K-Ratio Diesel Hedge Program Case Study
A Tale of Two Roads Traveled by Carriers
“Nothing is more expensive than a missed opportunity”
– H. Jackson Brown
The K-Ratio Diesel Hedge Program provides an opportunity for participants to secure and stabilize its fuel spend, as diesel rates experience historic lows in price. With this product, K-Ratio’s customers have a tool that now allows them to lock in fuel rates for an extended period of time using financial instruments.
In April/May of 2020, the price of diesel dropped 70% since the start of the year to historic 4-year lows. This presented a substantial opportunity for carriers and shippers alike to take advantage of these incredibly low rates.
Two Carriers, Carrier A (Mid-size) and Carrier B (Top 10 largest carrier in the US), were both among those who listened to the 15-minute K-Ratio Diesel Hedge Program sales pitch early on. The pitch included program highlights, including:
Ability to lock-in the low diesel prices for up to 12 months into the future
If diesel price rises, K-Ratio remits a monthly return to the customer to offset the higher fuel expenses they experience at the pump
If diesel prices fall, there is no further financial obligation (outside of the original monthly premium) and the customer can still take advantage of the lower fuel prices
While both were open-minded to the program, they took divergent paths. Carrier A, after discussing with key stakeholders, decided to proceed. They hedged 500K gallons per month for their 350 truck fleet for 8 months. As a result, Carrier A has received over $290K a month in the first two months of the program. These proceeds moved directly to their bottom line to help counter the higher diesel prices they have had to pay at the pump as prices moved upward. For the remaining 6 months, these clients, barring a new downturn in price, will receive similar monthly payments back from K-Ratio.
The C-Level Executive at Carrier B who listened to the pitch had significant internal red tape and approvals necessary to move forward with the program. In the end, unfortunately "board approval" was not obtained. It turned out to be an expensive missed opportunity as Carrier B would have been in position to secure $3.8MM in returns remittance per month for the remainder of 2020, providing almost $32 million in bottom line performance.