Hurricane Katrina blew through the Gulf Coast and left a wake of considerable destruction. Then, “she” left us alone to clean up the mess. Within our own industry, the petroleum business has its own hurricanes albeit with lesser-known names that, unlike Katrina, continue to blow. For us industry watchers, the names are Hurricane Transportation, Hurricane Supply and Hurricane Taxes. While these storms are not visible on the Doppler we watch for the highs and lows of atmospheric temperatures, they do pop up every day on the business and financial radars. $70 a barrel for oil isn’t the only reason we’ve seen cost increases, it’s just one of the reasons. Let’s take a look at these storms.
Freight rates have risen steadily for the past several years and for several reasons:
- Driver pool is shrinking due to in-depth background checks, stringent license requirements, and driver unwillingness to attend terminal safety classes. This drives salary increases which, in turn, drive up fuel cost.
- Terminal to terminal supply issues cause drivers to wait in line only to find out the customer is out of credit or the terminal is out of product, which forces the driver to go elsewhere to get the truck loaded.
- Fuel surcharge is approaching 30 percent.
- Fixed insurance rate is at 4.55 percent.
The trick in being unbranded versus branded is having multiple suppliers and then having the ability to pull product off of multiple racks. Traditionally, it made good sense to pull product off of the closest rack. However, the most profitable operators seem to pull product off of the least expensive rack. On top of that, credit limits haven’t gone up incrementally with the price of fuel, so having many suppliers is a necessity.
In order to get the best delivered price, operators must compare laid in delivered prices with every expense. Expanding the search parameters for delivered fuel could mean processing thousands of prices.
Crossing state lines and looking for the best deals in delivered fuel is a big part of a marketer’s business. Forgetting to include import/export fees can make the difference between profit and extreme loss. Using automation to track all the variables that make up the entire pricing profile is paramount to being a successful marketer — it’s key.
We’ve all seen prices posted on product racks that have limited supply. If the product is unavailable then it doesn’t do anybody any good to see those prices. Knowing about consistent supply problems by charting this information is helpful, particularly when it comes to preventing wasted time at a closed terminal.
A system should be able to calculate the best available delivered price from the address where a load of fuel is needed to a terminal with the lowest price. As an operator, being able to see the cost of the product, freight, and all fees and taxes to establish a delivered price per gallon is critical. The program should also have all of the carrier freight rates loaded into the system.
For an operator, if a gallon per hour rate can be established and a determination that there are at least 16 hours of inventory in the tanks, then the next question arises, “Where can we find the lowest cost available fuel that can be delivered in 16 hours or less?” i.e. “just in time” inventory.
In a perfect world, a software solution should be able to take care of a long list of fuel cost and availability tracking plus the accounting team as well. A system should provide a near to paperless process. An automated fuel system should benefit an accounting department by:
- Reconciling supplier invoices
- Capturing bills of lading
- Receiving invoices
- Importing supplier pricing information
- Automating account payable and general ledger entries
Supplier day deals that were offered over the phone don’t always make it down to the billing department. Freight rates can seem to go up due to discrepancies in mileage. The bottom line is margins can go from plus to minus very quickly if a system isn’t in place to account for the differences between the dispatching departments and to link to the accounting department. It must be a proven and flexible solution.
While we can’t do anything about $70 a barrel for oil or hurricanes, we can understand how the fuel business has changed, the complexities of its nature, and we can do something about the parts we are able to control and influence day-to-day.
Brian Reynolds is the director of fuel solutions at The Pinnacle Corporation. To contact him regarding this column, or with other questions pertaining to fuel solutions, call (800) 366-1173.