Fuel prices are impossible to predict with certainty, so forward fixing isn’t about trying to beat the market. It’s about managing your exposure, spreading risk, and making a decision that works for your business. AF Fuel Procurement Manager Patrick Crehan considers the different attitudes to forward fixing that he's observed in recent months.
“One of the things I find interesting about working in fuel procurement is that you're not just watching the market. You're watching how people react to it. And people react to risk very differently.
“A recent Fresh AF challenge really brought that home to me. We gave the cohort a fuel-buying scenario and asked them to decide what they would do. The result was interesting: almost every single one of them chose to fix at least 50% of their fuel requirement.
“That is quite different from what I often see when speaking to many of the current generation of AF Member decision-makers.”
“Forward buying can be a difficult conversation.
“You can be looking at a price that, historically, represents good value. But there can still be a reluctance to commit. The worry is always the same: what if the price drops after I've fixed?
“I completely understand that. Nobody wants to buy fuel today and then watch as it becomes cheaper tomorrow. Nobody likes feeling that they've made the wrong decision.
“But that is where I think it’s easy to lose sight of what forward buying is actually for.
“It's not about trying to ‘beat the market’. If any of us knew where the bottom was, life would be considerably easier!
“The reality is that nobody knows. You can study the market, follow the fundamentals, and keep an eye on everything that's happening around the world, but something can happen overnight that changes the whole picture. Look at the events of the last 12 months.
"This year, the turbulence we've seen in the fuel market means that the forward fixes we agreed earlier in the year have given those Members price certainty. And although it isn't always the case, some fixed prices have happily worked out to be predominantly below the high daily spot prices we've experienced, as you can see in the graph below showing a fix we achieved for one Member."
For this Member, forward fixing their fuel requirement has given budget certainty and consistently lower than daily spot prices.
“For me, forward buying is about managing risk, not eliminating it.
“You don't have to fix 100% of your fuel requirement. In fact, for many businesses, that wouldn't be the right approach. But fixing a proportion gives you some certainty. You know what you're paying for that volume. The remainder can still be bought against the market.
“You're spreading your risk.
“And that's what interested me about the Fresh AF challenge. None of the cohort appeared to be under the illusion that they could predict where the market was going. They accepted that they couldn't.
“So they made a decision based on what they knew at the time.
“Almost every one of them chose to fix at least 50%. They were prepared to commit to a price for part of their requirement, while leaving the rest open. To me, that's the most sensible approach.”
“Of course, one Fresh AF cohort doesn't represent an entire generation. I'm certainly not saying every younger person will approach risk in the same way, or that everyone currently making the decisions is reluctant to forward buy. But it did make me think.
“Perhaps the next generation is more comfortable with the fact that there isn't always a perfect answer. Perhaps they're more willing to make decisions without knowing exactly what is going to happen next.
“There will always be a reason to wait. There will always be something happening in the market. And there will always be the possibility that prices could go lower. But they could just as easily go higher.
“At some point, you have to decide what level of risk you're comfortable with.”
“And that, for me, is the key point. Buying fuel isn't about getting every litre at the cheapest possible price. Nobody manages that consistently.
“It's about managing your exposure to the market and making decisions that work for your business. The Fresh AF cohort seemed to understand that straight away.
“Perhaps that's a sign of a changing attitude to risk. Or perhaps it's simply a useful reminder for all of us: you don't need to know what happens next to make a sensible decision today.”
If we’ve piqued your interest in forward fixing fuel, and you’d like to talk to us about your upcoming requirements and current market conditions, get in touch.
