Having experienced wild gasoline price swings in the past, John, of John's Trucking, is concerned about gasoline prices in the near future and it's impact on his business. Based on historical activity John calculates that his fleet is doing a total of 30,000 miles of driving a week. John's trucks get an average of 30 miles per gallon - resulting in 1,000 gallons per week of average fuel consumption. John's business is based in New York, with a majority of his trucks traveling to and purchasing fuel in a few states listed under the Central Atlantic region of the U.S.
Upon visiting the GasLimit website and filling in the relevant information - John agrees to a price cap offer of $3.25 per gallon for the next 6 months. The cost for this protection is 12¢ per gallon and John pays the up front fee of $3,120.
1,000 gallons per week x 26 weeks x 12¢ per gallon = $3,120. John's price protection details are as follows:
- Cap - $3.25 per Gallon
- Volume - 1,000 gallons per week
- Term length - 26 weeks
- Location Price - Central Atlantic region
John goes about his business as he normally would, attempting to find the lowest fuel prices, looking for customers and operating his business to the best of his ability. Each week for the next 26 weeks, GasLimit monitors the fuel prices published by the Department of Energy for instances when it is published higher than the Cap.
One month later a Category 5 hurricane rips through the Gulf of Mexico bringing oil production to a screeching halt and driving the price of gasoline up on the third week of the month. However, John has nothing to be nervous about because he is capped at $3.25, while his competitors can only watch the cost of fuel rise. John may end up purchasing only 956 gallons of gasoline that week but his cap covers the full 1000 gallons. That same week, the Department of Energy publishes the survey price at $3.87/gallon for the Central Atlantic region.
GasLimit automatically does what it promised it would do - calculating the credit to John's Trucking by taking the $3.87 published price, less the $3.25 Cap and multiplying the 62¢ difference by 1,000 gallons. The result is a credit for $620 for that week. This credit automatically gets posted to John's account on the GasLimit website and an e-mail is sent to notify him. The same process occurs each week for the duration of the 6-month price cap. All credits are posted monthly to John's company credit card.
RESULT - John has successfully controlled the company's budget and gasoline costs because his maximum cost per gallon on 1000 gallons per week will NOT exceed the $3.25 cap during the term of his agreement.
