Originally Posted by what the
When done incorrectly (i.e. hedging 100% of your fuel requirements) it is speculative gambling in my opinion.
Heding 100% gives you cost certainty. Sure, if the price drops you pay too much, equally if the price rises you pay less. But the key reason for 100% hedging is to give you a fixed cost for one of your critical input costs so you can plan accordingly. In theory 100% hedging makes a lot o fthings much easier, the methodology for payment is quite simple - volume is the only variable and given the nature of the business that is reasonably predictable which means the budget and cash flow for fuel is also predictable. No need to check to see if your provider has correctly allocated the cost of fuel for the given point in time, it's the same number regardless. Plenty more efficiencies there as well, hedging does a whole lot more than just lock in the price, it simplifies a lot of back room processes as well.