A Bigger Fuel Discount Can Still Cost You More Per Gallon

Meghann Erhart, chief commercial officer of Maverik, told a fuel panel at the WEX OTR Summit in late October about a carrier that moved its fuel to a competitor offering close to $1 a gallon off. When Maverik looked at the transaction prices afterward, it found the carrier would have paid 7.5 cents a gallon less at Maverik than it was paying the competitor.

That's one fuel retailer's account of a customer it lost. Erhart's explanation was that the carrier got so excited about the big discount that it missed the higher fuel price underneath. It's worth a fuel buyer's attention, because a fuel discount means nothing until you know what price it comes off.

One theme of that panel, covered by FreightWaves and Truck News, was advice for fleets: judge a fuel deal by its net price, meaning what you actually pay per gallon once the discount is applied, not by how deep the discount looks. Here's how to check that against your own fuel records, whether you hold deals with several networks or carry one card and just got a rival offer.

What a Fuel Discount Comes Off

Most over-the-road fuel deals with a truck stop network or fuel card are built one of two ways:

• Retail-minus: you pay the station's posted pump price, less an agreed discount. Your price moves whenever the posted price moves, so the discount is only as good as the price it comes off.
• Cost-plus: you pay what the fuel cost the supplier, usually a wholesale (rack) price, plus an agreed margin, freight and taxes. No posted price is involved, so there's no discount to point at, only the price you end up paying.

Either way, the net price you pay includes the state fuel tax, just as a posted pump price does. Put a retail-minus offer next to a cost-plus offer and the discount line tells you nothing: one deal has a big number on it and the other has none. Two retail-minus offers can't be compared on their discounts either, because each discount comes off a different network's posted prices, and each network sets its own.

Chuck Ryan, president and CEO of the AMBEST truck stop network, told the same panel that fleets should understand the difference between cost-plus and retail-minus pricing and review their fuel agreements with suppliers regularly, not just once a year.

How a Deeper Discount Can End Up Costing More

Here's how a higher price underneath can swallow a bigger discount, with made-up prices. Two networks each have a station at the same highway exit, so both stations are in the same state, and your fleet has a retail-minus deal with each. Network A gives you the deeper discount.

A network whose posted prices run high can offer a deep discount and still leave you paying more than a competitor's net price.

When the two stations you're comparing are in different states, there's one more step, because of IFTA (the International Fuel Tax Agreement). Under IFTA, fuel tax is owed on the miles you drive in each state, not on where you buy the fuel. Your quarterly IFTA return credits back the state tax you prepaid at the pump. So across a state line, compare the stations on true cost: the net price minus the state fuel tax your IFTA return credits back. We used the same adjustment in our piece on this fall's state diesel tax holidays.

Net Price Depends on Where Your Trucks Fuel

Erhart compared fuel pricing to freight pricing on the panel: a carrier wouldn't quote its best rate without knowing the lane, and a fuel supplier can't either when the fleet won't say where it runs and fuels. She also said fuel economics vary considerably by location, depending on taxes, transportation costs, refinery proximity and supply infrastructure. As Truck News put it, a truck stop a few miles across a state line can have very different fuel economics because of tax, which makes where you buy as important as the discount you negotiate.

Because location matters that much, an offer's net price only counts at the stations your trucks actually pass. A network that's cheapest in a region you never run does nothing for you, however good its discount looks on paper.

Prices also differ from station to station inside one network on the same day, as we showed in our piece on how your route decides what a fuel contract costs you. A network-wide average price, like a headline discount, can hide what you'd pay at the stations along your own routes.

How to Compare Your Current Fuel Deal With a Rival Offer

You can test a rival network's offer against your own fuel records before you sign anything:

1. Pull your fleet's recent fuel transactions. Your fuel card provider's transaction export lists each purchase with its station, date, gallons and the price you paid. It shows which stations your trucks actually use and how many gallons they buy at each, which is what you'll test the rival offer against.
2. Ask the rival network how its price per gallon is built. For a retail-minus offer (a discount off the station's posted pump price), ask whose posted price the discount comes off and how often that posted price changes. For a cost-plus offer (the supplier's wholesale cost plus a margin), ask which wholesale price it starts from, and what margin and freight are added.
3. Get the rival network's net prices at the stations along your routes. Ask for the net price per gallon you would pay after its discount, not the discount itself. Price history for the dates of your past purchases is best but often hard to get. If the network won't provide it, collect its price file, the list of station prices it sends customers, for a few weeks, and compare it with what you paid at your own stations over the same weeks.
4. Pair each station where your trucks bought fuel with the rival network's station that your trucks would pass instead on the same route. Where the rival has no station on that route, leave those gallons where they are and count them as no change. Where a pair of stations sits on opposite sides of a state line, compare them on true cost: net price minus the state fuel tax your IFTA (International Fuel Tax Agreement) return credits back.
5. Weight the price gap at each pair of stations by the gallons your trucks bought there. For each pair, take your station's price minus the rival's, multiply by the gallons you bought at your station, then add up the results. A positive total is roughly what moving those gallons to the rival network would have saved over the period; a negative total is what it would have cost.

The station pairing takes the longest. If that's too much, start with the stations where your trucks buy the most gallons. However far you take it, it answers the question an offer sheet leaves out: what you would actually have paid.

Price Isn't the Whole Fuel Stop

Rob Nordlander, head of business-to-business commercial sales at Circle K, agreed on the panel that net price should be the starting point for fuel buying, but said the whole stop matters too: pumps that work, transactions that go through, and facilities drivers are willing to come back to. A station with the lowest net price on the route saves you nothing if your drivers won't stop there. That's the gap between the planned stop and the one drivers actually make, which we covered in our piece on drivers skipping the planned fuel stop.

Manage to the Price You Pay

In late October, CCJ reported on a fleet panel at Trimble's Insight conference that made a related point. James Grier, director of fleet services at Nussbaum Transportation, said the carrier's main fuel KPI is net fuel expense, not miles per gallon. His point was to measure the cost itself rather than a stand-in for it. At the pump, the discount is the stand-in, and the net price is the cost.

Once you hold deals with more than one network, the question at every fuel stop is the same: which station along this route is cheapest on true cost, and how many gallons should the truck buy there? That's a per-stop question, and the answer changes whenever prices do.

Where OptiMile Pro Fits

OptiMile Pro builds each trip's fuel plan from the price files you upload for each network you buy from, used exactly as you upload them. Each file gives a contracted price per gallon for each station, not a discount, and a new upload replaces outdated prices. By default, OptiMile Pro ranks the stations along the route on true cost, picks the stops and the gallons to buy at each, and texts the plan to the driver.

To see how diesel prices are moving week to week, our diesel price tracker follows the Energy Information Administration's weekly averages.