OAK BROOK, Ill. -- An independent convenience retailer outside Chicago wrote to CSP Daily News recently, expressing his frustration in trying to work with his gasoline provider to get, not the best pricing on the street, but at least a fair price. To help the retailer, who will remain anonymous, CSP Daily News asked a couple experts--Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA), and Steve Montgomery, president of the b2b Solutions LLC consultancy--to offer their suggestions.
First, the dilemma:
I'm a small business, gas station/repair shop in a suburb of Chicago. I buy from a jobber that does not let me control my gas inventory.
At 6 p.m., the daily rack price comes out. The other day, gas went up 30 cents, a big increase and for what, I don't know. My gas gets loaded at 6:36 p.m., and I get the higher price; meanwhile, I had enough gas to last another day.
Now the next day at 6 p.m., the gas goes down 18 cents. I get stuck with the higher gas price. I pump about 80,000 gallons a month, so it's going to take more than two to three days to sell that gas at a higher price.
This jobber also brings my gas before 6 p.m. knowing that the price is going down that evening. One time gas went down 12 cents at 6 p.m., but by 5:57, they had already made my delivery. That's $1,020!
Is this legal, that they control my gas inventory? I consider this a bad and an unprofessional way of doing business. I own my station and have a fuel lease with them.
My other complaint is that when I bought the property, I had to sign a fuel lease with a yearly gallonage quota. Two years have gone by, and there must have been 10 new or converted [same-branded] stations come in my area that I know of. All served by different jobbers.
They make you sign a fuel lease, and then they open other stations around me taking away gallons and business from me. Is this fair?
Signed: A very discouraged dealer.
Dan Gilligan of PMAA responds:
I certainly understand this retailer's frustration. The wildly volatile markets erupt whenever hurricanes threaten the Louisiana and Texas gulf coasts. Futures market speculators believe gasoline shortages will emerge, therefore futures prices skyrocket, regardless if shortages actually exist or develop.
While I do not specifically know anything about this retailer's wholesaler/jobber, I suspect the delivery times and days have more to do with transportation systems than anything else. Marketers send trucks to the racks every day, several times a day regardless of price. A truck sitting in line at terminal has to wait in line and then load and go. I suspect the truck has a schedule of deliveries to make every day and the driver just follows the predetermined schedule.
Without a doubt, with volatile prices, some dealers get a delivery at a better price depending on the day, and I cannot imagine that changing. What PMAA has been working on is limiting the excessive speculation that dominates the markets from time to time. I just cannot envision a scenario where trucks sit idle waiting for rack prices to fall. They could sit idle for days or weeks.
Steve Montgomery of b2b Solutions LLC responds:
The first issue is on what basis is this retailer purchasing fuel. There are two basic methods:
- Dealer tankwagon--In this method, there is no formal, direct connection necessarily between the cost of fuel to the jobber and what they sell it for to their dealer. Historically, this is the way gas was sold to dealers.
- Rack plus--In this method, the fuel is priced based on the cost at the rack, plus a known markup that can range based on a variety of factors, such as how long the payment terms are. Usually, the shorter the terms, the lower the markup. In this case, there is also a transportation cost based on the distance from the rack to the dealer's location.
The basic difference between the two is that the dealer can check the rack price and know what his cost basis is.
Jobbers can control delivery timing, but it would make no sense for them to do that on a cost-plus basis (makes no difference what it costs, the markup will be the same: X cents per gallon) other than the logical issues of meeting all their dealer needs regarding timing. FYI: Lots of jobbers have software that allows them to calculate when various dealers will need fuel and how to route it logically.
The second issue is the philosophy (and perhaps the contract between the dealer and the jobber) of the jobber/dealer. In some cases, they might operate on a full-tank method, which means keeping the tanks as full as practical all the time. Given this dealer's volume, he would not likely subscribe to this method as he doesn't have to worry about running out of fuel every day due to high volume.
The other is to manage your inventory based on fuel demand and the wholesale market. As the writer mentioned, fuel price changes can be "forecasted" to some extent. This allows the jobber (and someone who operates company locations) to buy or not buy fuel depending on which way the market is going. I know jobbers who will buy fuel before the price goes up even beyond what they can deliver and hold it in their rolling stock. That allows them to move up with the market and sell lower cost fuel at a higher price. This only works, however, for company-operated or dealer tank-wagon scenarios.
No fuel company offers territory protection for its dealers. Jobbers have the right to sell fuel in a fairly defined territory. There is nothing that would stop a branded jobber from going to the edge of his territory and opening a location that may compete with another [same-branded] jobber just across that line. The gasoline supplier itself may not like it, but I am not sure they could prevent it.
Do you have concerns in your store that you'd like to see addressed in CSP Daily News? Send your inquiries to Steve Holtz at sholtz@cspnet.com.
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