes in management necessary to manage a profitable fleet
in today’s economic climate, as well as providing examples of companies that have managed to bring
innovative thinking to this problem. This research will also provide some information on the trends in
Diesel Fuel pricing.

As the United States of America and Canada are essentially a single market for diesel fuel and transport
networks, entities and information from both countries will be considered for this report.

Introduction
When considering the impact of rising oil prices on transportation management, it is important to
understand that oil prices are the determining factor in the price of diesel fuel.

“The cost of crude oil accounted for about 55% of the monthly average U.S. retail on-highway diesel fuel prices
from 2008 through 2017” (Diesel Fuel Explained Factors Affecting Diesel Prices, 2018). When we consider this, the
link between rising oil prices and rising diesel fuel prices is clear. Increasing diesel fuel prices are therefore a reality
in the management of road transport operations.

Although there is an opportunity to pass some of the rising fuel costs on to customers in the form of increased
service costing, the ability to absorb some of these prices internally gives a well-managed transport company the
ability to increase their customer base through price competitive behaviors. As the price of diesel fuel continues to
rise, innovative management strategies will soon become the norm as new efficiency benchmarks are set within
the transport industry.

As management strategies change to adapt, there is also a change in the technology being used, with an emphasis
on fuel efficiency. “Electronic engines, improved vehicle specifications, advanced vehicle aerodynamics and on-
board monitoring devices contribute to better fuel consumption in heavy-duty trucks” (Fuel Efficiency
Benchmarking in Canadas Trucking Industry, 2016).
Diesel Fuel Prices Chart

U.S. No 2 Diesel Retail Prices Dollars per Gallon

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

(Petroleum & Other Liquids, 2019)

When we look at the chart above, the overall trend is clearly visible. A rise in price from $1.109USD per
gallon in 1995 to $3.178USD per gallon paints a grim picture. Even when we factor in inflation, the
$1.109USD price would only equate to $1.88USD (CPI Inflation Calculator, 2019), clearly the price
increase of diesel fuel is outstripping inflation by a significant amount. There is also no predicted end in
sight for these rises in the price of fuel.

Fuel Consumption Factors

When considering fuel prices and its impacts, it is important to understand the various factors that can
affect the fuel efficiency of transport vehicles, and the overall cost that fuel represents. Major factors
that affect the fuel efficiency of a fleet include:

 Route Planning
 Maintenance of Plant and Equipment
 Tire Pressures
 Seasonal Variations
 Driver Behavior
 Technological Factors

With a mix of human and mechanical factors it is clear that there will be a multitude of different
management strategies that can be employed to combat rising fuel prices. Innovative companies have
already begun to think outside the box, and the results of some of these management strategies have
been extremely effective.

Management Challenges
When we consider the fuel consumption strategies listed above, we can see that there is a mixture of
easily managed factors such as maintenance, and some more challenging aspects such as driver
behavior. There are also some factors that need to be taken into account, but that cannot easily be
managed.

Seasonal Variation
Seasonal variation is an important factor to be aware of. According to the FleetSmart Benchmarking
Study “Fuel efficiency can vary by as much as 5 L/100 km (about 1 mpg imperial) between summer and
winter” (Fuel Efficiency Benchmarking in Canadas Trucking Industry, 2016).

Maintenance
A poorly maintained vehicle will consume more fuel per kilometer travelled than one that is well
maintained. Many companies are adopting shorter service intervals in order to maintain overall
efficiency. This can lead to significant savings. The FleetSmart Benchmarking Study tells us that “regular
maintenance may have improved fuel efficiency by up to 1.5 percent” (Fuel Efficiency Benchmarking in
Canadas Trucking Industry, 2016).

Tire Pressures
Although it may seem like a small detail, correct tire pressures can play a major part in saving fuel. A
vehicle with underinflated tires will use more fuel (not to mention increased cost through tire wear).
Most companies have some sort of tire pressure monitoring policy for their drivers. Of the fleets
involved in the FleetSmart Benchmarking Study “Close to 95 percent of the fleets checked tire pressure
regularly” (Fuel Efficiency Benchmarking in Canadas Trucking Industry, 2016).

Technological Factors
There are many technological components that can be added to, or purchased with, modern trucks.
These components allow for a detailed insight into engine fuel consumption, driver behavior (such as
idle time), and road conditions. The downside to some of these technologies is that they are only useful
if the driver is utilizing them in the course of their operations. In the FleetSmart Benchmarking Study it
was noted regarding fuel performance monitors that “Half of the fleets had installed these devices.
However, they had different opinions on their impact because some drivers did not take advantage of
this technology. When drivers used the information from the devices, fuel efficiency generally
improved.” (Fuel Efficiency Benchmarking in Canadas Trucking Industry, 2016). This is a good example of
driver behavior being an important factor, but one that can be difficult to manage.

Driver Behavior
Driver behavior is possibly the hardest factor to manage well. Although there are many technological
and procedural elements that can be employed to combat rising fuel prices, there is little use in
implementing these if your driver fleet does not use the technology or abide by the relevant procedure.
Engine idle time, vehicle speed and overall driving habits are key to maintaining efficiency. Of the fleets
in the FleetSmart study “Close to 70 percent of the fleets delivered some form of fuel efficiency training
for drivers.” (Fuel Efficiency Benchmarking in Canadas Trucking Industry, 2016).

Strategies
After considering the above factors affecting fuel costs, the next logical step is to talk about some of the
strategies being employed within the transport industry to combat rising fuel prices. There are both
company specific and industry wide strategies being employed at the time of writing.

Industry Strategies
Within the transport industry, there is a wide range of knowledge and experience available. One of the
most important things a transport provider can do is to measure their fuel efficiency and benchmark it
against other providers. This allows for a critical analysis of their fuel efficiency practices to be
conducted, and opportunities for improvement highlighted. With this in mind, the United States
Environmental Protection Agency Launched SmartWay in 2004. SmartWay “provides a comprehensive
and well-recognized system for tracking, documenting and sharing information about fuel use and
freight emissions across supply chains” (Learn About SmartWay, 2017).
Although SmartWay was initially a United States initiative, it now has Canadian companies actively
participating. As of the time of writing “There are 323 participating trucking companies and fleets from
Canada, about 10 per cent of the 3,200 North American total. In 2014, more than 250 Canadian trucking
companies with over 32,000 trucks registered in SmartWay” (How Canadas trucking industry is
improving fuel & environmental efficiency, 2015).

Company Strategies

One extremely innovative approach to saving fuel is an approach that was introduce by UPS. After
analyzing route data and fuel usage data, UPS made a startling discovery. They found that the shortest
route between two points was not necessarily the most fuel efficient. Trucks idling while waiting to
cross over intersections continue to use fuel, even though they are not covering any actual distance. By
taking only righthanded turns and having the most efficient use of their routing software UPS has
significantly decreased their fuel consumption. “UPS's routing software shaved 20.4 million miles off
their routes last year* while delivering 350,000 more packages.” (Shontell, 2011)

UPS has also become an industry leader in the search for new technologies to help in the fight for
efficiency. This also sees UPS updating their fleet to include new vehicles that run on alternative fuels.
“In 2017, 12 percent of our new vehicles purchased – more than 1,190 vehicles – were either alternative
fuel or advanced technology. A total of 21.8 percent of the conventional diesel and gasoline fuel
previously used by UPS’s ground fleet is now being replaced by alternative fuels including renewable
natural gas and renewable diesel” (UPS Fuels and Fleets, 2019).

This multifaceted approach covering both on the road driver behavior and technology is a good example
of the savings that can be obtained through the innovative management of fleet operations.

“*The 20.4 million figure is not just from making right-hand turns. It is the total miles the routing software helped UPS save last year in all
capacities” (Shontell, 2011).
Conclusion
We can see from the above discussion that there is a definitive cost increase of fleet operations due to
increasing oil prices. It is also clear that significant energy is being spent within the transport industry to
combat this, both as an industry as a whole, and by individual companies. It is vital that anyone involved
in fleet management is aware of the factors that will affect their fleets efficiency. After considering the
challenges facing the industry, and the solutions being found, the next section of this report will cover
the recommendations.

Recommendations
The following are recommendations for anyone involved in fleet management:

1. Obtain as much fuel usage data from your own fleet as possible and collate this data.
2. Begin benchmarking against industry leaders wherever possible. SmartWay membership may be
a viable option for this (Learn About SmartWay, 2017).
3. Assess viable technological options for your fleet (Fuel usage monitoring devices, upgraded
engine management systems, tire pressure monitoring systems etc).
4. Initiate a driver training program in fuel usage minimization.
5. Assess your vehicle maintenance program for maximizing fuel efficiency.
6. Look at route planning process to ensure best routes are being produced and followed.
References
CPI Inflation Calculator. (2019). Retrieved from U.S Dollar Inflation Calculator:
http://www.in2013dollars.com/

Diesel Fuel Explained Factors Affecting Diesel Prices. (2018, August 22). Retrieved from U.S. Energy
Information Administration: https://www.eia.gov/energyexplained/index.php?
page=diesel_factors_affecting_prices

Fuel Efficiency Benchmarking in Canadas Trucking Industry. (2016, April 28). Retrieved from Natural
Resources Canada: https://www.nrcan.gc.ca/energy/efficiency/transportation/commercial-
vehicles/reports/7607

How Canadas trucking industry is improving fuel & environmental efficiency. (2015, July 05). Retrieved
from Canadian Fuels Association: https://www.canadianfuels.ca/Blog/July-2015/How-Canada’s-
trucking-industry-is-improving-fuel-environmental-efficiency/

Learn About SmartWay. (2017, December 19). Retrieved from U.S. Environmental Protection Agency:
https://www.epa.gov/smartway/learn-about-smartway

Petroleum & Other Liquids. (2019, June 3). Retrieved from U.S. Energy Information Administration:
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?
n=PET&s=EMD_EPD2D_PTE_NUS_DPG&f=A

Shontell, A. (2011, March 24). Why UPS Is So Efficient: "Our Trucks Never Turn Left". Retrieved from
Business Insider: https://www.businessinsider.com/ups-efficiency-secret-our-trucks-never-turn-
left-2011-3

UPS Fuels and Fleets. (2019). Retrieved from UPS: https://sustainability.ups.com/fuels-and-fleets/