Savvy fuel buyers know how and when to practice arbitrage—buying something in one market or option and simultaneously selling it in another market or option at a higher price— to increase their volume and profitability.
Arbitrage, or arb, opportunities could come from several different sources:
- Making the Best Buy at a Single Rack—There’s nothing wrong with having strong relationships with long-time suppliers. But if you branch out and gain credit with all of the suppliers at the rack, you will be able to compare their prices—and there could be arb opportunities.
- Racks in Different Places—If you keep in close contact with suppliers in different areas and watch prices carefully, you may see arb opportunities. So, cast your net wide and don’t let distance deter you. A 55-cent arb between two cities that are approximately 200 miles apart is relatively common, and those who are willing to travel can achieve substantial savings.
- PADDs or Origin Points—If you know what it costs to ship a barrel, and who ships the most barrels, you can watch spot market prices for arb opportunities between PADDs or origin points.
- Indexes and Market Timing—In your personal finances, you should strive to diversify your investment portfolio. In the fuel industry, the same concept applies—you want to buy a balanced portfolio of assets with a proper mix of contracts and rack pricing. Spreads between contracts can bring real value, and if you can match those contracts to the right customers, you’ve realized even more value.
When considering arb opportunities, you need to make quick decisions or you risk missing out. With that said, your decision must be well informed.
Going after arbs isn’t worth it if you don’t have the truck time or carrier relationships to execute on the opportunity. You’ll probably need to use your own fleet and other carriers you have strong relationships with to accommodate your needs. This will require equipping drivers with everything they need to lift and ensuring your ratability stays strong.
Furthermore, arb opportunities are complex, and as such they require seamless communication between your supply and logistics teams. It’s important to establish processes, goals, and rewards ahead of time to ensure you can act quickly when the opportunity arises.
By preparing for the crunch time business decision that is arbitrage you can develop a foundation for supply disruptions. This can help you supply your own customers and make money in the midst of difficult markets.
The benefits of arbitrage
Arbs can be complex, but they present opportunities to make a profit – if you know when and how to capitalize on them properly. Organizations that are prepared with technology, trucks, and suppliers will be in a much stronger position to create a more profitable and resilient organization.
Download The Benefits of Arbitrage White Paper.