Fuel Theft — The Costs & Effects
Fuel thieves can profit handsomely from the illegal sale of this virtually identical, interchangeable commodity, while the corporate or government target has to replace the product.
Ernst and Young estimates fuel theft is a $133 billion issue that includes stolen, adulterated and defrauded product. The Eurocontrol Technics Group notes that hydrocarbon theft statistics are likely understated “due to the entrenched levels of corruption and government involvement” and the fact “oil and refined products are among the most fungible substances on earth, which makes it easy for criminals to steal and profit off them undetected.”
When the operation of equipment and the transport of goods are key to a company’s ability to service its clients, fuel costs tend to comprise a significant slice of operating expenses. For example, in 2016, the International Air Transport Association reported that fuel accounted for about 19% of the global airline industry’s operating expenses. In its “2017-2018 Automotive Fleet Fact Book”, the magazine Automotive Fleet stated that the fuel spend continues to make up about 60% of a fleet’s total operating costs.
As well, a 2015 article posted on www.forconstructionpos.com, included this comment from Caterpillar’s senior market professional, Jason Hurdis, “The trend and importance of fuel efficiency for construction equipment will continue to rise. Regardless of fuel prices, fuel costs can be as high as 50% of operating costs, so it still has a major impact on the customer’s profitability.”
There are upfront and hidden costs associated with the theft of fuel from public and private companies, state-owned corporations and government agencies as well as the potential billions in lost revenue and taxes. Some are immediate and obvious, such as the cost of replacing the stolen fuel, while others are less expected and more insidious, with gradual, subtle effects that have a cumulative impact over time.
In some parts of the world fuel is readily available and easily replaced, although the organization’s operating costs will increase resulting in a negative impact on the bottom line. However, in the developed world’s most remote regions and in developing nations, it may be a challenge to securely access and transport the necessary fuel in a timely manner.
Fuel theft’s direct costs:
- Your company is paying a second or even a third time for a product that it did not and could not use
- Your company may be paying more for the commodity because prices fluctuate day to day and even hour to hour
- Your company did not earn a return on that first batch of stolen fuel
- Your company’s managers and operators must focus on replacing that fuel rather than their regular tasks
- Your company may have to delay or suspend operations until that fuel is replaced
- Your company may incur repair and/or replacement costs if dispensing and filling components and/or the fuel tanks are damaged during the theft
- Your company’s loss may be covered by insurance, but if a claim is made, there may be a deductible and eventually increased premiums
- Your company may need to add security patrols and install equipment designed to completely prevent theft and deter thieves
- Your staff must take the time to report the fuel theft to local authorities
Fuel theft’s indirect costs:
- Your company’s reputation and customer service may be negatively affected if the fuel theft presents your company as vulnerable or unable to deliver on contracts and expectations
- Your company’s engines and equipment may be damaged or compromised if the stolen fuel is replaced with kerosene, lubricants or other substances to reduce the likelihood of imminent detection
- Your company’s conscious or unwitting use of adulterated fuels may result in compromised equipment performance or even failure
- Your company’s adulterated fuel may affect the toxicity and volume of emissions and negatively affect the environment
- Your company’s theft situation may have resulted in fuel being spilled on to land or into waterways
- Your company’s employees and customers lives, safety and livelihoods may be threatened by violence, particularly when gangs, organized crime and terrorists are involved