For most petroleum companies, fuel supply is paramount to your economic well-being. You need ample, competitively priced fuel. Often, however, this is easier said than done. Here’s a few tips to help:
Negotiate – Whether you are single or multi-branded, do not accept the status quo. Price, quantity and terms are all negotiable, even with major refiners. In fact, price can become very negotiable when refiners need to move fuel.
Minimum/maximum contractual volumes should also be negotiated. If you are working with a refiner that will not negotiate, and you are concerned you will not meet their targets, arrange for alternative sources of supply immediately.
Even payment terms can be negotiated. Since our company works nationally, it’s amazing to see the differences in terms throughout the country and what savvy marketers are beginning to write into their contract fuel deals.
Establish a close personal relationship with your fuel seller(s) – As with all other dealings, the more you can get to know your fuel supplier(s) and vice versa, the more comfortable both parties will feel when it comes time to negotiate. Cultivate close relationships, particularly with personnel who control your price and quantity.
Understand your supplier – If you can focus on your supplier’s needs, and help them reach their goals, they will be more inclined to help you in return. Have a long chat with your fuel supplier(s) to find out their market plan for your area and how you can help them. It’s the Steven Covey principle of “Seek First To Understand Before Being Understood.” (Covey is the author of the best-selling book, The Seven Habits of Highly Effective People.)
Stay in touch regularly – Large fuel users will tell you they call their suppliers daily to see if there are any special deals. You never know when a supplier may need to move some product and will discount to get that volume out the door. Staying in touch also keeps you at the top of their awareness when a special deal does come along. They’ll think of you first when they need to move fuel.
Have places to put unexpected volume – If you have a large chain of stores or cardlocks, you usually have plenty of tank space for unexpected volume. If you don’t, you may need to scrape up storage. Check with other large tank owners and rack personnel for leads on available storage space in your area.
Start sharing – If you can get lower per-gallon prices by guaranteeing larger quantities, you may be able to move some of that fuel by cooping with other jobbers, or selling to sub-jobbers. Stay connected with non-competitor, large volume users. Even if they currently buy direct, if you have the right price, they may buy from you.
Consider hiring an experienced fuel buyer – Dispatchers normally don’t have time to capitalize on buying opportunities. A good fuel buyer should be able to save you about one-half cent per gallon overall on your total fuel costs and no less than one-quarter cent.
If you sell over 20 million gallons of fuel per year, you are likely ready for a buyer. Unless the buyer you hire is already well established with your suppliers, however, don’t expect results overnight. It takes time to develop local relationships.
Get educated on hedging – When the market is not going your way, hedging can offset the margin losses. The only way Meridian endorses hedging, however, is when you “cover both ends.” Never use single-position hedging as a speculative maneuver. You can lose your shirt.
For solid hedging education, call Darren Dohme at Panterra, Inc. (800) 430-1864. Darren’s company specializes in energy products – gasoline, diesel, heating oil and propane. They offer seminars regularly for those wanting to get educated and have a daily fax service.
Unbranded product – Smaller independent refiners often have better deals to offer. Watch who you are dealing with, though. More than one unsuspecting marketer has been sucked into mixed product or tax-problem product unknowingly. When working in the unbranded fuels market, make sure you know exactly what you are buying and the reputation of that supplier. If the deal sounds too good to be true, back off fast.
Understand allocation procedures – Almost all refiners experience product shortages at one time or another, often due to circumstances out of their control. Understand your suppliers’ allocation policies and where you will stand if supply gets tight. If you will be on the losing end, prepare for worst case by having a back-up plan.
In summary, your fuel buying deserves your utmost attention. Give fuel supply management the time and effort it deserves and see what it does for your bottom-line!