Site Lets Small Firms Hedge Fuel Costs

NEW YORK (TheStreet) -- Small businesses hurt by rising fuel prices can follow a risk-management strategy once available only large companies.

Pricelock offers fuel price protection through what is essentially an insurance policy. It is able to offer the strategy by grouping small businesses, cutting costs -- it is done entirely online -- and working with investment banks.
The Pricelock website lets business owners hedge against rising fuel costs; clients pay a fee that protects them when prices rise above the maximum they're willing to pay.

"Essentially we actually aggregate demand from small customers," says Naveen Agarwal, Pricelock's chief operating officer.

How small? Client companies have as few as three trucks or five pickups. As long as a company is exposed to increased fuel prices, they can use the online service, Agarwal says. The strategy has eluded smaller firms in the past, although larger consumers of fuel -- including the major airlines, with the exception of US Airways ( LCC) -- hedge.

"We hedge to protect against volatility," said United ( UAL) CEO Jeff Smisek on Tuesday at the J.P. Morgan transportation conference. "It's an insurance product. It comes at a cost but has value. It's worth doing."

Business owners pay a fee that protects them when fuel prices rise above the maximum price of fuel the owner is willing to pay. They pay only the premium quoted them when they set their limits through the company's website.

Customers use Pricelock's online tool also to set monthly fuel usage in gallons and the length of their contract -- typically six months or a year. The tool calculates a quote and, if at any time during the policy's length national fuel price averages rise above the owner's threshold, Pricelock pays the difference.

"The biggest thing we've seen coming out of 2010 is the volatility that has come back to the fuel market. We're seeing big upswings and big downswings. Make sure you've protected yourself against that volatility," says Liat Rorer, Pricelock's chief marketing officer. "If gas prices go up, we're going to pay you to offset that amount you're paying at the pump. If gas prices go down you're going to benefit by paying less than what is in your budget."

The company has seen a big increase in customers since fuel prices escalated at the end of last year, but Rorer says the risk-management strategy should be used by any company that has fuel costs as a large percentage of expenses.

"The best time to put fuel price protection in place is part of a regular risk-management program as you come into the year doing your budget," she says. "We're really trying to empower the small-business owner to be able to run their business the way large businesses have been run."

Written by Laurie Kulikowski in New York. Ted Reed contributed to this article.

To contact the writer of this article, click here: Laurie Kulikowski.

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