THOUGHT LEADER
A Purchasing Method Worth Considering: The Fixed Forward Fuel Contract
Written by Robert T. Pudlewski F
uel cost and fuel economy are always on the mind of school bus operations managers. With all the excellent business practices and school bus options promoting fuel efficiency, why don’t
we take a moment to consider the idea of a fuel purchas- ing strategy to manage the volatility of fuel price and delivery during the school year. Fix the price on a portion of your budgeted fuel pur- chase for the school year on a large portion of fuel and lock in on guaranteed delivery volumes to reduce the risk of a volatile fuel market. This practice is called a fixed forward fuel contract, the focus of this article.
Background When I was vice president of purchasing for a large school bus operator, we used the fixed forward fuel contract process to lock in a portion of our fiscal year fuel supply. With the help of a supplier partner, we timed the optimum opportunity and entered into a contract to lock in fuel prices, and deliver a percentage of our total fuel usage for the upcoming school year. In doing so, we also left room in our annual fuel budget to withstand any potential downward trend in market price volatility. Because of our fleet size and geographic footprint, it was not practical to enter a 100-percent supply purchase contract. We fixed only 50 percent of our fuel needs. During our first year of the fixed contract, we did
experience unexpected volatility in market pricing. Because we had locked in pricing and delivery guaran- tees on a significant volume of our fuel and budgeted that fixed cost, an unexpected fuel price increase on the non-contract fuel was offset by the lower contract rate. Our operating budget was achieved for the fiscal year. What did we learn? A typical fuel fixed price contract
determines a set price per gallon delivered for a specified amount of time agreed upon by both parties. Fuel prices may fluctuate during that time, but the quantity and price you pay per gallon stays the same, due to the fuel contract in place. This guarantees supply and contributes to man-
52 School Transportation News • MAY 2025
aging a budget and saving on overall fuel expenses. By embracing this type of fuel purchasing practice and
leveraging OEM technology solutions, school bus oper- ators can enhance operational efficiency, reduce costs and achieve their sustainability objectives in a changing energy landscape.
Components of a Fixed Fuel Price Contract Whether you are purchasing diesel fuel, gasoline, pro- pane, or another refined product, a fuel contract involves both a buyer and a seller. You, as the buyer, determine the average amount of fuel you need when and where. The seller guarantees timely delivery. When you enter into a fuel contract, understand your fuel needs. Daily, weekly and monthly consumption is key to avoiding overprom- ising or exceeding expected usage. It is never a good idea to contract 100 percent of your expected volume. Confidence in your supplier is also a key aspect of
entering into a fuel contract. Your supplier will help you to understand all the price components. The seller will provide you with a quote that should be based on the delivered price per gallon. The price per gallon can vary by location depending
on the type of fuel you need and market delivery condi- tions, such as crude oil pipeline cost to refineries, cost to ship to distribution storage tanks and delivery tanker cost from fuel storage terminals to your location.
Benefit No. 1: Decrease Volatility of Fuel Costs, Delivery When you enter a fuel contract with a seller, you can spend less time worrying about fluctuating fuel market prices and availability. A fuel contract can help ensure you always get fuel
even when supplies are running low. When refineries or pipelines go down, it can cause scarcity and sky-high prices for the smallest of quantities. A fuel contract helps you lock in at a certain fuel price or price range, partic- ularly when fuel market fluctuations may lead to higher prices for others.
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