Budgetary Targets vs Volatile Fuel Prices – Case Study with HedgeStar and Blue Lacy Advisors
Minneapolis, MN | December 14, 2022 | By: HedgeStar & Blue Lacy Advisors, LLC
Overall Background of case study:
Our client is a major metropolitan transportation authority (the “Authority”) that owns and operates a fleet of buses, subways, commuter rails and other forms of mass transit. The Authority consumes more than 1.6 million gallons of diesel fuel a month with total fuel expense comprising 20% of its budget for materials and supplies. Diesel was a mercurial commodity with annualized volatility ranging from 50-60%. Thus, the Authority was threatened by wild swings in fuel expense that could reach $25-30 million outside of its initial budget. Not only was fuel volatility bad for budgets, but it was bad for reputation as well.
Overal Problem:
Volatile fuel prices threatened the transit authority’s ability to meet budgetary targets every year. The price of diesel represented a substantial portion of the authority’s operating budget and varies at a magnitude and pace that far exceeded the entity’s ability to respond. They started each year at a disadvantage, with revenues from ticket sales covering less than half of their budget, resulting in thin margins and little room for uncertainty.
Email: Sinos@bluelacyllc.com
Phone: +1-832-413-3124
Website: www.bluelacyllc.com
Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.
He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.
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