Does Your Distributor Have a Strategy to Help You Keep Fuel Costs Low?

Tina Hampton |

Download PDF Talk to your fuel distributor about an effective pricing strategy.

In a business where the baseline cost of the product varies every day, how can your distributor help you keep your fuel costs as low as possible? First, let’s look at a typical fuel supply line:

 After crude oil is processed at a refinery, the resulting petrochemical products travel via pipeline or barge to an oil terminal. From there, fuel distributors collect and transport product to local commercial and industrial users and fuel retailers.

Here’s where it gets interesting. Terminals in the Northwest and Washington area use three different economic models to collect and distribute product:

  1. Seattle and Portland terminals in Washington and Oregon draw from a pipeline that runs North and South from refineries in Anacortes, WA. Although these refineries use crude oil from various overseas and domestic sources, terminals along this pipeline tend to offer the most competitive pricing during the summer. Summer prices may be more competitive than product offered at other terminals, depending on other economic factors.
  2. Spokane and Moses Lake terminals in Washington supply product from Montana-based refineries, who import oil from Canada, North and South Dakota, and Texas. Refining costs in Montana drop significantly in the winter due to a drop in consumer demand. This tends to translate into lower purchasing costs for product during the winter, depending on other economic factors.
  3. The Pasco terminal in Southeastern Washington is shipped by barge up the Columbia river. This economic model has variable pricing and it’s a third option for fuel distributors looking for the most competitive pricing depending on the season and other economic factors.

These three models are not available to everyone. Smaller fuel distributors have a limited ability to shop for the least expensive product because they access fewer terminals than larger distributors. Larger fuel distributors have three distinct advantages to offer their fuel retail customers: 

Agreements with Oil Companies: The strongest distributors have agreements with individual oil companies who supply product to the distributor. An agreement guarantees the distributor specific rates and quantities on various product brands. This translates into direct savings for their customers. Distributors without an agreement often have to pay more per gallon, limiting their ability to pass on cost-savings.

Access to Terminals: Experienced distributors know that fuel terminal pricing changes depending on how they import oil. Whether oil travels by pipeline via refinery, barge, or barrel, terminals charge different prices depending on the current season, geo-political concerns, and weather.

Distributors who have access to multiple terminals have the competitive edge. If one terminal raises prices because of seasonal changes, overseas conflict, or a natural disaster, distributors who access multiple terminals can simply purchase product wherever prices are lowest. 

Fleet Access to Terminals

Small fuel distributors can’t afford to keep their trucks parked and waiting at terminals; they spend a lot of time driving empty trucks back to re-fill their supply. In contrast, distributors with large fleets have a network of vehicles parked at each different terminal.

Does your distributor have a strategy? Remember, distributors who hold agreements with numerous oil companies,  access multiple terminals, and provide efficient fleet service have the most to offer. Working in partnership with a savvy distributor will leverage industry expertise and state-of the-art technologies to deliver fuel at the optimal time. By monitoring tank levels, prices, product allocations, and overall market conditions, the best distributors can then make the most efficient purchasing and sourcing decisions on behalf of the customer.