Modern life is squeezing the UK fleet industry. Britain’s top leasing companies run nearly 20% fewer vehicles today than they did in 2008.

There are many reasons why business is not as usual for fleets. One fundamental issue is that fleets have a growing problem with the supply – and therefore the cost – of fuel.

Here’s why – a not-to-scale graphic that charts four trends which, together, significantly affect the price of conventional road fuels.

Oil export vs domestic consumption chart

Since around 2004, the global supply of crude oil (not to be confused with ‘all liquids’, which includes stuff you can’t turn into fuels) has been virtually flat. That’s the black line on the chart. In the meantime, the oil-producing countries are using more and more of their own oil themselves each year (the brown line) for power, cooling and transport.

Combine flat production with rising domestic demand by producers and you obviously end up with less oil available to importers. That’s the red line. If you’re an oil importing country like the UK, and fewer export barrels are available, you’ll either have to use less oil or pay more to secure the same share as before.

Fourthly there’s the global vehicle parc, which is still growing at a rate of knots as developing countries gratefully get into happy motoring. There are about 35% more vehicles on the planet today than there were 15 years ago.

If you simply extrapolated today’s oil production and consumption trends out into the future, China and India alone would consume 100% of all available oil exports by 2030. Yes, that’s 17 years from now.

Needless to say, it won’t happen quite like that. But it doesn’t take a genius to work out what level of oil price will be needed to achieve a market distribution of liquid fuel when many more players are competing for much less product.

Shrinking

Fleet in the UK is 99% dependent on liquid fuel. So how is it responding to the slow decrease in availability of oil exports? As you’d expect, it’s shrinking.

  • The total leased fleet run by FN50 leasing firms has declined by 17% since 2008 (Fleet News)
  • Professional and managerial drivers have slashed their business mileage (RAC ‘On the Move’ Report 2012)
  • The number of company car BIK-payers has fallen below a million for the first time in 30 years (HMRC)
  • Companies are turning their back on fleet departments; absorbing the function into HR, Finance and Purchasing (Alphabet Fleet Management Report 2012)

The offsetting factor to high fuel prices is the increasing fuel efficiency of new cars, which is 20%-25% better than a decade ago. However, that’s clearly not been enough to allow fleets (or the UK economy as a whole) to carry on as before in the face of $100-per-barrel oil.

What next?

The future of liquid fossil fuels is clear. Less production. Higher prices. Forget the claims you read for ‘unconventional’ sources like tar sands and shale oil. The ‘technically-recoverable’ reserves of these resources are indeed vast but their processing costs are huge and the all-important flow-rates are relatively tiny. The best that shale oil, etc. can do is to marginally slow down the decline in oil exports and rise in prices over the next decade.

Surface transport can and will move away from liquid fuels. However, transport-reliant businesses in the UK do not have time on their side. The years around 2020 look likely to be something of a bottleneck for UK fleet operators, with very high petrol and diesel prices, insufficient electric vehicle numbers and charging infrastructure, and continuing tough economic conditions (which are an unavoidable effect of winding-down energy consumption in an advanced technological economy).

The bottom line is that the market has no interest in saving the conventional fleet model – the one predicated on plentiful, cheap liquid fuels. In fact, the market is ready to price many such fleets out of existence over the next 15 years.

This series of blogs is about why that is the case, how it will happen and what organisations can do about it.

Coming up next: Fleets and the end of ‘waste’.