Energy suppliers offer various pricing strategies to assist construction companies in purchasing fuels efficiently.
Here is a list of pricing strategies commonly used in the context of fuel procurement:
Fixed Price Contracts
Fixed price contracts lock in a set price for the fuel over a specified period, providing price stability and predictability for the construction company.
Index-Based Pricing
Index-based pricing ties the fuel price to a specific market index, such as the spot market price or commodity index. The price fluctuates based on changes in the chosen index.
Price Cap Contracts
Price cap contracts establish a maximum price that the construction company will pay for the fuel. If market prices exceed the cap, the company benefits from cost certainty while still potentially benefiting from lower prices if they fall below the cap.
Collar Contracts
Collar contracts combine elements of fixed and floating pricing. The supplier sets a price range (collar) within which the fuel price can fluctuate. This provides some flexibility while capping the maximum and minimum prices.
Loyalty Programs
Some suppliers offer loyalty programs, where construction companies earn rewards or discounts based on their volume of fuel purchases over time.
Volume-Based Pricing
Volume-based pricing rewards construction companies with lower per-unit fuel costs for larger purchase volumes.
Spot Purchases
Spot purchases involve buying fuel at the prevailing market price at the time of purchase. This strategy provides flexibility but can be subject to market volatility.
Fuel Hedging
Fuel hedging involves using financial instruments to mitigate the risk of price fluctuations. Futures contracts and options are common tools for fuel hedging.
Blended Pricing
Blended pricing combines elements of fixed and floating pricing, offering a balance between price stability and market responsiveness.
Bundled Services
Some suppliers offer bundled services, combining fuel supply with related services like fuel storage, delivery, and equipment maintenance.
Fuel Efficiency Incentives
Suppliers may provide incentives or discounts to construction companies that implement fuel-efficient practices or use alternative fuels.
Renewable Energy Contracts
In cases where construction companies seek renewable energy sources, suppliers may offer contracts tailored to renewable fuels like biodiesel or ethanol.
Each pricing strategy comes with its own advantages and considerations. Construction companies should assess their fuel consumption patterns, budget constraints, and risk tolerance to select the most suitable pricing strategy that aligns with their specific needs and goals. Shipley Energy is an experienced energy supplier that can help construction companies navigate the complexities of fuel procurement and optimize their fuel-related expenses. Reach out today for a free strategy consultation!
