Minimize Price and Operational Risk

Price Risk Management

 

Avoid second-guessing what the market prices will do next. One of the major factors threatening the growth of any business is the uncertain cost of fuel & energy.

If you do not have the ability to easily pass on an increase in energy & fuel prices to your customers, our price risk management experts provide the insight and data to help you hedge your commodity prices and smooth out potential market price fluctuations. World Kinect helps you assess how much risk is appropriate to take on to strike the right balance between uncertainty (your unhedged supply) and price certainty (hedged supply).

How It Works. Price Risk Management

1: Consuming Less
1: Consuming Less
  • Conduct Energy efficiency audits - the highest cost reductions come from the TWH and gallons not consumed
  • Consider alternative fuel and energy mix (e.g., CHP for onsite electricity production or onsite solar vs the grid)
  • Install fleet and tank telemetry, and use fuel cards to prevent fuel theft
     
2: Managing Commodity Cost
2: Managing Commodity Cost
  • Assess your price risk management strategy to mitigate unexpected price hikes
  • Hedge with fixed-price contracts if budget certainty is paramount
  • Hedge with flexible contracts with the potential to benefit from market opportunities
  • Switch to bigger fuel tanks to stop paying premiums for more frequent deliveries
  • Re-evaluate your current suppliers
     
3: Managing Non-Commodity Costs
3: Managing Non-Commodity Costs
  • Estimate grid cost reduction opportunities
  • Review tax reduction potential
  • Assess all legal reduction possibilities
  • Audit your energy invoices for billing and tariff errors

How it Works. Price Risk Management Models 

Fixed Price Model
Fixed Price Model
  • Customers lock 100% of their fuel or energy consumption at a fixed price from Day 1
  • Pros: Absolute budget certainty. Customers know their exact commodity costs for the duration of the contract
  • Cons: there is a high risk that if commodity prices fall, the customer could pay more than the current open market rate. Moreover, customers pay extra to the supplier to hedge the supplier’s own market risk
  • Best for: customers with low-risk tolerance, requiring a high degree of budget predictability, and looking to maintain a set commodity expenditure
  • Available in regulated & deregulated energy markets
  • Administrative support requirements: medium
  • Budget risk potential: relatively low
Variable (Spot or Indexed) Model
Variable (Spot or Indexed) Model
  • Customers’ fuel or energy prices are tied 100% to the market price; no hedging is implemented
  • Pros: more flexibility by allowing the customers to capitalize on market price fluctuations
  • Cons: no commodity budget predictability, with customers being fully at the mercy of market fluctuations
  • Best for customers with a high-risk tolerance and a low need for price certainty during the energy contract (perhaps because they can easily pass on price increases to their own customers)
  • Available in regulated and deregulated energy markets
  • Administrative support requirements: lower
  • Budget risk potential: relatively high 
     
Flexible Price Model
Flexible Price Model
  • A compromise between the fully Fixed & fully Variable models, where customers purchase part of their fuel or energy at a fixed price (either as a percentage of consumption or a flat load block) and part at spot market rates
  • Pros: flexibility to take advantage of market falls while enabling a certain degree of budget certainty for some portion of the commodity demand. In addition, the block-lock structure allows customers to take advantage of demand reductions
  • Cons: requires adequate ongoing bandwidth to manage commodity pricing as the market moves
  • Best for customers who want to lessen market risk but still retain some price predictability
  • Available only in deregulated energy markets
  • Administrative support requirements: higher
  • Budget risk potential: most manageable 
     

How it Works. Physical vs Financial Hedging 

Physical Hedging
Physical Hedging
  • Instead of being exposed to spot market movements between now and future consumption, the FFP option allows you to fix a fuel or energy price at a certain level for a specific period (typically for 1-3 years).

Key benefits:

  • Removes uncertainty of commodity cost, assisting the budgeting process
  • Provides flexibility of volume delivery across multiple locations
  • Includes option of rolling volume forward (subject to price agreement)
  • Full price upside protection
  • Reduced burden/greater assurance of supply
  • Easy to administer
  • Can avoid margin call risk
Financial Hedging
Financial Hedging
  • The capped pricing derivative protects your business from fluctuating commodity prices, whilst providing the flexibility of benefit from falling prices.

 Key benefits:

  • Known maximum price of your commodity purchases – price increase protection
  • No minimum price required - benefit from lower prices
  • Capped price can apply to volume delivered across multiple locations
  • Financial settlement of derivatives offsets price movements on physical commodity

Why Choose Us?

Don’t gamble with the daily market prices, especially if you are a large consumer of energy or fuel.  Secure more protection against energy price volatility and more predictability for your budget.
 

Stabilized energy spend

Don’t gamble with the daily market prices, especially if you are a large consumer of energy or fuel.  Secure more protection against energy price volatility and more predictability for your budget.
 
Benefit from our deep expertise in physical and financial hedging products, along with a global supply footprint. As a public, Fortune 150 company, we offer a solid balance sheet and act as your transparent and strong financial counterparty partner.

Reliable partnership

Benefit from our deep expertise in physical and financial hedging products, along with a global supply footprint. As a public, Fortune 150 company, we offer a solid balance sheet and act as your transparent and strong financial counterparty partner.
Fully flexible and customized buying options from a full suite of hedging tools/ contracts  (both physical and financial). We always work with you to design price risk management strategies to accomplish the specific needs of your business.

Tailored to your goals

Fully flexible and customized buying options from a full suite of hedging tools/ contracts  (both physical and financial). We always work with you to design price risk management strategies to accomplish the specific needs of your business.
Get help to reach a consensus on risk objectives and a clear go-forward plan across different parts of your organization with diverse objectives. In one unique workshop, we bring together all your relevant stakeholders to discuss the best approach and get their buy-in.

Stakeholder alignment

Get help to reach a consensus on risk objectives and a clear go-forward plan across different parts of your organization with diverse objectives. In one unique workshop, we bring together all your relevant stakeholders to discuss the best approach and get their buy-in.
Do you want to be a market analyst or focus on your core business? We will stay on top of key price drivers and provide ongoing market intelligence & insights. We also provide ongoing assessment of your portfolio & tactical recommendations.

Actionable insights

Do you want to be a market analyst or focus on your core business? We will stay on top of key price drivers and provide ongoing market intelligence & insights. We also provide ongoing assessment of your portfolio & tactical recommendations.

Additional Resources

How can we help you?

Get in touch with us.