Currently the price of fuel in North America is hovering around a non lethal or revolt level.  We all know this will change again at some point… $5 per US Gallon and $1.35 CDN per Litre were not uncommon for a period last year and one thing we can all agree on is that sooner or later this will return; recession or not.

This increase in the price of fuel cost newspaper companies millions of dollars in fuel bonuses, lost carriers due to conflict and consequently lower service ratios and lost customers. Whenever a carrier quits a risk of service interruption exists.  The greater the constant turnover of carriers the poorer the on time delivery service is for a route.  These are common industry observations so nothing new coming from us on this matter.

What is new is that although a continent wide problem and every newspaper is touched by fuel costs in someway or another; our research has found very few solutions being thought through on a practical mid level management basis.  Even Executive level solutions seem to be implemented only as a knee jerk reaction to a carrier revolt than a controlled implementation of a fuel cost management plan.

These are some common efforts used around the country to try and deal with fluctuating fuel costs.  All of which our company has used in newspaper distribution.

Mid Management Level Solutions

• Per gallon or per litre bonus formulas fluctuating with market value fuel prices
• Independent Fuel tracking websites used to bonus or claw back based on fuel fluctuations
• Annual contract obligations with bonding and term rewards to balance the annualized cost of the fuel and not just the fluctuating seasonal trends
• Carrier level bonuses in the form of gas cards written into contracts
• Downloading of responsibilities to distributors to figure out what to do
• Discretionary spending to address the exceptional cases only without any kind of long term planned policy
• Cut off the lowest penetration and rural delivery areas

High Ranking Executive Level Solutions

• Guaranteed Carrier daily contracted rates regardless of pieces delivered
• Deliver multiple non competing products to augment carrier revenues during the same delivery window
•  Deliver multiple direct competition product in the same delivery window
• Sacrifice some service levels and move the inserting process to on the fly bagging and multi section inserting in the field
• Combine routes to larger sizes then push back press times or extend delivery deadlines

There are several others and almost all of them have unexpected downsides… suffice to say that the bottom line through all these ideas is this… there is NO MONEY!

NO MONEY

Newspapers all want to reduce carrier churn, reduce management churn, reduce carrier distribution expense, push the customer service levels up and do it all for less money than last year!

Even if fuel costs were to go down and stay down… the carrier costs are still going up as the penetration of newspaper circulation goes down and the amount of driving required by adult carrier remains the same.  They receive lesser income because of the lower percentage of subscriptions being delivered in the same geographical area.  This is true for free distribution or paid distribution.

The purpose of this posting is not to discuss all the pros and cons of the above operations ideas… although that is a good idea for another posting!

The purpose is to share with this group a program that we have been using in various forms for business development incentives since last August 2008 and the program as delivered on its promises of fulfillment  The application for newspapers and distributors in particular to accomplish what seems like an impossible goal as stated above is very promising.

This program does bring NEW MONEY to the problem, without it costing the newspaper any long term financial commitments and leverages the money currently being spent from a 1:1 ratio up to a 10:1 ratio.  The process is to use a Fuel Rebate Program from a third party vendor.

The Program works like this

Steps

1.                  The newspaper or distributor (or a combination of both) purchases a volume of $300 Fuel Rebate Certificates from the RebateCenter.

2.                  Each uniquely numbered certificate is given to a carrier or trucker.

3.                  The Carrier registers the certificate online and downloads their 12 monthly redemption vouchers

4.                  Each month the carrier mails the redemption voucher to the rebate centre

5.                  The rebate centre receives the voucher and mails them a $25 gift card for the fuel station of their choice

6.                  The program lasts for 12 months to a maximum value of $300.

The newspaper is completely removed from the redemption process.  No new management is required as the entire process works through a third party and you can repeat the process the following year if the program works as well as we claim.

Good Theory – How MUCH?

The cost of the certificates is $21 USD each with a minimum of 100 to purchase.  Graduating reductions begin at 500.

HOW CAN THAT BE?

Simple, in the big picture of the fuel rebate incentive program where many tens of thousands of certificates are sold every week as business incentives all over the country, a certain percentage of people will simply not complete the rebate offer…  I doubt newspapers carriers would be among them… but as an average over the entire program this group is small.  The program works on known averages and ratios.  In addition the rebate centre receives a proof of volume rebate from the oil companies, charges advertisers for site advertising as well as receives affiliate commissions should any of the users of the program purchase anything from advertisers of the site.

THIS IS ALL NEW MONEY!  From someone else’s budget.

Financial Example:

1000 certificates @ $300 value each is $300,000 maximum carrier value. 

Cost to the newspaper or distributor is $19,000. 

Application Example:

If the newspaper had a 10 cent / mile bonus payout when fuel hits $2.88 per gallon, an average bonus cost on 1000 carriers with a 4 mile route would be $400 per day or $12,000 per month in bonus payments.  However, that is only $12 per carrier for a one month period.

So offer the carrier group a change?  Give each carrier a $300 fuel voucher for the rebate program and move the per mile payout from 10 cents to 5 cents.  This is a VERY miniscule movement… what would the daily financial impact be?

Same numbers equals a $6000 monthly bonus payment instead of $12,000. 

Next go and track a study of the daily per gallon cost of fuel for a 12 – 24 month period in your market.  Find out under this formula how many days you would be liable to pay a bonus.  In 2008 that would have been 8 months in most of the USA.  This ONE small change would have resulted in a $48,000 cash savings in fuel bonuses, with a $19,000 cost. 

What if?

Now what if you had 2000 carriers 3000 carriers?  What if your newspaper company did this as a group in multiple markets for 10,000 carriers?  What if the number reduced was 10 cents per mile?  What if you didn’t change the per mile bonus but increased the qualifying level to receive the bonus from $2.88 / gallon to $3.41 per gallon.  Then you would only have had to pay for 2 months in 2008.  Not just in 2008 but every year going forward from now on because you changed the contract?

In addition to all that the carrier group still received $300,000 worth of fuel regardless of what the direct financial benefits were to the newspaper.  That is substantial perceived value.

What if you repeated this process in slow increments for the next 3 years?  How much money could you save your company during a time when all conventional sources of operational savings have been tapped?

From Concept to Commencement

This program can be implement in 30 days or less.  Do it yourself or our company would be happy to do it for you.

Now is the BEST time to either alter your Distribution Fuel Management Plan or make one if you don’t have one; whether you use these fuel rebate programs to do it or not.  The time for this kind of planning is when the price of fuel is low and there is no threat by the carrier group or pressure to perform under duress.  It is easy to giveaway fuel rebate bonuses now when the carrier group is not paying so much for the fuel… you are buying heavy loyalty.  When the price of fuel goes up…and it will… you SAVE real cash costs.

Alternative Program Management Options

There are some variations of the program management we have discussed.

1.                  Distributor manages the program.  Signs up each carrier when they start the program or when they are hired and print out the 12 monthly redemption vouchers and gives them to the carrier to mail in each month.  No further computer is required by the carrier just simply mailing in vouchers each month and a gift card is mailed directly to the carrier.

2.                  Newspaper or Distributor gives the certificate directly to the carrier and leaves them to complete the process.

3.                  Distributor manages the entire process.  Collects receipts from the carriers each month and mails in each rebate voucher and then the carrier gets the card in the mail.  This is the easiest for the carrier and leaves all the control with the distributor to stop the process should a carrier be replaced or should a carrier quit. 

Number 2 is how the program works normally, however, personally, I would pick number 1.  This ensures that every carrier is given the vouchers and signed up properly.  Even the carriers with English as a Second Language (ESL) surely they can figure out how to put a stamp on an envelope to get a $25 monthly fuel bonus.  It takes little to no time for the Distributor or Newspaper to do and the $300 value for the carrier is substantial.  You can also gain control of the carrier churn aspect by issuing the vouchers monthly at the distributor level.

Benefits and Uses for the Newspaper or Distributor

Uses

1.                  Open up a distributor or carrier contract to reduce hard cash costs on existing fuel formulas by increasing the base line per gallon or per litre payout level

2.                  Remove the onus of expectation of extra fuel away from the newspaper and put it on the carrier to further ensure independent status

3.                  Use the long term monthly rebate process to reduce carrier churn.

4.                  Create a new planned method to deal with fuel increases going forward. 

 
Summary

If you would like to discuss this proposed method of dealing with ongoing fuel and distribution operation costs or if you would like to discuss any of the other conventional ways of reducing distribution costs please do not hesitate to contact the Dean Adams via this social network.

Our company can also handle the business case report, and the market by market study of the fuel costs and the savings ratios for your individual markets.

This Fuel Rebate Program is only available in Canada and the USA.  Our company has been sending in the vouchers since last August and has been receiving the fuel cards each month starting after the initial rebate delay period.