Richard Schooling’s Blog: 7 January 2008

On the up

New car sales in China are expected to rise 16% in 2008, I read today. That’s great for Chinese car dealers but not such comfortable news for UK fleet operators.

Petrol and diesel prices over here will stay high unless crude oil retreats substantially from its current price of around 100 dollars a barrel (or 31 pence per litre in English money), which is being driven in large part by soaring demand from emerging giants like China and India.

Worryingly, none of the usual things that should happen to bring down high world oil prices are taking place. OPEC is resisting pleas to open the taps wider. Consumer demand for road and heating fuels has not been noticeably dampened by higher prices.

Some analysts are wondering whether worldwide oil production is entering a phase where it struggles to keep pace with demand.

If that is true, fleet fuel bills could soon skyrocket beyond their already high level.

Part of the problem is that oil firms slashed investment a few years ago when oil fell to 20 dollars a barrel or less. Now they are critically short of the people and equipment they need to find and extract more oil.

That’s not a problem anyone can fix overnight.

More costly oil will drive up businesses’ costs across the board. Fleets are the key area where firms can directly mitigate the impact on their bottom line, as petrol prices seem set to stay above the £1 a litre mark in 2008 and maybe even rise by five or 10%.

Vehicle acquisition policy will be critical, because today’s purchasing decisions “lock in” fuel consumption and CO2 emissions for typically three years ahead. Maximising the fuel efficiency of all vehicles used on business will be a vital element of management.

Sustainable approaches to fleet are no longer just a ‘nice to have’. Policies can be built around ‘holistic’ funding solutions, which deliver a flexible mix of company-funded vehicles and employee car ownership to widen the choice of vehicles and apportion the financial risk of rising fuel costs if drivers decide to ignore the need to economise.

Oil could break the previous record price, equivalent to 104 dollars, set in the Eighties, at any time. The fleets that will be best placed to meet this challenge are those that take action now to align their vehicle acquisition strategies with their travel management needs and whose vehicle suppliers understand that the management of fuel and carbon emissions begins long before a car is ordered, let alone when it gets to the fuel pumps.