How to Build a Better Benchmark
When you’re in charge of purchasing large volumes of fuel on a contract basis, you want to be sure you’re spending those dollars responsibly. Putting out a request for proposal (RFP) for fuel acquisition could be considered the epitome of the adage, “Trust, but verify.”
Before you agree to a contract index, you must ensure the index represents an accurate market view, and you need a report you can trust. Let’s examine why a rack price benchmark is essential and what it needs to earn — and keep — your trust.
Why you need a benchmark
You might say to yourself, “Why give me more work to do? I look at the pricing, make my decision, and move on with my day.” That’s understandable; you’re running a large organization, and many items vie for your attention. But think about it for a minute: would you sign a contract without performing due diligence on the other party to ensure they can fulfill the terms of the agreement? Of course not. The same principle applies here. If you don’t compare your fuel price with a validated rack benchmark, you could end up overpaying. And for large fuel purchases, the difference in money can raise eyebrows. It just makes good business sense to incorporate rack fuel price benchmarking as a best practice for your organization.
Eliminate incorrect prices
Now, let’s dive into how you can evaluate a fuel price benchmark. First, it can’t rely solely on self-reporting processes that are manual or coming from sources other than those actually creating the prices. Human judgment, bias, or just plain error can result in incorrect rack contract averages. Instead, a rack contract benchmark should depend on pricing data collected directly from the source: the suppliers who share their prices with customers or post them publicly. Further, it should collect pricing information automatically, eliminating delays and mistakes. In addition, no reliable benchmark should include tiered pricing or discounted prices for product being re-sold by an intermediary; they are only available to specific customers and are not likely available for actual purchase by anyone else. Including such special fuel pricing presents a false standard — a critical flaw in a rack price average benchmarking tool.
If it’s too good to be true…
Next, a reliable fuel pricing benchmark needs to be scrupulously vetted by its provider. Report authors must be unafraid to question the data. Why does that matter to your contract price validation efforts? Because a reliable benchmark cannot contain outliers — pricing far outside the average, either higher or lower. It must eliminate them before they can affect the average. The benchmark you can depend on has that level of mathematical rigor.
Complete and convenient
The best benchmark is also time-sensitive and contains all available prices at every terminal from which you may want to lift. If it only includes the lowest price in a city or the price at the city’s primary terminal, that average won’t reflect the entire market. There should also be options for when you want your contract time to begin. If you want to lift at midnight, you need a benchmark to capture changes effective as of 6 p.m. If you’re lifting late in the day, however, the previous midnight report won’t do you much good; you need a more recent list. Your benchmark should be convenient and ready for you to use before you make dispatch decisions regarding your contract liftings.
But what about…
Your market is dynamic, and so are your fleet’s needs. Even when a rack price report is reliable and available, if it doesn’t give you flexible options, you could be missing opportunities for savings. For example, maybe you don’t want the rack-low average after all. You might prefer the branded benchmark, the unbranded one, or whatever best allows you to save money. Most importantly: all those other benchmarks are offered using the same rigorous methodology. The superior rack price report doesn’t box you in. Rather, it gives you an extensive, bird’s-eye view of your available options.
If there’s ever a question about rack price averages, or how those averages are calculated, you need answers, fast. The market doesn’t wait, and you can’t afford time wasted trying to sort out any confusion. Your rack pricing benchmark must have a crack team backing it up, available for solutions and support.
The better benchmark
This all makes for a tall order of rack contract average reporting needs. Fortunately, DTN already thought it through and created the industry’s best rack pricing benchmark tool. DTN FastRacks® is the fastest, most accurate fuel rack pricing data source. You can confirm your contract average or index with the published index at 6 a.m. And with alerts for changes, you’ll never be out of the loop regarding market moves during the day that might affect your lifting decisions. More than 98% of our rack price data comes directly from the source. When you compare your benchmark price to a DTN FastRacks report, you can be sure you’re getting your agreed-upon price.
See for yourself
Feel the confidence better rack contract fuel price benchmarking provides. Request a sample DTN FastRacks report today.