For UK transport businesses, managing risk is essential to long-term success. One of the biggest risks faced is fuel prices volatility.
Fortunately, fuel hedging can be an effective strategy to help you manage this risk.
While hedging is a powerful risk management strategy, it requires a long-term approach for success.
While it may not provide immediate results, research conducted over the past few decades show that it offers tremendous benefits over longer time frames.
One such paper, published in the Harvard Business Review titled “A Framework for Risk Management” shows that hedging can:
- Be an effective tool for risk management.
Help to reduce or eliminate the risk associated with adverse price movements by using financial instruments.
- Help to reduce the volatility of a company’s profits and losses and provide a more predictable financial outcome.
- Be used to protect a company’s operations from potential disruptions and to minimize the cost of capital by taking advantage of favorable market conditions.
By using financial instruments, hedging can help you reduce the risk associated with adverse price movements, minimize the volatility of your profits and losses, and protect your operations from potential disruptions.
It is true that in some years, hedging may result in paying out, while in other years, it can bring substantial gains. However, the key takeaway is that hedging enables you to implement prudent strategies that allow you to predict and manage your business risks more effectively.
By consistently employing hedging tactics, you can significantly reduce your exposure to market fluctuations and achieve greater financial stability. In essence, hedging is not just a quick fix solution, but a reliable and proven method for ensuring long-term business success.
Fuel hedging can provide a more predictable financial outcome, allowing you to plan more effectively for the future. This is particularly important in the transport industry where fuel is a major cost driver. By locking in fuel prices ahead of time, you can avoid the volatility of the market and stabilize your operating costs.
Moreover, fuel hedging can help you minimize the impact of unforeseen events such as geopolitical tensions or natural disasters that can disrupt fuel supplies and cause prices to spike. By having a hedging strategy in place, you can protect your business from these external shocks and ensure business continuity.
Read the full article here: https://hbr.org/1994/11/a-framework-for-risk-management
To find out how hedging can support your business, please get in touch with one of our experts today