What you need to know about fuel price risk management.

What is fuel price risk management?

It's the process of assessing when and how an organisation can best hedge against exposure to fuel price volatility. Fuel price risk management is usually referred to as bunker hedging in the marine and shipping industries, and fuel hedging in the aviation and trucking sectors.

Fuel price risk management services are provided by specialist teams within fuel management companies, oil groups, financial institutions, utilities and trading companies.

Fuel price risk management is a continual cyclical process, with key steps being to establish the financial context, conduct a risk assessment, implement a fuel price risk strategy, and then monitor and review.

Companies can minimise their exposure to fluctuations in the wholesale fuel price by taking out a financial instrument with a third party hedge provider. They agree prices for a specified period with the hedge provider, transferring their risk onto them, and providing the business with greater budget certainty.