Most people believe the evidence of a company’s success is the bottom line of a profit and loss statement. It is not uncommon for businesses to run in a don’t-rock-the-boat mode if their numbers are satisfactory. In the fuel industry, the initial step of a business plan begins with the purchase of a single gallon of fuel. For years, companies have analyzed their price per gallon to create pricing plans to ensure the number at the bottom of that profit and loss statement meets the company’s expectations. So, successfully pricing and buying fuel is one of the most — if not the most — important jobs at a downstream fuel company.
Selecting the right suppliers
Deciding which suppliers to select can be done by reviewing gallon requirements, fueling locations, and fuel availability. After the initial selection, many companies review the suppliers’ fuel prices daily, sometimes hourly, as loads are dispatched. A common task is to check prices by product and terminal, or terminal groups, and select the lowest price for the date and time a load is needed. This is accomplished by reviewing the spot ticker to see if the market is moving up or down and if the load should be pulled today or tomorrow. But how does one know if they made the right decision on the initial list of suppliers? How often are companies reviewing their list of suppliers in the marketplace? Does your organization examine all suppliers’ rack prices each day? How do your fuel prices compare to the rest of the market? Does your organization review this data over a comparatively long period? Do you have the volume of data (and the systems to crunch it) to make this an easy task?
Improving market visibility
Supply and demand are the ultimate driving forces of the economy, of course. But can you gain visibility into where the market is moving so you get your product where it’s needed at a profitable price? How do you currently make market predictions? Is it more of a this is what we’ve always done mindset — or do you have solid analysis to back your fuel marketing decisions?
The most successful fuel companies have figured this out, but getting there is trickier than it sounds. Once you find the right mix, trust the results. Go with the hard data, not best guesses or your memory.
Honing decisions with the right data
A better way to evaluate historical pricing data is with, well, history. For example, if we look at the actual pricing data for the last few Memorial Day weekends, that might be a check on an outlook that predicts sudden, wild swings in pricing or demand.
Four independent price-reporting agencies cover the spot market. It’s important to look at all of them, not just some. Why? There is probably some arbitrage between them. There could be opportunities that present themselves. If you don’t see all four, you’re narrowing your market, which means you’ll miss opportunities to profit.
The physics part of the equation is too often ignored — mainly because physics is challenging. However, it is vital and ignored at your peril. For example, if you’re looking to order seven thousand gallons of a particular product, its temperature matters greatly. Using accurate temperature correction insights allows you to negotiate from a place of strength, knowing you’ll get a profitable deal. Without it, you could be risking the equivalent of more than a hundred dollars. And that’s just on that one order! You wouldn’t tolerate 10 drive-offs, so why would you tolerate losing volume during a purchase?
Luckily, there are tools out there to simplify the science. Find the most accurate temperature correction index, and you’ll never wonder about your received volume differing from what you’ve ordered.
So, we can see that even if it necessitates some boat rocking, adjusting your business procedures to account for more — and more accurate — points of data can reap rewards that far outstrip the resources required to implement those new procedures. If you have questions about how your business could benefit from some changes, reach out to your DTN representative today.
New to DTN? Learn how our Refined Fuels Demand solution can help you turn educated guesses into educated decisions.