Marine Atlantic’s Fuel Purchasing Practices

by Darrell Mercer

As a follow-up to our original blog related to the fuel surcharge, we have received inquiries regarding our fuel purchasing practices. Given the fuel volumes required to operate our service and traditional cost swings associated with fuel, we have a program in place with the goal of providing a stable pricing model for our customers over the longer term.
Fuel is a significant operating cost for us on an annual basis. This year, we expect to spend more than $31 million on fuel. Therefore, to bring stability for us and our customers we go into the market and negotiate the purchase of fuel in advance. The actual cost is based upon a formula which includes the cost of market price on the day that it is delivered to our property via tanker.
At present, we have purchased approximately 70 per cent of our fuel consumption for our fiscal year which ends on March 31, 2015. This fuel is currently in our holding tanks. We are also in the process of switching from bunker C fuel to the more expensive diesel fuel to meet international regulations that require us to use 100 per cent diesel by 2018. This switch will mean significantly higher fuel costs than we currently experience.
As a result of these bulk purchases and our requirement to switch to more expensive diesel,  we have not experienced the significant decline in prices currently being witnessed on the stock exchange. In fact, our price per litre is 11 per cent higher than last year. However, with active management of our schedule as well as use of shore power when our vessels are not in service we have been able to reduce total consumption by 5 per cent enabling us to maintain the current fuel surcharge.
It is hard to predict where fuel prices are headed for the long-term, however, if costs remain low it will help us minimize the amount of fuel surcharge required to be passed along to our customers, especially as we work to meet our requirement under the new environmental regulations.  We will continue to monitor fuel prices and our surcharge to determine what changes, if any, may be required.