Multiple Markets and Suppliers Help Operators Get the Best Price on Fuel

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Diesel fuel and gasoline are the lifeblood of a truckstop and travel plaza. Not only are they high-priced items, there is little margin, so finding the best price on each load is crucial. Plus, operators need to keep a steady supply flowing and work to minimize disruptions during periods of peak demand or bad weather.

Diesel fuel and gasoline are too important to truckstop and travel plaza operations to leave the purchasing up to chance. Operators said they are working with multiple suppliers, utilizing contracts and securing lines of credit to ensure they always have product available and are getting it at a good rate.

Operators said one of the most important things they do to ensure ample product at the best price is to establish relationships with more than one supplier.

Mark Augustine, president of Triplett Inc., has supply agreements with at least a different dozen suppliers at the terminals near him. “We make sure we have all of the options open,” he said.

Dolores Santos, a sales executive with Axxis Software, an OPIS company, suggests operators study their market to find out what terminals and spot markets supply their sites. “Do your homework on the suppliers in your market. Run a rack price history for the city or cities you buy in to see how they price their product relative to other suppliers,” she said, adding that services, such as OPIS and Platts, can provide detailed historical information.

Once operators get that information, they can use it to identify who supplies products at the terminals they typically buy from and contact the sales representative for each company to learn more about them. Santos suggests operators ask for references and talk to other customers that buy from the supplier. “Find out how they operate and if their values match yours,” she said.

Then, operators should try to build relationships and establish credit with the suppliers in their markets that are the best matches for their business, Santos said.

In addition to looking at their closest suppliers, operators should also look at their entire region. “They need to look at their market and surrounding markets for back-up. I would look at a 100-mile radius to see what backup terminals are out there,” Santos said. “When they go to look for contracts, they need to look at their area and see the racks they pull from and then see the next closest terminal.”

Operators can find pipeline maps on the government’s National Pipeline Mapping System. “You can also use Google to find them. You don’t have to be an expert, but you have to know where your product comes from,” Santos said.

Dan Alsaker, president of Broadway Flying J, said it is important for operators to look at multiple markets. “You have to go look for them and you have to establish relationships, but it is vital to have those kinds of choices,” he said. “We have refineries and we have rail. The new thing has been the efficiency and availability of refined rail cars and they can come from anywhere.”

Alsaker said he has some very old and reliable relationships, but he is constantly vetting out new opportunities. “Maybe 10 percent of new opportunities we look at ever get to fruition,” he said.

Branded Vs. Unbranded
Operators said their purchasing strategies differ depending on if they’re branded or unbranded.

Augustine said that since he’s unbranded, he tries to find the lowest-cost supplier for the load he is procuring for the day. “The benefit of being unbranded is that you have more options as far as procuring product. You’re not locked into one supplier and you’re not paying a premium for that product because of the brand,” he said. “If you’re branded, that strategy doesn’t work because they lock in the price daily for you.”

Alsaker is branded on his gasoline. “We’re locked into the branded price at the closest rack and there is no choice and no bargaining,” he said. “On the unbranded side, my recommendation to independents is to look at multiple targets.”

When Alsaker operated his location in Williams, Iowa, 70 miles north of Des Moines, he had multiple pulling points he could use. “We had the influence of the Mississippi River. We had some refineries in Minnesota and we had the Magellan Pipeline. That was somewhat of a direct line from the Gulf Coast,” Alsaker said. “We’d watch the cold weather, stormy weather, the value of the dollar and multiple origination sites to determine where to buy.”

Alsaker said he monitors the trading price of oil all day, and pays particular attention as the markets open and close. “I tend to look at it hard in the morning before I buy—6:00 Pacific is 9:00 Eastern,” he said. “In the afternoon I’m watching those markets move and they’re closing depending on the time zone. There won’t be any trading until the next morning, so I know that is solid.”

There are several sources where business owners can watch trading prices of oil, including CNN Money.

Augustine also monitors prices and tries to purchase when he has a good deal. If prices are increasing, he tries to squeeze in a few extra loads before the price goes up. “If it is going down, you try to wait a bit,” he said.

In order to get the best price, Santos said operators shouldn’t be afraid to ask for a discount. “If you are willing to pay sooner—three to five days—maybe you can get a prompt-pay discount of .50–1.0 percent. Or for very ratable volume, maybe you can ask for and possibly get $.005–$.01 a gallon off the low posted rack with product,” she said.

Santos added, “If you have enough ratable volume to put out to bid, publish a request for proposal. Send it to the main suppliers in your market. That could include refiners and super jobbers.”

Supply Contracts
Even if operators don’t go out for a bid, Santos suggests they set up supply contracts for a certain percentage of their volume based on a benchmark, such as OPIS, Platt’s or Argus. It helps guarantee supply and the price is published and verifiable for both parties, she explained, adding that the contract volume would be somewhere between 40 to 60 percent of the monthly total volume.

“One thing a supply contract does is guarantee that you’ll get some product. It helps you get assurance of supply,” Santos said. That assurance can be particularly helpful if there are disruptions from weather, power outages or other events. “Things happen. It doesn’t happen all the time but you have to be prepared in the event something goes wrong so you can still get fuel.”

Santos said operators should keep in rhythm with the trends of the season. She said, “Diesel is impacted by planting and the harvest season. In the spring, diesel demand goes up so the prices go up. It levels out and then goes up again in the fall when people start harvesting.”

Augustine contracts some gallons three to four weeks before major holidays. “We’ll look at the trend of the price of fuel for those holiday runs. The price typically tends to increase the week of the holiday,” he said.

With contracts, Santos suggests operators spell out the terminal, what the freight and surcharges will be, what the markup will be and what the discount is.

The combination of multiple suppliers and some contracted supply “gives the operator the ability to buy on dips in the market while still having their main supply contract in place for a percent of their demand,” Santos said.

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A Checklist Of Fuel Purchasing Best Practices

  • Research all suppliers within your area.
  • Look at all of the suppliers who serve your area. Consider your options for pulling from a different location in the event of a supply disruption or a low price that offsets the cost of freight.
  • Establish a line of credit with multiple suppliers.
  • Ask for a discount for quick payment.
  • Consider putting the freight business out for a bid on a regular basis.
  • Confirm freight rates on contracted supply.
  • Watch the seasons and trends to help better predict pricing.
  • Consider purchasing a portion of the product on the spot market and a portion with supply contracts.

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This article originally ran in Stop Watch magazineStop Watch provides in-depth content to assist NATSO members in improving their travel plaza business operations.

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Photo Credit: Ira Wexler/NATSO

Mindy Long's photo

Mindy Long

Before launching a full-time freelance career, Long edited NATSO's Stop Watch magazine. Prior to that Long worked as a staff reporter for Transport Topics, a weekly trade newspaper, covering freight transportation, fuel and environmental issues. In addition to covering the transportation sector, Long has written, reported and edited for a variety of media outlets. She was the Washington correspondent for WCAX-TV (CBS) in Burlington, Vt., a criminal court reporter in Chicago and a freelance copy editor for Kiplinger’s Personal Finance magazine in Washington D.C. Long hold a master’s degree from Northwestern University’s Medill School of Journalism in Evanston, Ill., and a bachelor’s degree in Communications from Westminster College in Salt Lake City.More
Source:
Stop Watch Magazine
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Broadway Travel PlazasTriplett Inc.

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