Hertfordshire-based Uno Bus has agreed a fuel hedging deal with Clydesdale Bank.
After discussions with three banks, the company opted to work with Clydesdale Bank through its St Albans Financial Solutions Centre (FSC), formally agreeing the deal earlier this month.
Many existing fuel hedging contracts are set up for users with a minimum annual consumption of fuel, based on the monthly amount of fuel used. However, the agreement can hold risk if fuel prices drop below a pre-arranged price set out in a contract.
The hedged fuel prices relate to the daily rates quoted by the Platt’s index, which is a source of benchmark price assessments for commodities like fuel and metal. This hedged price is agreed at the start of the partnership between the company and the bank and will not deviate with any changes in the market price over the term of the contract.
Uno Group finance director Alistair Moffat said: “After the costs of employing our drivers, fuel is our second most expensive outlay, costing us something in the region of £2m a year, with the prospect of continued increases.”
“When I arrived at the company two years ago, there was no hedging against fuel price increases at all. My background was in aviation where hedging is standard practice and I felt it was something we needed to do. The board agreed and we set about looking for counterparties.”
“We set up the facility 15 months ago and it provides us with a far greater degree of certainty over our outgoings and cash flow.
“Hedging against the rising cost of fuel does not guarantee you a cheap price, but it does guarantee you a fixed price, in our case for up to 12 months.
“That is an incredibly important facility to have for any company with high fuel usage at a time of volatile prices. We are delighted with the way Clydesdale Bank has managed this service and we will certainly be looking at other ways we can work with them.”
Amy Collins, treasury partner at Clydesdale Bank’s St Albans FSC, said: “Now is a good time for businesses to review their fuel purchasing strategy and budgets, given the day-to-day price changes. SME’s in particular can take advantage of this solution by committing to hedging smaller quantities of fuel than have traditionally been possible. Businesses can take out contracts with a minimum length of six months with a fuel consumption of 50,000 litres per month hedged.
“The obvious advantages for these fuel hedging strategies are the benefits of taking the guess work out of budgeting and relieving worries about possible sharp increases in fuel prices affecting cash flow. For businesses where fuel is a significant proportion of costs any increase in price could have a highly detrimental effect on its profit margin.”
“Ultimately SME’s could stabilise their fuel purchases and be in a more secure position to manage their business.”
Uno buses are a familiar sight on the roads around Hertfordshire and further afield on routes to London, Watford, Stansted airport and many other destinations. Founded in 1992 as UniversityBus to provide affordable transport for students at the Universityof Hertfordshire, Uno Bus now has a fleet of almost 100 vehicles which serve many public routes.