Fuel Hedging: Risky Business or Risk Management?

ith diesel fuel prices at sky-high levels and volatile, some large shippers are joining for-hire fleets in seeking cost stability by turning to buying and selling options on financial futures contracts — or hedging.

Trading complicated financial instruments — usually on the New York Mercantile Exchange — does carry some danger, but transportation managers who do hedge say they are engaging in an essentially cautious activity. When conducted properly, they say, hedging is risk management, not gambling.

“Hedging is insurance, and we need to treat it that way,” said Mark Hazelwood, executive vice president of Pilot Travel Centers. “Insurance is about catastrophe,” he said in a recent presentation to shippers sponsored by the logistics firm Transplace Inc.