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is the Future (Not Electric)
U.S. Diesel Market in Focus Star Oilco Proﬁle
Get Your EMV On Association Leaders
What to Expect This Year
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by Joe Petrowski
U.S. Diesel Market in Focus: The Long-Term Development and Outlook by Nancy Yamaguchi, PhD
Star Oilco Proﬁle by Keith Reid
Association Leaders: What to Expect This Year by Keith Reid
Hydrogen— Not Electric— Is the Future of U.S. Transport Fuels
Get Your EMV On by Keith Reid
The Future of Convenience Store POS Systems: 2020 Predictions by Gavin Bisdee
contents by Department
Raising the Bar on Fuel Efﬁciency in America’s Most Popular Selling Vehicle
10 Why Petroleum Temperature Matters in Bulk Fuel Sales
FUELS & SUPPLY
What is Renewable Diesel? by Keith Reid
Raising the Bar on Fuel Efﬁciency in America’s Most Popular Selling Vehicle by Ezra Finkin
It Is What It Was by Brian Reynolds
Why Petroleum Temperature Matters in Bulk Fuel Sales by Charles Davis
20 Years After: Do you still have the urgency Y2K created? by Richard Browne
Staff Training: It’s Not Just About Customer Service—It’s About Enforcing the Law by Roy Strasburger
Where Are You in the Evolution of Retail Petroleum? by Mike G. Zahajko
What You Find with Tank and Sump Inspections? by Christopher Bouldin
Fuel Site Safety: Damage Control for Today’s Distracted Drivers by Joe O’Brien
28 What You Find with Tank and Sump Inspections?
Propane Autogas Innovations in Step with Clean Fuel Goals
Winter Fuel Tips by Glen Sokolis
Propane Autogas Innovations in Step with Clean Fuel Goals by the Propane Education & Research Council
The Lease Versus Own Dilemma: What’s Right for Your Operation? by Doug Siefkes
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From the Desk of the Publisher As we go to press with this issue of Fuels Market News Magazine, I am very optimistic for the U.S. economy and the coming year in the fuel and convenience business. By all indicators the U.S. economy is off to a great start for 2020 and is set to continue its upward financial trendline—keeping us as the world’s largest and strongest economy as measured on a GDP basis. With unemployment at a 70-year low, coupled with rising wages, low interest rates, low recession risk and faster growth—the U.S. economic confidence is at its highest point since 2000. Our history’s longest-running bull market is sustaining its record-setting run despite all predictions for a bear market downturn at the end of 2019. The Dow started the year with a bang as it set a record high of 28,868.80 in the very first week. It then went on to set a total of five record closes by mid-January and a major milestone on January 15 when it rose above 29,000 points. This is following on 2019 when the Dow cleared two major milestones and set 22 record closes. What’s putting a sturdy foundation under the economy for 2020 is the best labor market in decades. The U.S. added 145,000 new jobs in December to cap off the ninth straight year in which the economy created more than two million new jobs. The jobless rate hit a record low not seen since the Eisenhower presidency in the early 1950s—a time most of us today have only read about. The doom and gloom predictions about the next bull stock market and the economic recession have been endless, but those predictions have fallen flat for 10 straight years now. As long as unemployment remains low, Americans will keep spending, and the economy is all but certain to sidestep a recession in 2020 for a record 11th straight year of growth. When consumers have dollars in their pockets, it is always a great time for our industry. On the energy front, we are moving from energy independence to energy dominance. The U.S. now exports more petroleum and products than it imported (by 1.5 million barrels/day). This was last achieved 75 years ago (1943). Not coincidentally, 1943 began a U.S. economic boom that lasted 26 years, and while the baby boom and subsequent housing formation were a major impetus, do not discount the similarity to today’s boom in the economy. As energy is the single largest industry segment in the U.S. economy, it is a major driver of our economic health and currently shows no signs of slowing.
CEO & Group Publisher Gary D. Bevers GBevers@FMNweb.com Editorial Director & Digital Publisher Keith Reid KReid@FMNweb.com Director of Production & Managing Editor Kathy Bevers KBevers@FMNweb.com Digital Editor Scott A. Croom SCroom@FMNweb.com Industry Analysts/Editors Frank M. Hunter FHunter@FMNweb.com Nancy Yamaguchi, Ph.D. NYamaguchi@FMNweb.com Columnists and Contributors Greg Cushard Vladimir Collak Shane Dyer John Eichberger Doug Haugh Corey Henriksen Maura Keller Alan H. Levine Joseph H. Petrowski W. Brian Reynolds Fred M. Whitaker Editorial Board Ed Burke
Finally, low cost oil from shale fracking, strong crude and refined products inventory build-up and market stability from energy independence will support moderate fuel prices and strong sales for the next couple of years—if not decades. I hope you enjoy this issue of Fuels Market News Magazine. Our goal is to provide you with valuable information, education and analysis, from the seismic shifts in crude production to the nuances of motor fuels retailing and forecourt technology. In this and every issue of FMN, our energy-expert columnists strive to deliver objective analyses of the facts, changes and trends in our industry and what that means to you in the fuels industry.
Gary Bevers CEO and Group Publisher FMN Media, LLC
Lisa Calhoun George A. Overstreet, Jr. Joseph H. Petrowski Art Director Jeff Beene JBeene@FMNweb.com Marketing Director Joe A. Martinez JMartinez@FMNweb.com Advertising Representative Bill Kaprelian 262-729-2629 BKaprelian@FMNweb.com Mailing Address 28610 Hwy 290 F09, Suite 245 Cypress, TX 77433 www.FuelsMarketNews.com © Copyright 2020, FMN Media, LLC All Rights Reserved
by Joe Petrowski
Hydrogen–Not Electric– Is the Future of U.S. Transport Fuels
“ ” Investors and Petroleum Interests have been nervous about electric vehicles cutting into the demand for petroleum-based fuels while quietly, a revolution is underway in hydrogen production that over the longer term will see a rapid growth in hydrogen-powered vehicles and the infrastructure needed to fuel them.
Consumers should welcome hydrogen cars in that they do not bring the range anxiety of electric nor the expense.
Of course, hydrogen has many applications including food processing, metal fabricating, fertilizer manufacturing and pharmaceuticals. It is a major component in desulfurization at petroleum refineries, which is why 90 percent of all hydrogen is today produced only in three states: Louisiana, Texas and California. Some 95 percent of this nine-million-ton production comes the steam reformation, which uses natural gas (CH4) to produce hydrogen and CO2. While natural gas is generally inexpensive and abundant, the CO2 byproduct is not climate-friendly.
This wouldn’t appear to be very optimistic. But things are changing with the price of hydrogen fuel, its production source and business model for transport fuel.
Electrolysis is a less expensive and more environmentally responsible process where water is the feedstock and the H2O is split electrically into hydrogen and oxygen. Obviously, the efficiency of this approach is highly dependent on the cost of electricity, and that is the dramatic change going on in the industry. Power is extremely cheap and in certain locations at certain times often negative. For example, at night when the wind blows, and you have a grid with significant wind resources, it cannot put the power on the lines. So, “curtailment” payments are made to resource owners to interrupt production. Electrolysis allows this surplus power to make hydrogen, which is stored for later use on the grid during peak demand or windless and sunless hours. In fact, hydrogen produced from wind or solar power is eligible for renewable credits, further driving down hydrogen production costs.
U.S. production of hydrogen is currently nine million metric tons (MTs) per year, or 20 billion pounds. A pound of hydrogen has 62,000 BTUs, or almost three times that of gasoline (21,000 BTUs per pound). So, from an energy standpoint we have a 60 billion gasoline-gallon equivalent (GGE), which is enough hydrogen to power 30 percent of all autos in the United States.
Currently hydrogen costs $14/kilogram which is $5.6/GGE. With cheap power, and new membrane and production technology, that cost will fall to $5/kilogram, bringing the GGE to $2. Gasoline costs 10 cents/mile at $2.50/gallon. $5/kilogram of hydrogen is 10 cents/mile given the energy content and efficiency of hydrogen.
Hydrogen power is not a new technology, and hydrogen vehicles have been around since the Ford Model A. Hydrogen fuel cells have been used for years by the military (for submarines and portable field power) and NASA (for the space station), and hydrogen is also used as a rocket fuel. Today, hydrogen is dominant in busses and forklifts, but there are only 300 hydrogen cars (mostly in California). There are only 48 retail fueling stations, of which 43 are in California (which has 70 percent of all electric vehicles).
FUELS & SUPPLY
ZEV credits have a value of over $1 billion, and Tesla alone is earning between $200 million to $500 million per year selling ZEV credits to non-compliant manufacturers.
Now for electric. Consumers should welcome hydrogen cars in that they do not bring the range anxiety of electric nor the expense. Several manufacturers have announced plans for major U.S. hydrogen vehicle production including: • Honda-Nexo • Hyundai—Tucson • Toyota—Mirai • Mazda—Rx-8RE • Nissan—unnamed • BMW—unnamed What hydrogen vehicle sellers are planning is to bundle five years of fuel at the time of vehicle purchase, with in-vehicle devices showing fueling locations and fuel balances. Even Class 7 and 8 trucks that were never viable candidates for electric because of distance and torque issues are moving down the path to hydrogen, with Kenworth, Nikola, U.S. Hybrid and Toyota in the testing phase. Of course, there are still hurdles in the way of hydrogen cars’ penetration of the U.S. market. Transporting hydrogen can be expensive. In liquid form, low temperatures and high compression is very expensive. Truck transport, as is most often the case, is always expensive. Hydrogen can be blended into existing natural gas pipelines but at a maximum blend of only 12 percent. However, the major headwind for hydrogen acceptance as a passenger car fuel is the lack of fueling facilities. As noted earlier, there are only a handful of stations located in a single state. There are only 33 retail fueling stations, mostly in California. The U.S. Energy Information Administration (EIA) estimates for every one million hydrogen cars, we will need 200 stations. If we reach 10 million hydrogen vehicles, which is the ambitious goal of original equipment manufacturers and Zero-Emission Vehicle (ZEV) state mandates, we will need 2,000 retail fueling stations which, excluding land, will cost $1.5 billion in capital expenditures. For retailers, fueling a hydrogen car is five to seven minutes (same as gasoline) and a typical station can fuel 250 cars/day earning a retailer $1,000/day in retail fuel margin.
Currently there are 13 ZEV states that have adopted the California ZEV standard program. Under the program, any manufacturer selling light-duty vehicles in the state must attain 3 percent of their sales in ZEV vehicles and when they do will receive credits that they can sell to those who do not attain that level or pay a penalty. ZEV credits have a value of over $1 billion, and Tesla alone is earning between $200 million to $500 million per year selling ZEV credits to non-compliant manufacturers. The average ZEV vehicle generates about $7,000 per credit with different vehicles having different credits assigned to them—from one to five credits per vehicle—depending on range and type of vehicle. Twelve states have adopted the ZEV standard with four more having similar regulations more focused on low emissions. They are: • California
• New Jersey
• New York
• New Mexico
• Rhode Island
These states have 22 percent of the 290 light duty million vehicles in the U.S. (65 million) and had four million new units purchased in 2018 subject to the 3 percent mandate. So, 120,000 ZEV vehicles will be added to the stock every year or Tesla will get an increasing share of their revenues from ZEV credit sales. Mandates are interesting and make us feel good, but the free market, human ingenuity and technology moves the problemsolving needle throughout history. Currently, the broad free market favors hydrogen over electric. n
Joe has had a long career in international commodity trading, energy and retail management and public policy development. He currently serves as the fuel director of Yesway convenience stores and an adviser to their Chairman on Operations and Merchandising, as well as a director of Xebec, a Canadian manufacturer of Clean technology and Green Print, a carbon mitigation ﬁrm. Petrowski previously served as the president and CEO of Gulf Oil LP and was elected to the Gulf Oil LP Board of Directors and then as CEO of the now combined Gulf Oil and Cumberland Farms. He is Managing Director of Mercantor Partners, a private equity ﬁrm investing in convenience and energy distribution.
Renewable Diesel? by Keith Reid We hear a lot about biodiesel. As a reminder, biodiesel is a renewable fuel made from lipids, including vegetable oils (soybean, for example) and animal fats. The process is a chemical reaction between these lipids and alcohol. The fuel is broadly compatible with petroleum diesel—with minor handling differences—and is typically blended in the 2% (B2) to 20% (B20) range. There were 1.8 billion gallons of biodiesel produced in 2018. We don’t hear nearly as much about renewable diesel. The feedstocks are similar, though renewable diesel tends to use waste sources. There are two main production processes, FischerTropsch and Hydrogenation, that are similar to petroleum fuel production. Renewable diesel is a drop-in product for petroleum diesel that can further be blended with petroleum diesel and biodiesel. It is considered to be “cleaner” than either product, both operationally and where carbon emissions are concerned, though not as significant compared to biodiesel.
Renewable diesel is more expensive than either petroleum diesel or biodiesel. From a supply standpoint, in 2018 there were four commercial renewable diesel plants with a combined capacity of 356 million gallons and another 688 million gallons of capacity scheduled to come online in the near future. Renewable Energy Group and Neste are the major U.S. suppliers of the fuel. It can be used at 100% (R100) or any blend below that level. The price challenges with renewable diesel have tended to make it a niche product for areas where environmental performance (enforced by government regulation) is a high priority, such as California and the Northwest. Star Oilco, a marketing operation based in Portland, is one operation that is promoting and distributing renewable diesel to its customers. Star Oilco is a moderate-sized operation focused on commercial fueling that distributes bulk diesel and biodiesel and operates card locks and wet hosing. The company’s president, Mart Fitz, provided FMN with a FAQ on the product, which was expanded as part of a separate interview. The company is also profiled later in this issue beginning on page 30.
FUELS & SUPPLY
Renewable diesel is a drop-in product for petroleum diesel that can further be blended with petroleum diesel and biodiesel.
much bandwidth do FMN: How today’s retail sites require? Fitz: That changes regularly, but it has consistently been trending between the same cost and over a $1-a-gallon higher than petroleum diesel, depending on the state you buy renewable diesel in. This is driven by carbon intensity-based financial incentives. The highest value markets for low CO2 fuels in the United States are California and Oregon, which both have mechanisms that track and price the CO2 intensity of diesel fuels as well as the sustainable lower CO2 substitutes and blend stocks that can go in those diesels. They track, rate and determine the carbon intensity of the fuels providing a neutral and scientifically defensible number for CO2 reduction. In California, renewable diesel is very close in price to petroleum diesel depending on the value of CO2 credits for lower carbon fuels. In Oregon, it has consistently been between $.30 to $.80 a gallon higher than diesel, also depending on the value of CO2 abatement associated with the fuel and what these carbon credits are trading for. Currently, renewable diesel is about $.30 or $.40 cents above petroleum diesel in Oregon, while in California it’s $.01. Prices should come down as more capacity comes online. Marketers in California can make a killing on the product. It has great environmental performance and great [regulatory] demand in addition to its general performance qualities. It’s been described by one of our vendors as “water and the desert.” Diesel is four bucks a gallon in California. And if you can bring in renewable and blend it at 5% to 20% and improve the environmental performance of the diesel, you have a lot going on. We can make a profit on the product in Oregon because even with the relatively higher cost, there are companies that will pay the premium for both the environmental and practical performance.
are the main operational FMN: What performance factors for the product? Fitz: The operational reason people will pay extra for it is because modern diesel engine systems are finicky, especially regarding dirt and water. Renewable diesel solves those concerns. And, renewable diesel just burns cleaner, which has more impact than just the environment. It is a high-performance fuel that reduces down time and maintenance in urban stop-and-go fleet use. Fleet managers love it. Renewable is cleaner and drier than your typical petroleum diesel and quite a few are willing to pay a large premium for this fuel. They see an overall ability to reduce operational cost in excess of its higher price. In performance, it is virtually identical to petroleum diesel, or better, and is a “drop-in” fuel.
FMN: How easy is it to blend? Fitz: Renewable diesel and petroleum diesel can be blended in any mixture without worry. One of the best CO2 performance blends is 80% renewable (R80) and B20. A blend of 60% petroleum diesel with R20 and B20 is also interesting. It is worth noting that one major manufacturer of renewable diesel (Neste) requires their distributors to never mix their product with diesel to guarantee the top performance of their fuel. Other manufacturers of renewable diesel allow blending of the fuel.
What is the difference between FMN: renewable diesel and renewable jet fuel? Fitz: The difference between the fuels is the specific gravity and general specification for what the fuel is used for. Jet fuel and on-road diesel fuel are different fuels and therefore have different specifications. Renewable diesel is typically referring to a #2 diesel specification for onroad diesel use. Renewable jet fuel is typically referring to “Jet A” or “JP8” jet fuel specification for fuel. This is a #1 diesel range fuel with use and handling requirements that are far more stringent than for on-road or off-road diesel fuels. Renewable jet fuel can be used as a kerosene or #1 diesel fuel but renewable diesel cannot be used as a jet fuel. n
by Ezra Finkin
RAISING THE BAR on Fuel Efficiency in Americaâ€™s Most Popular Selling Vehicle Performance and capability are top of mind for pickup truck buyers, and the diesel engine gives consumers a new fuel efficient choice. FMN Magazine
FUELS & SUPPLY
This year is shaping up to be a milestone year for full-size pickup trucks, one of the most popular selling vehicle-types sold in America since 1980. It’s a year of firsts and threemillionths. Cummins just celebrated producing its threemillionth engine destined for a heavy-duty Ram pickup truck. But it is also the first year that a diesel engine option comes to the market for the top three most popular-selling vehicles in America—full size pickup trucks from General Motors, Ram and Ford. What does that say about the future for diesel in the U.S.? A lot, actually. It says that diesel is an important strategy in meeting ever-increasing fuel economy standards and reducing greenhouse gas emissions in these most popular selling vehicles. Performance and capability are top of mind for pickup truck buyers, and the diesel engine gives consumers a new fuel efficient choice. Recent advances in emission control technology, combined with the introduction of ultralow sulfur diesel fuel in 2006, have also improved performance, reduced engine noise and fuel odor and decreased emissions. Clean diesel technology in today’s properly maintained vehicles emits near zero levels of emissions.
Fuel Economy Joins Torque, Towing and Toughness as New Credentials for Pickup Trucks
Diesel Leads Alternative Power Vehicle Sales
It used to be that talking about pickup trucks meant basically three topics: torque, towing and toughness. Now we need to add fuel economy to that list, thanks to the new diesel option. Consider that the average full-size diesel pickup has a fuel economy of 24 mpg, compared to the average gasoline fuel economy of 18.1 mpg. In the torque department diesel shines with more power at 450 lb/ft compared to 394 lb/ft for gasoline models. And torque matters to pickup truck owners—this is what they need for towing and hauling and makes the vehicle feel zippier off the line.
Share of Alternative Vehicle Sales for 2019
In the bigger picture, forecasted fuel savings for new light-duty diesel sales through 2025 are expected to save approximately one billion gallons of gasoline by 2025, according to recent data from IHS Markit.
As an alternative fuel to gasoline, diesel tops the pack for every quarter thus far in 2019. In Q3 2019, 127,710 diesels were sold—that compares to 109,774 hybrids, 70,204 battery-electric vehicles, 21,691 plug-in hybrids and 497 fuel cell vehicles.
Fuel Cell 0%
Diesel 39% Hybrid 35% Plug-in 6%
Fuel Cost + Resale Value Matter Fuel fact for today: Diesel is at about a 35 – 40 cents per gallon premium over gasoline, according to the U.S. Energy Information Administration (EIA). While the fuel costs more, the owner gets a payback in the form of better miles per gallon and more capability in the truck. And since diesel pickup trucks hold their resale value better than gasoline models, this also means a better Total Cost of Ownership (TCO) factor for the diesel over gasoline, especially for those that keep a truck for more than five years or accumulate a lot of miles. Our year of three-millionths and firsts comes with some benefits. As more full-size pickups are sold in America and come with the diesel option, we can save quite a lot of fuel and reduce emissions that benefit us all. n
READ MORE at FuelsMarketNews.com
The average full-size diesel pickup has a fuel economy of 24 mpg, compared to the average gasoline fuel economy of 18.1 mpg.
Ezra is the policy director for the Diesel Technology Forum. The Diesel Technology Forum is a non-proﬁt organization dedicated to raising awareness about the importance of diesel engines, fuel and technology. Diesel Technology Forum members are global leaders in clean diesel technology and represent the three key elements of the modern clean-diesel system: advanced engines, vehicles and equipment, cleaner diesel fuel and emissions-control systems.
U.S. Diesel Market in Focus: The Long-Term Development and Outlook by Nancy Yamaguchi, PhD
Demand for transport and the role of trucks will increase, regardless of the fuel they use.
FUELS & SUPPLY
Introduction: Is diesel undervalued in the United States of America? The popular culture of the U.S. includes cars, cars and more cars. Classic Hollywood films include Ford Model Ts and Mustangs, Chevy Bel Airs and Corvettes, Willys Jeeps and other iconic cars. Most of these vehicles use gasoline, and most passenger cars are gasoline-fueled. There is always a role for diesel trucks, cars, locomotives, farm equipment, barges and tankers, but these more work-a-day vehicles never seem as romantic and alluring. Consumers may recall the days when diesel-powered passenger cars did not seem as quiet, clean, sporty or luxurious as gasoline-powered cars. Some of these stereotypes seem to remain in memory, even though the technology has advanced dramatically. Recent years have brought more sophisticated, efficient and low-emission diesel vehicles. They are making â€œinroadsâ€? into the U.S. market, though diesel-fueled passenger cars are not expected to supplant gasoline-fueled cars for the ordinary consumer. However, the U.S. Energy Information Administration (EIA) forecasts that the vehicle miles traveled (VMT) by trucks will grow at rates more than twice the rate forecast for light-duty vehicles. According to the EIA, the VMT for commercial light trucks will grow at 1.4% per year from 2018 to 2050, and the VMT for freight trucks of over 10,000 pounds will grow at 1.3% per year from 2018 to 2050. In contrast, the VMT growth rate for light duty vehicles is forecast at only 0.6% per year. At these rates of growth, the demand for commercial light trucks will grow from 97 billion VMT in 2017 to 156 billion VMT in 2050. The demand for freight trucks of over 10,000 pounds will grow from 290 billion VMT in 2017 to 445 billion VMT in 2050. There are many experts who believe that demand for petroleum-based fuels will decline sharply before the year 2050. Given the length of the forecasting time period, anything is possible. Perhaps it is safer to say that demand for transport and the role of trucks will increase, regardless of the fuel they use. In the near term, that fuel will be mainly diesel. This article focuses on the U.S. diesel market: demand, pricing, production and quality and trade. The past three decades have brought enormous change, and the coming decades could bring even more momentous change.
FUELS & SUPPLY
U.S. Diesel Market in Focus: The Long-Term Development and Outlook
“ ” Diesel Demand in the U.S. When compared to many other world regions, diesel in the U.S. appears underutilized. Diesel currently accounts for 21% of U.S. fuel demand, while gasoline accounts for 47.9%. Figure 1 compares the percentage of diesel in the demand barrels of the U.S. versus other world regions. Only the Middle East, where fuel oil still occupies a large share of the demand barrel, has a lower percentage share of diesel. Europe’s demand barrel is heavily weighted toward diesel, at 45% of demand. Africa relies on diesel for 42% of its oil-based fuel requirement. Pricing policy plays a role in the shape of demand. In countries where fuel prices are subject to high taxes or are directly administered by the government, diesel’s share can grow disproportionately large. Some government policies have encouraged diesel use at the expense of gasoline use—the rationale being that diesel is a constructive fuel. Diesel may be considered a “productive fuel,” contributing to economic growth and activity, whereas gasoline may be viewed as a consumer fuel, a luxury, or a fuel that contributes to traffic congestion. Diesel may also be relied upon for electric power generation when power grids are inadequate.
Some government policies have encouraged diesel use at the expense of gasoline use—the rationale being that diesel is a constructive fuel.
Diesel’s role in the demand pattern has changed significantly, as shown in Figure 2. The oil price shocks of the 1970s cut first into demand. Diesel’s share stabilized at 18 – 19% of demand during the 1980s until the year 2000. From 2000 until 2007, diesel demand grew at an average rate of 1.7% per year, and diesel’s share of demand also recovered to the neighborhood of 20 – 21%. The year 2008 brought the Great Recession and fuel demand collapsed. Between 2007 and 2009, diesel demand dropped by 565,000 barrels per day. The share of diesel in the demand pattern fell from 21.2% in 2007 to 20.2% in 2009, and its share is currently in the vicinity of 21%. Figure 2:
Diesel’s share of U.S. demand fell then recovered
Diesel as % of Demand Barrel, 2018
Source: Energy Information Administration (EIA)
In the decade after the Great Recession, most, but not all, diesel demand was restored. According to the EIA, diesel demand dropped from 4.196 million barrels per day (mmbpd) in 2007 to 3.631 mmbpd in 2009. Demand climbed back gradually, and it averaged 4.076 mmbpd during the first three quarters of 2019. Figure 3 extends the historic data on diesel use with the official long-term forecast by the EIA, published in the Annual Energy Outlook (AEO) 2019. The EIA forecasts that diesel demand will
Source: British Petroleum (BP)
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U.S. Diesel Market in Focus: The Long-Term Development and Outlook
decline slowly between 2020 and 2034, when it will level off at 3.87 mmbpd. After the year 2042, demand is forecast to grow modestly once again, reaching 3.97 mmbpd in the year 2050. Over the long term, the diesel market is forecast to shrink at 0.1% per year. However, the EIA forecasts that demand for motor gasoline will decline at the much-faster rate of 0.8% per year during the same period. Therefore, the EIA forecast indicates that diesel’s role in the fuel mix will increase relative to gasoline over the next three decades.
From time to time, diesel consumers blame high prices on the government and/or refiners. However, the main determinant of the U.S. retail diesel price is the price of crude, which is set in the international marketplace. As shown in Figure 4, in November 2019, the cost of crude oil accounted for 44.2% of the built-up diesel price. This was followed by distribution and marketing costs, which accounted for 19.4% of the retail price. Refining costs and taxes both accounted for 18.2% of the price. As the year 2020 begins, there is a range of opinion on where crude prices will go, and therefore, where diesel prices will go. Currently, crude prices are weighed down by oversupply. OPEC and other producer countries have extended their oil production cut agreement, but this is more of a formalization of existing production levels, rather than a deeper cut. U.S. crude production reached a record-high level of 12.9 mmbpd by the end of 2019, and production is expected to increase in 2020.
U.S. Diesel Demand, Actual and AEO forecast, mmbpd
Components of U.S. retail diesel price, %, November 2019
Source: Energy Information Administration (EIA)
Over three-quarters (approximately 77%) of U.S. distillate is used for transportation. The industrial sector is the second-largest end user, at 13%. This is followed by the residential sector (6%) and the commercial sector (4%).
Source: Energy Information Administration (EIA)
In 2019, U.S. diesel was a relative bargain to the consumer. Figure 5 calculates the difference between weekly retail diesel prices in 2019 relative to the same week in 2018. For most of January and February 2019, retail prices were lower than they were in the previous year. In March and April, diesel prices were above their levels from last year. Then from May until the last week of December 2019, diesel prices were below last year’s levels. As the year 2020 begins, retail diesel prices are above their levels from the prior year, but not by a large margin. As of the week ended January 13, 2020, the last week before this issue went to press, retail diesel prices were only 8.8 cents/ gallon above their levels for the same week last year.
The main determinant of the U.S. retail diesel price is the price of crude, which is set in the international marketplace.
U.S. Weekly Retail Diesel Price 2019 minus 2018, $/gallon
Diesel Pricing It would be difficult to find a consumer who was insensitive to fuel prices. Commercial truckers are well aware of the role diesel prices play in their bottom line. According to the Trucker’s Report, fuel is the largest operating expense for a commercial truck, accounting for 39% of total cost. A commercial truck can consume over $70,000 worth of diesel per year. The secondlargest cost component, 26%, is driver salary. Large fleets tend to have advanced fuel management strategies. Independent truckers often monitor prices closely while traveling, and a portion of their time is spent hunting for the least expensive refueling options. Source: Energy Information Administration (EIA)
FUELS & SUPPLY
U.S. Diesel Market in Focus: The Long-Term Development and Outlook
The tax burden on diesel is also relatively low in the United States. U.S. consumers often are astonished when they travel overseas and experience what other consumers pay. Figure 6 compares U.S. diesel prices, including taxes, with prices in other key International Energy Agency (IEA) countries. In November 2019, the IEA reported that the average diesel price in the U.S. was $3.07/gallon including taxes. The price in the United Kingdom (U.K.) was over twice this at $6.35/gallon. Diesel prices were over $6/gallon also in Italy and France. The chief difference is the tax burden. In the U.S., taxes accounted for 18.2% of the final price, while in the U.K., the tax burden was a massive 61.2%. Indeed, the November 2019 pre-tax price in the U.K. was slightly below the pre-tax price in the U.S. The IEA reported that the U.K. diesel price excluding taxes was $0.652/liter (approximately $2.47/gallon) while the U.S. price excluding taxes was $0.663/liter (approximately $2.51/gallon).
heavily subsidized, and the process of gradually reducing the subsidies caused riots. Venezuela also subsidizes retail fuel prices, but the hyperinflation of the past year makes it impossible to convert to U.S. dollars. Government manipulation of prices has often caused lopsided demand patterns that ultimately create market inefficiencies. Figure 6:
IEA Automotive Diesel Price Including Tax, US$/gallon
In fairness, U.S. diesel prices are low compared to other IEA countries, but they are not among the lowest in the world. Some governments subsidize diesel prices, particularly in oil-producing countries where prices are directly administered. Access to inexpensive fuel may be viewed as a means of sharing oil wealth with the people. Iran offers an extreme example. In 2018, Iranian diesel cost a mere 34 U.S. cents per gallon. Gasoline also has been
Source:International Energy Agency
FUELS & SUPPLY
U.S. Diesel Market in Focus: The Long-Term Development and Outlook
Diesel Quality and Production Improving diesel fuel quality has been a quest lasting over three decades, and it continues to this day. In the U.S., the California Air Resources Board (CARB) led the way in 1988 with the “Proposed Adoption of Regulations Limiting the Sulfur Content and the Aromatic Hydrocarbon Content of Motor Vehicle Diesel Fuel.” CARB had been the first major regulatory agency to link aromatics with emissions, though other international agencies were discovering that emissions were reduced when using diesels with high cetane numbers and high percentages of paraffinic compounds. At the national level, the U.S. Environmental Protection Agency (EPA) began regulating the maximum allowable sulfur level in 1993. Prior to this, diesel fuel legally could contain as much as 5,000 parts per million (ppm,) or the astonishing amount of 0.5% sulfur by weight. In many cases, thankfully, this constraint was not binding, and actual sulfur levels were considerably lower depending on the refinery feedstock and technological capability. The maximum standard of 500-ppm sulfur (0.05%) then was adopted. This quickly became considered an interim measure, because discussions were underway to move to ultra-low sulfur diesel (ULSD) with a maximum sulfur content of 15 ppm. Indeed, U.S. diesel sulfur standards were lagging the ones adopted in other countries. For example, Japan adopted a 50-ppm sulfur maximum standard in 2005. This standard caused no disruption to supply, because Japanese refiners already in 2003 had voluntarily moved to 30-ppm sulfur diesel. Japan then adopted a 10-ppm sulfur standard effective in 2007, and once again Japanese refiners came in early and made 10-ppm sulfur diesel available beginning in January 2005. Countries in the European Community also were moving quickly toward ULSD with the Euro standards.
Since 2006, the great majority of on-road diesel in the U.S. became 15-ppm sulfur maximum ULSD. The 15-ppm maximum standard spread to all diesel uses except for marine fuel between 2010 and 2014. Adopting and implementing diesel quality standards was a lengthy and complicated process, with rules varying by submarket, type of diesel, season and size of refiner or importer. The effort has been considered a success, however. The EPA calculates that the diesel fuel standards reduce harmful emissions by over 90%. As the year 2020 begins, many analysts are watching diesel markets to discern whether the adoption of IMO 2020 (International Maritime Organization) 500-ppm sulfur marine fuel will cause supply or price disruptions. Marine fuels had been one of the few places where refiners could blend high-sulfur streams, and it was feared that eliminating this outlet could cause low-sulfur diesel prices to spike above high-sulfur grades. While it is still early in the year, supplies of complying fuel have been available, and the prices have not spiked. In the U.S., desulfurization capability has expanded enormously. Figure 7:
Increasing Diesel Production and Quality: Hydrocracking and Middle Distillate Hydrotreating Relative to Crude Capacity (%)
Source: Energy Information Administration (EIA), and author’s calculations
Adopting and implementing diesel quality standards was a lengthy and complicated process, with rules varying by submarket, type of diesel, season and size of refiner or importer. The effort has been considered a success.
FUELS & SUPPLY
U.S. Diesel Market in Focus: The Long-Term Development and Outlook
Increasing the yield of high-quality diesel required billions of dollars of capital investment in U.S. refineries over several decades. Figure 7 examines hydrocracking and hydrotreating as two key indicators of diesel production capability. These are indexed against crude oil refining capacity in order to see how their relative roles have grown. (That is, if hydrocracking and hydrotreating capacity doubled, but crude refining tripled, diesel yield and quality might not improve in relative terms). Hydrocracking is the chief upgrading technology that is used to maximize low-sulfur, high-cetane diesel blendstocks. In 1987, U.S. crude oil distillation unit (CDU) capacity was 14.915 mmbpd, while hydrocracking (HDC) capacity was 1.07 mmbpd, giving a ratio of 7% HDC to CDU. Hydrocracking is an expensive technology, but U.S. refiners more than doubled their HDC capacity to 2.285 mmbpd in 2019, ending up with a ratio of 12% HDC to CDU. Middle distillate hydrotreating (HDT) capacity also was added aggressively during those years. In 1987, middle distillate HDT capacity was 2.567 mmbpd, giving a ratio of 17% HDT to CDU. By the year 2019, HDT capacity had grown to 6.648 mmbpd, more than doubling the ratio to 36% HDT to CDU. Note that the types of hydrotreating units included in this reckoning are the ones dedicated to middle distillates only. Other types of hydrotreating capacity were built to remove sulfur from heavy gas oils going to cracking units, naphthas going to catalytic reforming units, and naphthas from catalytic cracking units destined for gasoline blending.
The additions to HDC and middle distillate HDT allowed the U.S. to produce larger volumes of higher-quality diesel. Figure 8 shows the progress in phasing out high-sulfur diesel. In 1993, U.S. refineries produced 2.234 mmbpd of diesel with sulfur contents of over 500 ppm and 0.898 mmbpd of diesel with sulfur contents between 15 ppm and 500 ppm. The amount of high sulfur diesel produced was cut by more than half as it was phased out in favor of diesels with 15 â€“ 500 ppm sulfur during the decade between 1995 and 2005. In 2005, 2.909 mmbpd of diesel in the 15 â€“ 500 ppm sulfur range was produced. After this, Figure 8:
Refiner Output of Diesel by Sulfur Content, '000 bpd
Source: Energy Information Administration (EIA), and author's calculations
FUELS & SUPPLY
U.S. Diesel Market in Focus: The Long-Term Development and Outlook
The U.S. has emerged as the Western Hemisphere’s dominant exporter of diesel, currently providing 1.347 mmbpd of diesel to export markets.
the high-sulfur grades quickly began to dwindle. Medium-sulfur grades also were shifted to ultra-low sulfur levels. Refiners began to produce ultra-low sulfur diesel of 15-ppm sulfur and below in 2004, when U.S. refinery production was reported at 20,000 bpd. ULSD production began to rise, though the chart shows a brief downturn of all grades produced in 2009 during the Great Recession. During the first three quarters of 2019, ULSD production averaged 4.816 mmbpd. Output of medium-sulfur grades has dwindled to a mere 0.127 mmbpd, while production of diesel containing over 500 ppm sulfur averaged just 0.202 mmbpd. Adoption of biodiesel and biodiesel blends has expanded supply also. The EIA reports that U.S. biodiesel production averaged 104,110 bpd in 2017, 121,135 bpd in 2018, and 114,818 bpd during the January – October period of 2019. This has brought its own set of quality issues, centering mainly around the various forms of water contamination. Certain microbes, often called the “diesel bug,” can thrive in environments where both diesel and water are present. While these microbes can grow in petroleum-based diesel as well, biodiesels made from plant and animal fats offer a more attractive food. They also are more likely to attract water.
U.S. imports of diesel had been trending up from 1993 until the collapse of the Great Recession in 2008 – 2009. In 1993, diesel imports averaged 184,000 bpd, growing to over 300,000 bpd during the 2003 – 2007 period. The Great Recession caused U.S. total fuel demand to fall sharply. Between 2007 and 2009, the EIA reported that demand for finished petroleum products dropped by 1.776 mmbpd, including 0.565 mmbpd of diesel. Demand began to recover after 2009, but U.S. imports of diesel continued to decline. Imports fell below 200,000 bpd in the year 2011, and they have remained below that threshold ever since. The key force behind this was the Shale Boom, which greatly boosted domestic oil supply and cut into the need for imports.
Diesel Trade Between 2000 and 2019 (average data for the first three quarters), U.S. diesel demand grew at an average rate of 0.5% per year. As noted above, refinery production of diesel grew at an average rate of 1.9% per year. The net result has been that U.S. imports of diesel have fallen, and exports have risen.
The drop in diesel imports was accompanied by an even more spectacular rise in exports. Figure 9 displays the growth in U.S. diesel exports and the diversification of foreign markets. Between 1993 and 2005, U.S. diesel exports had slowly dwindled, falling from 272,000 bpd in 1993 to 138,000 bpd in 2005. After 2005, however, exports began to surge, first passing the million-barrel-per-day mark in 2012 and then continuing to rise to an average of 1.347 mmbpd in the first three quarters of 2019. This equates to an incredible growth rate of 17.7% per year.
Canada has been a significant international source, and it also has been the only stable source of imports. Imports of Canadian diesel grew from approximately 60,000 bpd in 1993 to over 100,000 bpd in 2002, and imports typically have remained the 100,000 – 140,000-bpd range since then. In the 1990s and 2000s, imports from Venezuela and the U.S. Virgin Islands were common. Diesel imports from Venezuela typically averaged 50,000 – 60,000 bpd. Diesel imports from the St. Croix refinery in the U.S. Virgin Islands were usually in the range of 60,000 – 100,000 bpd. Unrest in Venezuela and deteriorating relations with the U.S. cut exports nearly to zero. Exports to the U.S. from the Virgin Islands vanished entirely when the refinery there shut down in 2012. This refinery is scheduled to be reopened in 2020 at partial capacity, hoping to benefit from the collapse of Venezuelan refining and from the adoption of IMO 2020 marine fuels. FMN Magazine
The Asia-Pacific region historically was a key outlet for U.S. diesel, but its role has diminished. In 1993, the U.S. exported 155,000 bpd of diesel to the Asia-Pacific region. This nearly vanished in the 2004 – 2007 period, but exports recovered modestly to 27,000 bpd in 2018. The main growth has been in export markets closer to home. Currently, approximately 80% of U.S. diesel exports are sent to countries in the Americas and the 20
FUELS & SUPPLY
U.S. Diesel Market in Focus: The Long-Term Development and Outlook
Caribbean. Brazil and Mexico in particular have grown into major markets, with Brazil importing 202,700 bpd and Mexico importing 284,000 bpd during the first three quarters of 2019. The U.S. is now sending diesel to nearly every importing country in the Western Hemisphere, including Chile, Peru, Panama, Colombia, Guatemala, Argentina, the Bahamas, Canada, Ecuador, the Dominican Republic and El Salvador. Exports to Europe and the Commonwealth of Independent States (CIS) also expanded quickly, soaring from 16,000 bpd in 2005 to 216,000 bpd during the first three quarters of 2019. Some of the key markets are the Netherlands, Spain, the United Kingdom, France and Gibraltar.
The U.S. Energy Information Administration forecasts that gasoline will remain the dominant fuel in the U.S. transport sector through the year 2050, but that diesel’s relative role in the fuel mix will grow.
Rapid Growth of U.S. Diesel Exports, ’000 bpd
Source: Energy Information Administration (EIA)
Conclusion The U.S. diesel market has changed significantly in recent years. The quest for higher-quality, lower-emission diesel necessitated a decades-long program of refinery investment that phased out high-sulfur grades in favor of medium-sulfur grades, then phased out medium-sulfur grades in favor of ultra-low-sulfur grades. It also expanded the volumetric output of diesel at a rate that far surpassed the growth in domestic demand. The U.S. has emerged as the Western Hemisphere’s dominant exporter of diesel, currently providing 1.347 million barrels per day of diesel to export markets. Some of these markets lack large, sophisticated refineries, and the U.S. is a key source of low-sulfur diesel for them. The fact that U.S. refineries produce ample supplies of high-quality diesel keeps a lid on domestic prices.
the fuel mix will grow. Volumetric demand for both fuels is forecast to decline, posing challenges to the fuels industry. The rate of decline for diesel is forecast to be more moderate. There are many experts who believe oil demand will, and must, peak and begin to fall much sooner than currently forecast. The past thirty years have brought enormous change to the diesel market. The next thirty could bring even more momentous change. It seems safe to say that transport demand and the role of trucks will increase, regardless of the fuel they use, and that in the near term, that fuel will be mainly diesel. In the long term, anything is possible. n
FMN FUELS MARKET WATCH
Compared to much of the developed world, diesel remains a bargain in the U.S. For most of 2019, retail prices were below their 2018 levels. The U.S. tax burden on diesel of 18.2% is modest compared to the 61.2% assessed in the U.K. In November 2019, the average retail price of diesel in the U.S. was $3.19/gallon, whereas it was above $5/gallon in Spain and Germany, and it was over $6/gallon in the U.K., Italy and France.
Dr. Nancy Yamaguchi Nancy is an author and petroleum industry expert specializing in the advanced analysis of energy markets.Dr. Yamaguchi is the President of Trans-Energy Research Associates, Inc. focusing on a wide spectrum of fuel related issues such as economics and the environment. She possesses a strong interest in global oil industry, including supply, demand, trading trends, as well as transport, reﬁning, product blending, alternative and reformulated fuels, product quality and price behavior. Dr. Yamaguchi can be reached at firstname.lastname@example.org
The U.S. Energy Information Administration forecasts that gasoline will remain the dominant fuel in the U.S. transport sector through the year 2050, but that diesel’s relative role in FMN Magazine
It Is What It Was by Brian Reynolds
For most of the 1920s, gasoline prices averaged around 20 cents a gallon and gross profit margins were 2 cents a gallon, which translated to an impressive 10 percent gross profit margin. Sadly today, in the year 2020, margins are often the same percentage per gallon as they were in the 1920s and on occasion in a volatile market, it can be many times less and sometimes much more. Apparently, when it comes to retail fuel margins, it is what is—or even worse—it is what it was!
According to NACS Online January 24, 2020, “By the Numbers,” U.S. gasoline retail average profit margins from OPIS were 27.2 cents per gallon ($0.272 per gallon) with the average price of retail fuel (regular unleaded gasoline) being $2.534 per gallon, which equals to a gross profit margin of approximately 10 percent (10.734).
Open market forces absolutely dictate profit margins, but still, ours is for certain a pennies game.
For this story, and for easy figuring, I’m keeping state and federal taxes in the price. Using the same average percentage profit margin as in the 1920s: $2.534 gasoline at 10 percent gross profit margins should be coming in at around 25 cents per gallon. Using today’s average margin of 27 cents per gallon, at a cost of $2.534 per gallon, gasoline gross profit margins come in at 10.655 percent. So, for 100 years our industry has been stuck at around 10 percent profit margin! There are laws on the books, such as the below-cost laws in Minnesota* about selling fuel for too little, which do nothing but open a can of worms and suggest that some retailers are better at buying product than others. There are price-gouging rules, but nothing about how to maintain an acceptable profit margin for fuel.
* https://www.revisor.mn.gov/statutes/cite/325D.71 FMN Magazine
FUELS & SUPPLY
Everybody likes to think about how purchasing power has changed over the years. Back in the day they had 10-cent hamburgers, new 1958 Corvettes for $3,500.00, 20-cent gasoline, etc. Today, 100 years later, gross profit margin percentages should be higher rather than the same for no other reasons than (1) adjustments for inflation and, (2) a reward for putting up giant—out of proportion as compared to the 1920s—sums of investment capital, (3) much more overhead such as environmental issues, (4) credit card fees, labor, insurance, etc.
Annual Average Gasoline Prices 1918 – Current Adjusted for December, 2015 Inflation ©2016 Inflation Data.com. Updated 01/20/2016
Note: Prices are Average Annual Prices for Retail Regular Gas, not Peak Prices, so Peak Prices are smoothed out. Source: U.S. Energy Information Administration (EIA), CPI-U Inflation Index www.bls.gov
Petroleum marketers gave up a long time ago trying to maintain a consistent per-gallon profit margin percentage. Even state and federal taxes are calculated by the gallon, and besides, trying to keep up with percentages in the fuel business will drive you nuts. Open market forces absolutely dictate profit margins, but still, ours is for certain a pennies game. I have an old price sign hanging in my office from I believe the 1940s that came from my family’s West Texas fuel business that at the time was still operating in that same 20 cent-per-gallon pricing tier. The sign was professionally hand painted, which tells me the price didn’t change very often and further demonstrates that the price stayed virtually the same for many years!
If pennies are the If pennies are the reward for playing the reward for playing game, then wouldn’t it the game, then be prudent to protect wouldn’t it be as many of them as prudent to protect possible? Temperature as many of them loss would be an example of not being as possible? able to do much about it. But what about losses that come from a supplier? Or a loss that came from a carrier? Or dispenser meter error? Or a loss due to theft? Or a loss that was due to incorrect blend ratios or a small leak?
How about being able to correctly identify the exact amount of loss due to temperature instead of assuming all losses are temperature related? Correctly identify losses and the amount from these other categories and do it for every load of fuel delivered—and do so in realtime speeds! These types of losses can be identified with sophisticated automated software and once identified, corrective actions can be put in place to prevent them from happening repeatedly.
Apparently, market forces dictate the amount that can be earned on a retail-per-gallon scale, and it seems the only way to make more pennies is to sell more fuel, which requires a much larger investment. Another thought would be instead of being nostalgic in operational processes, adopt more of a tactical stance by looking for ways to better identify and minimize fuel shrink.
A meager 50-gallon variance in a single standard fuel delivery at a cost of $2.534 per gallon equals $126.70 of lost inventory! Benjamin Franklin is often credited with the saying, “A penny saved is a penny earned,” but when it comes to fighting fuel shrink his saying of “An investment in knowledge pays the best interest” can make it an obtainable goal! n
FMN FUELS MARKET WATCH
I love nostalgia as much as anybody. I have more souvenirs from a bygone era than most marketers, but passively accepting fuel inventory and delivery losses isn’t one of them. Technology has advanced to the point that instead of acknowledging a fuel loss as the cost of doing business, take a “search and destroy” war-like urgency to minimize fuel shrink to a level where it can’t be reduced any further. FMN Magazine
Brian Reynolds Brian began his career working as a teenager in his family-owned jobbership in Cisco, Texas and was at the forefront of many signiﬁcant industry milestones. Reynolds was an early adopter of cardlock systems in the 1980s, a pioneer of high-volume supermarket fueling centers in the 1990s and one of the key architects of inventing reward-based fueling loyalty in the 2000s.He currently works for Dover Fueling Solutions in ClearView, wet stock management sales.Contact Brian at Brian.Reynolds@DoverFS.com or cell 325-733-6490.
Motor gasoline consumption in the United States averaged 9.3 million barrels per day (b/d) in 2019. The U.S. Energy Information Administration (EIA) forecasts U.S. gasoline consumption will stay near that level in 2020 and then fall by 50,000 b/d (0.6%) in 2021. EIA forecasts that distillate fuel consumption in the United States will increase by 40,000 b/d (1.1%) in 2020 and remain ﬂat in 2021. Forecast U.S. distillate fuel consumption will average about 4.1 million b/d in both years. Source: EIA Short-Term Energy Outlook, January 14, 2020
Bottom Line: Strong crude and reﬁned products inventory build-up, low-cost fracking production and market stability from energy independence will drive strong fuel sales for the next couple of years—if not decades.
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Why Petroleum Temperature Matters in Bulk Fuel Sales
by Charles Davis
As a fuel distributor, you could be cheating yourself of valuable volume as your fuel expands and contracts with the temperature. Understanding and managing every aspect of your fuel purchasing is critical in order to maintain or improve your margins. Tough negotiation and volume purchases are obviously core strategies in effective fuel buying and selling, yet there is another strategy that can contribute to improving your fuel margins.
If you are buying or selling fuel based on gross volume— its actual volume at the current temperature—you need to understand how the by Charles Davis temperature affects the value of each of those gallons.
To be truly effective, you must be aware of how volumetric fluctuations caused by product temperature can impact product volumes and pricing. If you are not considering temperature variations, you are subjecting your company to great risk, particularly in states where suppliers buy in bulk based on temperature-corrected (net) volume but are required to sell and report to tax authorities based on the actual (gross) volume.
What Exactly is Temperature Correction?
In order to understand how to best leverage temperature correction data, it helps to clearly understand the concept and science. Like all liquids, when refined fuels cool, they condense and their mass increases. Conversely, when fuels warm, they expand, occupy more space and their mass decreases. While this is inconsequential at the retail level and impractical to address, that is not the case with wholesale volumes. If you are buying or selling fuel based on gross volume—its actual volume at the current temperature—you need to understand how the temperature affects the value of each of those gallons. After all, the ultimate value of a fuel is based on the power it provides to an engine, which is driven by the fuel’s mass.
Real-time information is critical to accurately account for temperature correction. When counterparties are equipped with that data, by Charles they Davis will be able to rely on solutions that aggregate the gross and net volumes at the product and terminal level.
Think of mass as the number of molecules in a given amount of fuel regardless of the amount of space, or volume, that fuel takes up. One gallon of gasoline at 40°F has 1.4% greater mass, 1.4% more molecules and 1.4% more ability to power an engine than one gallon of gasoline at 60°F. Consequently, a 40-degree gallon is worth 1.4% more than a 90-degree gallon. In order to correct for the density differential caused by the temperature fluctuation, the American Society of Testing and Measurement (ASTM) provides formulas and calculations for the accurate correction of volume based on temperature. Incorrect measurements can easily create a 1 percent discrepancy in volume, which, on a $2.00 gallon, is an error of $.02 per gallon. Every evening, pricing managers post gasoline and diesel prices at terminals across the country. Most of these prices contain a “best estimate” of temperature correction, but these estimates are never perfect. The degree that these estimates are imprecise creates financial risk. One of the ways to generate measurement estimates is to compensate for the weather and ambient temperature fluctuations and other estimated variables. This is currently the preferred method for estimating product temperature; however, the list of ways this can cause inaccuracies is long.
Maximizing Pricing Negotiations with Temperature Correction Data For many years, buyers and sellers routinely have believed that when the weather changed and their margins grew or narrowed, it was just part of the cost of doing business. Some businesses began to try to compensate for seasonal temperature variations by adjusting their price differentials throughout the year to account for the changing density (mass) of the fuel they sold. But this was only a small improvement and didn’t reflect day-to-day temperature fluctuations, nor was it consistently accurate.
try standards for gross-gallon formula transactions. To account for variations in density according to temperature, some businesses opted to include an “adder” to prices based on the annual average temperature at a terminal market. Others chose to employ a similar “monthly adder” to prices based on the historical monthly temperature at a terminal market. Elsewhere, some chose to perform manual reconciliation at the end of the month based on what actual temperatures had been, or to make no adjustment at all. DTN’s approach to the issue was to engineer a modern solution that delivers accurate, real-time temperature data, right from the terminal. Real-time information is critical to accurately account for temperature correction. When counterparties are equipped with that data, they will be able to rely on solutions that aggregate the gross and net volumes at the product and terminal level. By doing this, outlier bills of lading (BOLs) can be filtered out, reports can run at set intervals throughout the day and our industry can rely on standardized, nearly real-time data that reflects all time zones and activities each day. Rating and reporting gallons precisely at the time of lifting means buyers and sellers can have a more consistent and extremely reliable source for temperature-based volume adjustment factors, which enable improved pricing processes and enhance margins. All purchasers and suppliers should evaluate if they are able to access and use consistent, accurate volumetric fuel measurements. Industry research indicates that many overlook this detail and this oversight has serious implications. Small errors in measurement, or no consideration at all for temperature correction, can result in unintended and unnecessary risk for both buyers and sellers. n
READ MORE at FuelsMarketNews.com
With the advent of annual formula-based price contracts, many sellers began to encourage ratable liftings. However, during the early use of formula-based price contracts, little consideration was given to the net-versus-gross problem, so these contracts locked in an added layer of risk and complexity for businesses required to sell in gross gallons.
Charles Davis Charles is the Vice President of Energy Sales at DTN. In his role at DTN, Charles works closely with customers in the energy market to bring them insights that help manage risk and increase margins. He recently launched the new Temperature Correction Index product for the company.
Some buyers and sellers developed ways over time to deal with this problem in contracts, but there were still no best practices or indusFMN Magazine
Star Oilco Profile Star Oilco has deep roots providing various fuel to its customers. The type of fuel provided is dramatically different today than it was over 80 years ago, and, in fact, the products it carries and distributes are not all that common today among its peers. The initial products sold were sawdust, coal and wood. Today the company has a strong diesel and commercial focus, distributing diesel, biodiesel, renewable diesel, off-road diesel (dyed diesel) and to a lesser extent, gasoline. It operates cardlock sites, heating oil delivery, bulk fuel, on-site mobile fueling service and a single Shell retail site that does heavy diesel business. While not a huge operation, Star Oilco President Mark Fitz noted that being smaller can mean being better. “I notice a lot of the larger marketers don’t really
know their operations that well,” he said. “You have the salespeople, the transportation piece and then the management and there are chasms between them. Where we’ve grown is based on the ability to see where I need to pull those areas together.” The company was originally founded in 1936 by D.B. Pruitt as Franklin Fuels. Franklin Fuels, like many energy companies of the era, had a foundation in coal and given its location, sawdust and chopped wood. The lumber mills would give away sawdust which could then be used in sawdust furnaces. The work involved shoveling dry sawdust into a hopper that would then gravity feed into the furnace. While it was good business, neither sawdust nor coal were fuels of the future. Pruitt attended a class offered by Texaco that showed how you could replace the sawdust furnace door with an oil burner
by Keith Reid
“I’ve discovered it’s best to look for past loyalty when hiring. And then, if they’re loyal people and they’re looking for work—what’s the reason they are making a change? ” Star Oilco President Mark Fitz
assembly and convert to heating oil. The company moved into oil with Texaco as its vendor and the name was changed to Star Oil Co. to reflect the Texaco star. The Fitz family got started in the business when his father returned from Vietnam with his poker winnings. “My dad (Michael Fitz) was attached to a special forces unit and was authorized to use the special forces officers’ club. He wasn’t a great poker player, but he told me that if you wanted to play a winning game of poker, play with people who tend to be impulsive, love risk and go all in.” Fitz bought a one-truck heating oil company, Willoughby Oil, in 1972, which he had doubled in size by the time he bought out D.B. Pruitt in 1976. He gradually acquired another company, Oilco, throughout the 1980s. The company then became Star Oilco. “The owner, Joe Kent, was a huge pioneer in cardlock technology,” said Mark Fitz. “In fact, he paid programmers to make some early card punch technology that was licensed to Pacific Pride when they started their business.”
Mark Fitz started in the family business after serving enlisted in the Army, Army Reserves and Air National Guard in the 1990s and subsequently graduating from college in 2000. In fact, it was in the ANG where he first became exposed to biofuels, which are a central component of his business today. “I received my education in fuels working in a (ANG) fuel lab,” said Fitz. “In 1996 I was sent to a tech school in Texas and they were saying, ‘you may come across this new thing called biodiesel. The Navy is testing it in Illinois, and they’re going into it.’ Since the moment I heard that I was just captivated by the idea of fuel not made from petroleum. And I was going to college in Alaska and getting an economics degree, and there was a lot of emphasis on oil.” Mark’s opportunity to take over the business came with the downturn of 2008. Times were tight. He was able to buy out the business and assume the risk. Among his initial initiatives were
dropping a lubricants division and a profitable HVAC operation that complemented the heating oil sales. Star Oilco first moved into liquid fuels with heating oil, and it continues to serve those customers today. However, the market has certainly changed over the decades. “There used to be dozens of companies distributing heating oil and at least a half dozen terminals specializing in heating oil,” Fitz said. “And now there are three good-sized companies, including us, and a number of small one-truck operations.” The decline has been somewhat beneficial to Star Oilco. “We’ve been growing our heating oil slightly—more than our attrition—based on people going out of business and there not being enough drivers,” Fitz said. “But I wouldn’t expect that to be here in 20 years.” Aside from heating oil and the single retail site, the core of Star Oilco’s business revolves around traditional fuel hauling and commercial services.
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Star Oilco Profile
“We must have trucks on the road on Christmas, Thanksgiving, New Year’s… unless somebody wants those hours, I’ll be there. Stepping in when it sucks to be driving can be a pretty big deal.” Star Oilco President, Mark Fitz
Fuel Hauling Star Oilco operates a fleet of 14 vehicles, five of which are fuel hauling tankers which make up the core of a common carrier service. Star Oilco serves the Pacific Northwest centered on Oregon and Washington as a common carrier, while covering both states completely as a mobile on-site fueler. From a product standpoint, Star Oilco strongly favors diesel over gasoline and commercial over retail, however, it does haul gasoline for some friendly competitors that need truck capacity. As with any fleet operation, driver retention is an enormous issue. “You work at it every single day as a core competency. There are some years where it’s like you are on a treadmill of turnover,” Fitz said. “I’ve discovered it’s best to look for past loyalty when hiring. And then, if they’re loyal people and they’re looking for work—what’s the reason they are making a change? HAZMAT generally brings better pay and benefits and they’re home every night, so what is it that they are looking for?” He noted that a lot of companies make promises about accommodating specific needs but fail to deliver. “Say you find someone with a childcare need that their previous employer is not meeting,” Fitz said. “If I can find a way to take care of that need, they will be with us at least until their kids are in high school.” Similarly, Fitz noted that many operations skirt Department of Transportation (DOT) rules and create a grinding work environment. “They’ll go a month without a day off, things like that,” he said. “You’re
definitely getting one day off a week for your reset and we’re aiming for two unless you want those hours, and everyone’s agreed to it.” Fitz has a CDL, and he will fill a seat when needed. “We must have trucks on the road on Christmas, Thanksgiving, New Year’s… unless somebody wants those hours, I’ll be there,” he said. “Stepping in when it sucks to be driving can be a pretty big deal. I’m prior Army enlisted and that’s the way Army leadership works.” Another aspect of military service—a sense of purpose—also translates into attracting and retaining not just drivers but quality employees throughout his operation. “A lot of companies are having trouble attracting good people,” Fitz said. “And that’s because there’s a lack of a sense of purpose. We instill a sense of purpose, and I’ve been very fortunate that the people we hire embrace that sense of purpose and take pride in what we’re doing.”
Mobile Fueling Star Oilco operates four trucks that wet hose fuel at night. Fitz appreciates this as a higher-service, higher-margin component of the business. In addition, the company has three trucks on the road in the morning doing jobsite fueling, heating oil, generators and refrigerated trailers. “I love fueling refrigerated trailers,” Fitz said. “Most people hate it. I just love the little stops with the high margin. And it’s about being there consistently—set a watch to it. It’s interesting how many people in our industry fail at that.”
More broadly, the key to success in this type of service is—service. Service centered on communications. “Our drivers have every one of the customers’ vehicles memorized,” Fitz said. “They know the guy who’s there in the shop at night. They know where they are parked each day.” However, that doesn’t mean that issues don’t arise from time to time. Fitz approaches this from the angle that people usually have the best of intentions, but sometimes you have a communication problem. “We had a customer who kept complaining that we didn’t get a certain loader,” said Fitz. “So, I started, doing their stop. I was just looking all over for it and I’m walking around with a flashlight, and then I found it.” The loader was parked inside of a building on top of a mountain of shredded wood, and the driver would just jump out at the end of his shifts. “It was the most dangerous place on the site,” said Fitz. “I come back to them and say, yeah, we missed it, but you don’t want us to fuel it and I’ll explain why. And they came up with this idea where they painted a yellow line and all equipment must be parked on that yellow line at the end of the day. Then everything got really easy to service.” As part of its service the company wet hoses diesel exhaust fluid (DEF) and charges for the labor. Two trucks have small DEF tanks and they run a route on designated “DEF days.”
Star Oilco Profile
feedstock but a production process more in tune with that of petroleum diesel. (Please see the separate article in this issue on page 8 on renewable diesel specifically.) Fitz sees it as being the “next generation fuel” that is perfectly suited to carbon markets while providing more direct compatibility with petroleum diesel as a “drop-in” substitute.
biofuel solutions regardless of regulations.
Ultimately, where does the company’s biofuels approach fit into its future operations?
“In our lifetime, gasoline will be obsolete. I think diesel will continue to grow but I think the future diesel will be renewable.” Star Oilco President Mark Fitz
Cardlock Operations Star Oilco operates Pacific Pride cardlock site and a CFN cardlock site. Both integrate well into the company’s mobile fueling operations. “We focus on the standalone commercial card lock and not the retail fleet card business,” said Fitz. “We’re seeking a smaller fleet that’s locally focused and their big concern is fuel theft, and you’re helping them secure those cards. We believe, and our message to customers is, that you have more control and security with your drivers at a cardlock site than you do at a retail site.” Where DEF is concerned, the company is in the process of adding bulk fluid service throughout its cardlock operation.
Moving Into Biofuels Mark Fitz’s path into the family business involved a negotiation over his desire to attend law school. It also opened the door to the company’s strong focus on biofuels. “My dad is not a fan of higher education, and he was not a fan of me going to law school,” he said. “But he really needed a salesperson and we came to an agreement. He would indulge me in law school if I came to work as a salesperson, and he would also indulge me in playing with biodiesel. He let me know it was guaranteed to fail and back in the ’70s… well, in 2007 we moved about 3 percent of the biodiesel in the United States.”
Ethanol has had a mixed reception where carbon is concerned out west. The California Air Resources Board (CARB) pushed back on corn ethanol from a total carbon standpoint. This generally centered on ethanol’s ability to increase evaporative emission and debates over the full energy cycle for production. In one development that Fitz highlighted, CO2 from ethanol production (located close to fracking areas) is liquified and used as a fracking solution that sequesters the CO2 in the earth. This lowers the carbon footprint of both the ethanol and oil/gas production.
For the Northwest, and the West Coast in general, the future of biofuels starts today. These areas, along with the Northeast and agricultural regions strongly support biofuel consumption through both public support and a range of regulations. And, incentives can make the fuel itself very profitable. For example, Fitz noted that Oregon had a program that waived the onroad fuel tax with B20 (20% biodiesel) or higher when the biodiesel was made from “I think ethanol is an awesome American a low carbon yellow grease or waste fuel,” Fitz said. “I can’t believe E85 isn’t vegetable oil feedstock. everywhere. I beat my head against the wall for a decade trying to develop E85 The company currently distributes and offers through its fueling services biodiesel, and have one location. When gas was $4 per gallon in 2008 everybody was excited renewable diesel and ethanol. about it. Ethanol was $1.60 and you would Most of the action is driven by California’s sell it for $2 and everybody was excited Cap-and-Trade Program and Low Carbon about the price and we moved quite a bit Fuel Standard and its spread though of it. We have plenty of supply and plenty likeminded states and localities. This of flex fuel vehicles but now, people just provides a carbon trading system and other aren’t into ethanol.” incentives that make low carbon fuels more affordable or in fact profitable. Oregon and Fitz is surprised that with gasoline prices creeping higher, E85 remains lagging. He Washington, while not yet on board at the state level, are moving in that direction with noted that the one site he supplies with several counties around Seattle making the E85 has a customer base that appreciates move independently. These areas also have E85 as a racing fuel, due to its enhanced performance in high-compression engines. fleet operators willing to pay extra for
His view on the future of liquid fuels reflects his focus on biofuels.
“When it comes down to renewable diesel and biodiesel, the whole shooting match is markets that will pay for the reduced carbon value,” Fitz said. “The value is that they’re a lower carbon fuel, and if you want to grow a market for diesel, you must blend that for each additional gallon that you’re bringing into the state. So that’s pushing those values up.”
“In our lifetime, gasoline will be obsolete,” Fitz said. “I think diesel will continue to grow but I think the future diesel will be renewable.”
As already noted, Star Oilco has been into biodiesel for two decades. The company is now looking to gain a foothold with renewable diesel, which involves similar
“Everything is change and I will fuel that change,” Fitz said. “I would suspect that in the next few years they’ll be selling electric vehicles by the mile. There’ll be people who want the service taken care of and you’ll have a thousand startups without any ability to understand fleets, and none of the oil guys that understand that intimately will pick it up. Yeah. It’ll be weird and I’ll be the only guy and they will look at me like a freak.” n
20 Years After I
t struck me that associates joining our team as recent graduates have no knowledge nor memory of Y2K. If you’re of “a certain age” you no doubt still remember the flurry of panic that surrounded the event. With many prognosticators warning that business would grind to a halt on January 1, 2000, jobbers, manufacturers and retailers as well as the major oil companies all spent, or invested depending on your perspective, large sums to ensure business continuity.
Over the past twenty years we’ve seen a continuous evolution, perhaps revolution, in technology, regulation and work force availability. This begs the question: is the need to focus on the risks and disruption of technology any less today than in 1999? As Bill Gates once said: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”
Do you still have the urgency Y2K created? by Richard Browne
Do you have access to the numbers you need to make decisions effectively? More importantly, do you have a system that links these numbers to your goals and therefore ensures you are focused on the right things?
Letâ€™s start with several of the macro-trends.
what the current best practices are?
For many in our industry there are two venues to benchmark their hauler or distribution performance. Industry groups such as the Study Groups provide an opportunity to learn from noncompetitive peers. A feature of many of these meetings is sharing on one business practice that has been implemented by each participant. Getting 10 tested best practices several times a year is powerful. To further expand your perspective, CEO peer groups such as Vistage cast a broader perspective and provide access to entrepreneurial executives from a range of industries. Lastly, participation in industry events such as SIGMA conferences provide both educational sessions and networking that enable executives to stay current on fuel, environmental, labor and technology.
Computing power is now extremely inexpensive and everywhere. Your team is reachable anywhere and has access to all needed information on their iPads, Android phones or laptops. SaaS (or software as a service) products have shifted the IT operating model, moving software from a large point-in-time capital expense to a monthly utility. Younger employees, who have grown up with an alwayson-device mindset, expect being able to use technology to effectively perform their jobs. The driver shortage continues to increase. Attracting, retaining and optimizing productivity for drivers is critical to meeting customer expectations and delivering satisfactory shareholder returns. This optimization is complicated by the needs of electronic logging device (ELD) compliance, which places caps on driver hours and requires either a solid scheduling system or a large white board to balance driver schedules, terminal allocations and terminal wait times.
are we measuring, 2 What and what is it telling us? Do you have access to the numbers you need to make decisions effectively? More importantly, do you have a system that links these numbers to your goals and therefore ensures you are focused on the right things? Resources here include books like Traction by Geno Wickman and Measure What Matters by John Doerr.
Roll-ups continue in both the jobber and carrier markets. As the market consolidates and the big and mid-sized players can invest more in systems, driver recruitment and leverage their scale on supply contracts, pressure will increase on the industry to improve efficiencies.
In support of this, is your information in a central system that provides insights that leaders and manners can access with consistency? If you are relying on team members to cut and paste data into Excel to create daily, weekly or monthly status reports, this time could be refocused to more value-added activities using a single solution.
In this environment, how can a fuel wholesaler, carrier or retailer ensure they are positioning their business to perform at its best while maximizing employee engagement and retention? You may want to start by asking yourself and your management team these questions:
we regularity conduct 1 Do market surveys to understand
Related to this, is your technology enabling your employees to perform most effectively? Whether in the dispatch room, at the fuel buying desk or in fleet maintenance, having employees use dated processes may be costing you both more money and higher turnover than is needed.
20 Years After
are some profit levers 3 What that will make a difference? n Optimizing load size utilizing a combination of real time site inventories combined with route times. Although it may seem obvious, have you considered that a 1 percent increase in average load size would result in one less trip for every 100 your fleet makes. Information such as automated fit check and advanced forecasting algorithms can help improve asset utility for your fleet and lower average load cost. n Automation of retail pricing execution. Many fuel retailers still rely on a manual system for updating street prices at their convenience stores. Regardless if a site is company owned, consigned fuel or dealer owned, shifting from a system that relies on emails and phone calls to an automated system that pushes price changes to the price sign and pump increases efficiency and compliance on price changes. Have you considered how much margin has been lost by delays and incorrect price changes? n Improving time to cash. By doing a process map on the paperwork related to invoicing fuel loads, you may identify a range of costs that can be reduced or improved. These costs include the delay—often several days—from drop to invoice, clerical time spent preparing and sending invoices, and paper and storage space costs.
n Capturing costs that currently aren’t billed. If you are relying on manual systems to capture wait times and other demurrage sources, you may be missing a significant opportunity to recoup legitimate revenue. Automated systems can capture terminal wait times, actual delivery times and other delays that are often billable. n Tying ELD information and driver availability electronically with your dispatch and driver scheduling to ensure even loading of drivers based on your rules or priorities. In conclusion, Y2K didn’t create the havoc that many predicted it would. Jobbers, fleets and c-stores that are pursuing efficiency leveraging current technology are gaining a competitive advantage that will result in continued disruption of companies that do not attack improvement with vigor. n
READ MORE at FuelsMarketNews.com
Richard Browne Richard Browne, Growth and Business Development Leader at InSite360, a Veeder-Root company. Browne is a fuel and c-store veteran and leading authority in downstream petroleum logistics and operational excellence. As a leading global supplier of fuel management solutions, Insite360 is the analytics business unit of Gilbarco Veeder-Root. The company optimizes commercial and retail supply chain operations with purchasing, logistics and environmental compliance. Contact Richard at email@example.com.
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“The strong December performance capped a historic year in America’s energy revolution. The global impact of this success story has become increasingly clear as the U.S. provided stability in a global marketplace rattled by geopolitical and economic headwinds. Look no further than the market’s mild reaction to recent Middle East tensions, which less than a decade ago would have rocked consumer and ﬁnancial markets. This is good news for American households and businesses.” Source: American Petroleum Institute (API) Chief Economist Dean Foreman, January 23, 2020
Bottom Line: Fossil fuels will continue to power growth and prosperity until the day arrives when alternative fuels can compete without government subsidies. As there is no end in sight of plentiful, low-cost petroleum supply, that day is not arriving any time soon.
WHAT TO EXPECT
THIS YEAR Another year rolls around and maybe a new decade (depending on how you ďŹ gure the math). The economy moving into the new year is strong and so appears the health of the industry. According to the ďŹ nal quarterly NACS Retailer Sentiment Survey for 2019: three in four retailers (74 percent) said that in-store sales increased in 2019, compared to only 7 percent who said that sales slumped. And 62 percent say that their fuel gallons sold increased, compared to 25 percent who said that their fuel sales decreased.
by Keith Reid
ASSOCIATIONS IN 2020 As NACS noted, convenience stores sell nearly 80 percent of the fuel purchased in the United States and conduct an estimated 165 million transactions a day, making the industry a good indicator for trends related to travel and consumer spending. While the industry continues the process of consolidation, the big operations still exist in a world dominated by smaller operators. And both ends of the industry are increasingly efﬁcient in serving their local markets and are well served by technology. Marketers and retailers have access to numerous technological solutions designed to help them increase proﬁtability and operate more efﬁciently. Unlike some similar points in the past two decades (the B2B dot.com era of the early 2000s, for example), the solutions tend to be well developed and well-focused. Fuels Market News Magazine asked some of the major associations serving the industry for feedback on where the organizations are headed in 2020.
What are the regulatory and legislative issues the association likely will be focused on in 2020?
Armour : We don’t expect too much to change in
Henry Armour NACS President & CEO
Congress from 2019 to 2020. Overall, the agenda has been set for 2020, and Congress will spend the year trying to get things over the goal line. In this climate, one of NACS’ top priorities will be to push for ﬁnal enactment of the Electronic Cigarette PACT Act, which would regulate the internet sale of ecigarettes the same as regular cigarettes.
NACS, the global association for convenience and fuel retailing (www.convenience.org), advances the role of convenience stores as positive economic, social and philanthropic contributors to the communities they serve. NACS has 1,900 retailer and 1,800 supplier members from more than 50 countries.
On the surface, Congress will be consumed with high-proﬁle objectives that include funding the government, impeachment and campaigns for the 2020 election. But NACS also will continue to work behind the scenes and communicate the industry’s voice on Capitol Hill on a variety of issues that could gain traction in 2021 and beyond.
What is the state of the industry as the New Year begins? What are the major challenges ahead for the industry? What are the major opportunities ahead or the industry?
The majority of federal activity will be in the regulatory agencies, as the uncertainty over who will win the Presidential election will inspire ﬁnal actions on a number of issues. Speciﬁcally, expect to see an especially active Department of Labor, which will likely engage on further clarifying updates to the Fair Labor Standards Act. These updates could include regulations around tip income and how lodging and other beneﬁts are included in wage calculations, as well as possible changes to the Family and Medical Leave Act (FMLA).
Armour : The value of convenience continues to grow in importance and that presents both challenges and opportunities. The challenges are obvious: there is much more competition for the convenience customer, whether providing traditional convenience deﬁned by brick-andmortar retail or by internet-enabled ordering and delivery. But the opportunities are even greater as our industry continues to provide an unmatched convenience experience plus add new convenience offers that continue to push the boundary on what consumers expect.
Are there any new, enhanced or expanded member beneﬁt initiatives planned for 2020?
Armour : We constantly seek to reinvent our member-
The numbers bear out our continued success. Our industry’s in-store sales number continue to set new records, and we are an important part of 165 million Americans’ daily rituals. But what’s even more impressive is that consumers see us as offering much more than convenience; they see us as community partners who collect or contribute more than $1 billion annually to charitable causes and provide 2.5 million jobs. Those are some of the reasons why 86 percent of Americans say that convenience stores are good neighbors.
ship offer as our industry evolves. As foodservice continues to grow, we are focusing on how to grow the category and how to maximize food safety. We are developing new tools and reports to help retailers continue to own mobility, whether that means selling traditional fuels or providing new fueling—or charging—options. And we are building our new tools to help retailers prepare for and recover from natural disasters in the communities. And, all of these new tools and initiatives are being developed with an eye toward customization, knowing that retailer needs around the world—or even within the same city—are often much different.
ASSOCIATIONS IN 2020
What to Expect this Year
FMN: Why should someone join NACS?
the hours of service (HOS) 100-mile radius short-haul driver exception to 150 miles. More importantly, the HOS ﬁnal rule is expected to exempt CDL drivers from the electronic logging device (ELD) mandate if they stay within 150 air miles in early 2020. PMAA also urged EPA to issue a guidance document conﬁrming that pipe dope needs to be fully compatible with E10-plus blends. EPA responded with a statement indicating that much of the existing pipe dope on the market is not compatible with E15, which strengthens PMAA’s argument that E15 is not ready for primetime. Renewable fuel standard (RFS) reform will continue to dominate the headlines in 2020.
Armour : NACS membership is invaluable if you want to grow your business. We harvest and share ideas and best practices from around the world and make them actionable in your neighborhood. We bring together thought leaders and experts to give you insights to best manage the challenge you are facing today—and could face in a few years. And we give you a voice—both in connecting with fellow members and in our outreach to the media and elected leaders.
PMAA sees an opportunity to work with Congress to promote research into creating better liquid fuels for our industry. Using our existing infrastructure and vehicles, we can deliver products that meet the demands of our society for affordable, efﬁcient and environmentally friendly fuels. Those products may include renewable diesel, renewable gasoline and higheroctane gasoline. On the heating fuels front, PMAA will be on the lookout for a legislative vehicle to permanently reauthorize the National Oilheat Research Alliance (NORA). NORA is currently conducting research to achieve a 100-percent low carbon liquid fuel (LCLF) on a commercial scale and advancing heating technologies, including LCLF heat pumps focusing on efﬁciency and zero net carbon. PMAA and its state and regional associations played the lead role in reauthorizing NORA in 2014 and again in 2019 for ten years.
Rob Underwood PMAA President The Petroleum Marketers Association of America represents petroleum marketers engaged in the transport, storage and sale of petroleum products including gasoline, diesel fuels, kerosene, jet fuel, aviation gasoline, propane, racing fuel, lubricating oils and home heating oil and other petroleum products. PMAA members are the primary conduit for bringing petroleum products from the terminal rack to retail locations and represent a vital, indispensable link in the nation’s petroleum distribution chain. PMAA companies also own 60,000 retail fuel outlets such as gas stations, convenience stores and truck stops. Additionally, these companies supply heating oil to over six million homes and businesses.
How are you looking to enhance value for the state associations in 2020?
Approximately 80 percent of the motor fuels (gasoline and diesel) and heating oil sold in the U.S. are sold by petroleum marketers. There are several thousand petroleum marketers operating in the U.S. Roughly 90 percent of these marketers are members of PMAA’s federated state and regional trade associations and are represented by PMAA at the federal level.
Underwood: Disaster response efforts will continue to be a PMAA top priority in 2020. PMAA is working with the states to bring consistencies in processes among local, state and federal government agencies. Additionally, a federal and state waiver database is in ﬁnal development, which will provide the fastest possible updates during emergencies. PMAA is also planning to develop a crowd-sourced online tool to help drivers maximize their hours of service. This will help drivers know whether to head in one direction or another in order to avoid long wait times at terminals. PMAA will have more information in the new year!
What is the state of the industry going into 2020, and what are the regulatory and legislative issues the association likely will be focused on this year?
Underwood: The state of the industry is strong going into the New Year, but petroleum marketers need to remain vigilant to continue our success. Before Congress and the President left town for the holidays, they delivered an end of the year government spending/tax extenders package. Over 50 tax incentives were reauthorized including a PMAA supported ﬁve-year retroactive extension of the $1 per-gallon biodiesel blender’s tax credit as well as a three-year prospective renewal of the oil spill liability tax (OSLT). PMAA also prevented an expansion of the electric vehicle (EV) tax credit in the tax extenders bill, which was a major victory for petroleum marketers. The EV credit only beneﬁts a few companies who have already hit their EV targets as well as individuals making over $100,000 per year.
Rick Long PEI Executive Vice President & General Counsel The Petroleum Equipment Institute is a trade association whose members manufacture, distribute and service petroleum marketing and liquid handling equipment. Founded in 1951, PEI represents more than 1,600 member companies in all 50 states and more than 80 countries. Members include manufacturers, sellers and installers of equipment used in service stations, terminals, bulk plants, fuel, oil and gasoline delivery, and similar petroleum marketing operations.
Meanwhile, PMAA anxiously awaits the Federal Motor Carrier Safety Administration’s (FMCSA) ﬁnal rule that would extend
ASSOCIATIONS IN 2020
What to Expect this Year
What are the regulatory and legislative issues the institute likely will be focused on in 2020?
What is the state of the industry as the New Year begins? What are the major challenges ahead for the industry? What are the major opportunities ahead for the industry?
Long: PEI isn’t a lobbying organization, but we monitor, analyze and report on relevant regulatory and legal developments. Regulators also often reach out to us for authoritative and objective advice on unanswered questions. In the coming year, the applicability of state ﬁre and electric codes to mobile fueling will be one hot topic. Equipment compatibility concerns for E15 and other alternative fuels also will continue to be front and center. Through our participation in the National Association of Wholesaler-Distributors and the National Association of Manufacturers, PEI also will be watching for business and tax developments that could affect our members’ bottom lines for better or worse.
Long: To paraphrase Charles Dickens, this is the “best of times” for PEI members, thanks to the convergence of three major drivers: 1 EMV payment system upgrades in advance of the October 2020 liability shift deadline 2 Ongoing testing, compliance, repair and upgrade work in response to recent underground storage tank (UST) regulations 3 A growing need for UST replacements, as these tanks reach the end of their warranties
Are there any new, enhanced or expanded member beneﬁt initiatives planned for 2020?
But nothing lasts forever. Forward-thinking PEI members are asking “what’s next” and positioning their businesses for the future. In the last year, for example, the number of distributors and contractors installing electric vehicle charging stations more than doubled to 7.9 percent. Another 31.9 percent of our members say they plan to enter the EV market. Installation and service of car washes and backup power systems for data centers also spell great opportunity.
Long: PEI’s recommended practices are among the association’s greatest contributions to the industry. Over the next year or so, documents dealing with lube systems, bulk storage facilities, marina fueling systems, diesel exhaust ﬂuid, aviation fueling systems and emergency generators all will be updated. And a new recommended practice on liqueﬁed natural gas (LNG) fueling systems will bring safe and practical practices to owners and operators working in that realm.
Speaking of the EMV upgrades, what is the outlook for installs by the 2020 deadline?
Long: EMV upgrade work is busy right now—but it ought to be even busier. According to PEI’s most recent survey— conducted one year out from the October 2020 EMV deadline—our members expect only 59.3 percent of fuel retailers to have completed their payment system upgrades by the deadline. Even more troublingly, our members project that 21 percent of their customers have no intention of upgrading at all. Depending on the market, order-to-completion lead times vary from a few weeks to a few months right now. But retailers would be smart to get in the queue as quickly as possible. Equipment and service costs won’t come down as the year progresses, and those lead times will only increase.
Perhaps the most exciting development in the coming year will be the build-out of our Latin America program. Although PEI boasts members in about 80 countries, this is the ﬁrst time the association has focused on delivering speciﬁc offerings for a region outside of the United States. The effort is guided by a three-part mission: “Build value. Build the brand. Build memberships.”
FMN: Why should someone join PEI? Long: Whether you are a manufacturer, a distributor, a
The upgrade process is particularly complicated and timeconsuming for large, multistore operations. These retailers must ﬁrst conduct a store-by-store survey of their dispenser payment conﬁgurations. A PEI service partner will use that data to present recommendations and options. Which sites can make do with relatively inexpensive EMV upgrade kits? Which sites will require new dispensers? Which sites are the highest priority in light of fuel volumes and other competitive factors? All those questions must be answered to develop a realistic budget, order equipment and schedule the work.
service contractor, a testing and inspection ﬁrm or some other stakeholder, PEI brings you the information, contacts and perspective you need to succeed in the complicated world of fuel and ﬂuid-handling equipment. Our publications encourage safe and environmentallyfriendly installation and maintenance practices. Our events bring diverse stakeholders together for the common good. And our strong and respected voice ensures that your interests are represented before key regulatory bodies. n
For single-store and other smaller marketers, the process is simpler—but the need to get in the queue is just as real. If a contractor already has scheduled hundreds or thousands of dispenser upgrades and replacements, it could take months before even a “simple” new order can be completed.
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“Amidst all the anti-transport fuel hysteria, the U.S. passed a milestone recently. The U.S. now has 450 million total registered vehicles: 285 million registered passenger vehicles and 165 million commercial trucks. That’s 1.39 vehicles for every person in the U.S., which amounts to 3.3 trillion miles driven, or 7,300 miles per vehicle, consuming 220 billion gallons of fuel. “With these 450 million vehicles, we move people and goods over 17 million miles of roads. We employ 15 million people out of 132 million total employment. Trucks account for 70% of all goods shipped in the U.S., representing $700 billion in value.” Source: Joe Petrowski, former President and CEO of Gulf Oil LP and recognized expert on energy commodity trading, distribution and retail management.
Bottom Line: While we talk of transformative industries like technology and medicine, let us not forget the original transformative industry—transport. Long may it prosper.
at FuelsMarketNews.com 35 FuelsMarketNews.com
Get Your EMV On
As a reminder, the credit brands, originally MasterCard and Visa with the eventual addition of American Express, Discover, JCB and UnionPay embraced chip technology over the traditional magstripe as a fraud reduction measure. After the deadlines are passed, the merchant assumes much greater liability for fraudulent transactions should they not have upgraded their payment systems to be EMV compliant.
by Keith Reid
We ring in the year 2020 with an article that could have easily been written in early 2017. In fact, many similar articles were published in FMN about this subject during that timeframe—the rollout of EMV chip card technology to the retail petroleum forecourt.
The liability shift across all retail segments for in-store purchase began October 1, 2015. The retail petroleum industry was given an extension for dispenser transactions due to the added complexities with moving the technology out to the forecourt and into the dispensers. The ﬁrst deadline for the liability shift at automatic fuel dispensers (AFDs) was October 1, 2017. That was determined to be unattainable, so it was further extended to October 1, 2020. The credit brands have made it clear there will be no further extension. During his portion of a December 2019 Conexxus Webinar “Are you ready for October 1, 2020?”, Brian Russell, Lead EMV Business Analyst for Verifone, outlined the scope of the challenge. Conexxus is a non-proﬁt, member-driven technology organization dedicated to the development and implementation of standards, technologies innovation and advocacy for the convenience store and petroleum market.
you’re not seeing movement are the single network retailers and the single siters—those folks with ﬁve or less stores,” he said. “We hear a lot of them saying, ‘Why can’t the oil companies give us money or ‘I think the date’s going to move.’”
“Some customers that we’ll talk to still look at you and say, ‘You know, gee, what are you talking about?’ The oil companies have been doing so much messaging. Our team spent a lot of road time with the major oil brands at their regional meetings and just forced the point, the timing and everything that’s going on. But, there’s still a fair number out there that don’t get it.”
And, as much as the EMV shift has been beaten over the head of retailers, apparently there are still some who are even unaware of what’s going on.
Chris Whitley, Gilbarco
“You think of the big box stores and the thousands of locations they have around the country; add all of them together and they pale compared to the number petro has,” Russell said. “We have roughly 124,000 fueling locations across the country. And extrapolating out the average number of pumps they have outside and the devices they have inside, we have over one million EMV terminals in play that we have to deal with and they aren’t all homogenous.” So, where do we stand in making the upgrades today? According to the “Conexxus EMV Preparedness Survey for the U.S. Convenience and Retail Fueling Industry,” as of June 2019 only 13 percent of forecourts are fully EMV capable with just 10 percent of transactions being EMV. Of those who have not deployed EMV to the forecourt, 20 percent have no intention to do so. On the technology front, certiﬁed point-of-sale software remains a concern. Over half of dispensers will not be EMV ready by the deadline, and software availability is cited as the reason in 40 percent of those cases. But, it’s not for a lack of effort.
each taking 2 – 3 weeks. Further, all certiﬁcations have to be updated as L1 and L2 certiﬁcations expire or changes are made to the hardware or software or in the payment applications. There have been efforts to reduce testing time that have resulted in greater efﬁciency. The most promising initiative developed through the U.S. Payment Forum and Conexxus is to establish a common electronic payment server architecture for the industry. That server contains a central payment application with the EMV terminal simply being a data source. The POS vendor can then self-certify the EMV terminals to the payment server, then the server is certiﬁed to each acquirer. This drops the roughly 100 certiﬁcations down to about seven. It is expected that the POS software issue should be under control by the deadline.
The Human Dimension Technological challenges do remain, but that does not mean retailers shouldn’t be pushing ahead as best they can, getting as much accomplished as possible while waiting for all of the pieces to fall together. However, the toughest stumbling block to overcome is very likely more at the retailer end than with the vendors.
“One of the unique things about EMV is that every EMV implementation requires an end-toend certiﬁcation from the terminal to the issuer or brand,” Russell said during the webinar. “That “There are a number of large national brands who can take a lot of time.” are really good and are complete,” said Chris Whitley, Vice President Marketing and Sales, For starters, he noted, you have the basic Gilbarco North America. “They’ve upgraded older hardware certiﬁcation—L1, and kernel certiﬁcation—L2. A kernel is a software program that runs hardware on the forecourt and now they’re in the process of either deploying the POS software to on EMV devices and it uses the L1 hardware to make it go live, or in some cases, they are communicate with the card. waiting on their POS company to get the However, it is the L3 certiﬁcation that is the most software ready, which will happen in advance of challenging. Point of sale (POS) software certiﬁthe deadline.” cation must test all touchpoints from the Whitley noted the mid-tier market is coming terminal to the credit brand. Each kernel must along, but that progress slows dramatically as be tested with each acquirer. Russell noted this the scale of operation drops. “The places where could involve up to 100 separate certiﬁcations FMN Magazine
“Some customers that we’ll talk to still look at you and say, ‘You know, gee, what are you talking about?’” said Whitley. “The oil companies have been doing so much messaging. Our team spent a lot of road time with the major oil brands at their regional meetings and just forced the point, the timing and everything that’s going on. But, there’s still a fair number out there that don’t get it.”
Rolling the Dice All business is a gamble. Where does the EMV liability shift ﬁt into the risk/reward calculation? A number of retailers who are not in a rush look at the current relatively low dispenser fraud statistics (approximately 1.3 percent according to Visa compared to other touchpoints) and decide to roll the dice. “The number one reason that we’re hearing from people who are sitting on the fence is that they don’t believe risk outweighs the cost,” said Russ Haecker, EMV Business Leader at Dover Fueling Solutions. “And that may be true for a period, especially if you are a single site operator in a rural area. But what we’re seeing in the high fraud market areas is that the fraud begins moving around as more merchants take steps to secure their sites. And it’s moving from urban to suburban to rural areas. And once they ﬁnd a site that is vulnerable, it becomes part of their network and they’ll circle back around over weeks hitting it again and again and again.” As the low hanging fruit becomes harder and harder to access, the criminals will keep squeezing what money they can out of any source they can access. Convenience stores have signiﬁcant room for expanded fraud activity and it’s not difﬁcult for a criminal to identify sites, or store chains for that matter, that have not made the upgrade. Fraud liability through chargebacks can add up quickly. A few hundred dollars here and there becomes a few thousand—maybe tens of thousands—in a hurry once a target is identiﬁed and begins to get worked. And where that risk and reward gamble gets
Get Your EMV On
“A lot of these guys, even if they are independent, have arrangements with their petroleum marketers for incentives to help with ﬁnancing,” said Haecker. “If they are branded sites, they may have some incentives from the oil company. The vendors will also offer some programs from time to time and there are the traditional ﬁnancing options.”
“The number one reason that we’re hearing from people who are sitting on the fence is that they don’t believe risk outweighs the cost. And that may be true for a period, especially if you are a single site operator in a rural area. But what we’re seeing in the high fraud market areas is that the fraud begins moving around as more merchants take steps to secure their sites.”
Distributors who are not assisting their retailers might want to consider the ramiﬁcations.
Russ Haecker, Dover Fueling Solutions
particularly serious is that many of the smaller operations taking the risk are the least able to absorb the hit. “If you’re a single site operator, the cashﬂow is not there for you to be able to handle $5000 or $10,000 a month in fraud charge,” Whitley said. “These operations are putting their entire business at risk.” Unofﬁcially, there are estimates being bandied about that this might remove up to 5 percent of the retail stations from the industry. Another negative impact often cited with not upgrading to EMV involves the customer reaction. Basically, customers will notice the older technology is still in use and will have fraud concerns. Dealing with credit card fraud, having to replace cards and being worried about what might have been missed getting things cleaned up is an unpleasant experience. Savvy customers might then take their business elsewhere. There is some anecdotal evidence to suggest that might be the case. “We had one large customer in Canada when that market converted—and it did so in a timely and well-planned manner—that delayed upgrading to introduce a new loyalty program,” said Whitley. “And they went into a panic when everybody else turned on. Not only did they see fraud migrate to their station, but the number of transactions started falling off. Consumers seemed to ﬁgure out it wasn’t safe to use their credit card at that brand or site.” It could also be argued that not making the upgrade cheapens the brand image in a world where all the biggest players in the range of retail outlets have made the move. And, taking it a step further, EMV status can become a marketing issue. “If you’re a merchant and have some competition across the corner and you choose to get upgraded sooner, then you can market against your competition,” said Haecker. “You point out that your site is a secure place to do business.”
Getting the Hardware Installed There should not be notable issues with hardware availability, but another concern that has not changed from the 2017 deadline is installer availability for the dispenser upgrades. “One of the things that we see happening in the market as retailers delay is that we’re going to be facing a bottleneck as we get closer to October to actually complete these installs,” said Haecker. “This is an industry-wide problem. There are so many sites that have not upgraded that if everybody decides to get on board—even before the deadline—there are not be enough service technicians to get the work done. The same applies to people who wait and decide shortly after the deadline that the fraud charges are too much and they need to get upgraded.” Also, it’s also not going to get any cheaper by waiting. A shortage of technicians combined with an abundance of demand dictates that the installers set the price. “As we saw the bottleneck occur with the indoor EMV upgrade as we got closer to that deadline, the hardware costs didn’t change but the labor to get it installed ended up costing a merchant more,” said Haecker. “And that should be considered when budgeting for the upgrade and making these decisions.”
Financing EMV upgrades are not cheap. Retroﬁts can cost up to $30,000 per site and a full dispenser replacement can reach six ﬁgures. Some smaller operators with limited resources might not be making the upgrade for stark ﬁnancial reasons. However, there are ways to economize on the upgrade and there might be money available with some digging. FMN Magazine
“We’ll talk to some of the jobbers that sign up those dealers and they’ll look at it and say, well, we’re not liable for any of the fraud at their site. That’s not our relationship with them,” said Whitley. “And, everybody understands that, but there is the possibility that they are going to lose the volume if the customer goes out of business.” Whitley noted that Gilbarco offers a range of commercial models including leasing and, in some cases, renting. “We’ve got the media partnership with GSTV that helps subsidize the equipment for the small retailers,” he said. Mobile payment is being considered as an alternative to the EMV upgrade by some retailers. This involves the use of smart phones, mobile wallets and apps to facilitate the transaction. It can be signiﬁcantly cheaper to enable, though hardware to enable near-ﬁeld communications (NFC) is still required in most cases or a WiFi connection in others. Contactless EMV cards also use NFC technology. The biggest challenge with mobile payments is getting the customer base to fully switch over to that solution for non-cash transactions. Ultimately, even with such a solution a retailer looking to make the most potential customers happy will likely have to look at an environment that includes mobile, contactless and standard EMV and that can typically be accomplished in the most costeffective manner during a single hardware upgrade (even if the NFC is an added option). “My take is go ahead and make the investment,” said Dan Rasmussen, senior vice president, North America Enterprise, Hughes Network Systems, LLC. The company touches EMV through its managed network services and complete site connectivity solutions. Enhanced networking also helps facilitate the expanded data requirements that tend to come with more app-based payment (and other) solutions that are rapidly moving into retail today. “Putting the infrastructure in place enables you to have that better end-user experience and engagement with the consumer,” said Rasmussen. “If you’re going to do it with an application or if you’re going to do it with payment by phone, you still need the network infrastructure and the relia-
Get Your EMV On
The Silver Lining
“Putting the infrastructure in place enables you to have that better end-user experience and engagement with the consumer. If you’re going to do it with an application or if you’re going to do it with payment by phone, you still need the network infrastructure and the reliability in place to ensure that the transaction happens.”
From the tank upgrades of the 1990s to the payment card industry (PCI) upgrades that preceded EMV, so many costly requirements are seen as raw expenses with no real upside. “A lot of people will say there’s no beneﬁt to it—I have to make this upgrade just to do the same thing it did before. But that’s not the case,” said Whitley. However, Gilbarco estimates that in a best-case scenario, with the full utilization of merchandising capabilities, a site could see an increase in proﬁts of up to 35 percent.
Dan Rasmussen, Hughes
bility in place to ensure that the transaction happens. It still takes an expense. I don’t see that channel offsetting the ability to take payment card. That’s still going to be the payment choice for at least a number of years.” There are several paths to make the upgrade that impact cost, and they will vary not only by the current makeup of retail sites and future goals of the operator. Retroﬁts, as previously noted, are less expensive than a full dispenser replacement that might also involve breaking concrete. Many of these upgrade retroﬁts not only provide the transaction piece, but forecourt merchandising as well. However, replacing old dispensers can offer advantages beyond EMV and may be the only route if the dispenser is signiﬁcantly outdated. “When you upgrade the whole dispenser, you’re not only getting the latest and easy technology but you’re getting other enhancements,” said Haecker. “You’re getting new metering technologies, you’ve got new (and more secure) doors, new skins—it brightens up the station. You get a warranty that covers the product growth from the electronics to the metering equipment.”
Dover Fueling Solutions, Gilbarco and Bennett Pump all offer video merchandising at the pump through the latest hardware. Other capabilities can include (depending upon the manufacturer and speciﬁc solution) remote equipment monitoring and diagnostics, contactless payment capabilities (typically as an option) and easier maintenance. “I think we’re getting to the point ﬁnally where 12 months from now we’ll be talking about what else has been enabled with these upgrades,” said Rasmussen. “This change is forcing a lot of people that have been sitting on the same infrastructure, providers and operating proﬁle for a long time to change and the result is going to be some really good stuff. I’m excited to see what happens once the energy being expended making EMV successful is shifted to building the next generation of retail petroleum.” n
FMN FUELS MARKET WATCH
It’s Not Just About Customer Service It’s About Enforcing the Law by Roy Strasburger
I am usually a pretty easygoing guy. I like to think that I get along well with others and that others can get along well with me. I don’t get rattled often. About a month ago, I was in a convenience store and bought a bottle of wine. When I took it to the counter to pay for it the cashier asked to see my identification. Now, although in my mind I am always 25 years old, in reality I am well into middle age. I had a small existentialist crisis trying to decide whether I should be insulted (don’t I look old enough to buy alcohol?) or flattered (don’t I look old enough to buy alcohol?). I produced my identification and made my purchase.
“” Most of the time, we talk about employee training in terms of customer service and store operations. More important is training our team members to understand, respect and obey the numerous laws and regulations that control the convenience store industry.
I was reminded by this event that our cashiers and customer service representatives are our first line of defense in regard to the sale of restricted products. Most of the time, we talk about employee training in terms of customer service and store operations. More important is training our team members to understand, respect and obey the numerous laws and regulations that control the convenience store industry.
By operating stores around the country, we have found that a crucial factor in the training process to get employees to retain the information and act upon it is for them to understand the importance of the regulations. We sometimes have employees who have either just become of legal age—and may have memories of wanting to buy restricted products illegally—or, in some states, underage employees legally selling age-restricted products who may have the desire or the experience of buying products illegally. We don’t want these individuals to be sympathetic to our under-aged customers.
We have restrictions on tobacco, alcohol, ecigarettes, lottery and SNAP purchases. As the owner of a store, we must have confidence that the person working the midnight shift will not sell cigarettes to an underage person or alcohol to an intoxicated person. There are industry and state training programs that provide the education programs that are needed. It is up to us, as owners and managers, to reinforce the lessons and learnings from these training programs on a regular basis. An By operating stores employee’s one time, around the country, or once a year, training program is not suffiwe have found that a cient, and we must crucial factor in the continually reinforce training process to get the compliance requirements and employees to retain expectations.
“” the information and act upon it is for them to understand the importance of the regulations.
Part of the challenge is that the rules and regulations are changing all of the time. For example—the situation with vaping and electronic cigarettes. First of all, the rules are different not only from state to state but, in some cases, from city to city. There is a lot of discussion in the media about cause, effect and prohibition but these are often national stories that don’t relate to the local community. And then we have restrictions on different things based upon the location. It may vary between banning flavored products to raising the legal age of buying vape products to the prohibition selling vaping products at all. The rules are constantly changing. FMN Magazine
The factors that influence behavior are not what the employee themselves would like to do or the imposition of fines and penalties if the rules are violated. More important is the realization that by selling restricted products inappropriately, people can be harmed and, in some cases, killed. And it’s not only about the person that the restricted product is sold to, such as a smoker getting lung cancer. It can be innocent people randomly involved in a situation—for example, a drunk driver who hits another car, killing its occupants. Does our cashier want to be responsible for those types of consequences? We can’t watch every employee every moment to guarantee compliance and conformity with the law. The best that we can do is to convey the reasons for the restrictions, the consequences for the violations and our expectations. Their individual performance is not selling restricted products to inappropriate individuals—it is about providing benefit to society as a whole and doing our best to limit harm to others. n
Roy Strasburger Roy is the President of StrasGlobal. For 35 years StrasGlobal has been the choice of global oil brands, distressed assets managers, real estate lenders and private investors seeking a complete, turn-key retail management solution from the most experienced team in the industry. FuelsMarketNews.com
Where Are You in the Evolution of Retail Petroleum?
F U E L S TAT I O N
Since the first drive-in service
If top retailers have made the switch to foodservice, then why are so many retailers lagging?
station opened in Pennsylvania in 1913, the retail petroleum industry has continued to change and evolve to meet changing customer needs and business conditions. The traditional “fuel station” with a service bay so common not all that long ago is today basically non-existent.
by Mike G. Zahajko
The foodservice customer has higher expectations than the customer who is only coming in to buy tobacco.
The contemporary convenience store is itself forced to evolve due to the decreasing sales of core categories: tobacco, alcohol and fuel. The National Association of Convenience Stores (NACS) 2019 SOI data shows that the business model for top retailers has changed significantly since 2009. When looking at the percentage breakdown of inside sales for top retailers in 2019, foodservice makes up 28 percent. That’s a 75 percent increase in total percentage from the 2009 average of 16 percent. Conversely, the data also clearly shows that the bottom half of retailers are running off a 10-year-old playbook.
THE ENRICHMENT Success.” A customer needs to feel safe. Outdoor lighting and store upkeep play a strong influence on the customer’s perceived safety.
Cleanliness is critical because it speaks to brand quality and trust. Do you trust the food quality and safety at a filthy gas station? Probably not. Customers buy more from a clean store. Every day there are roughly 39 million fill-ups. Millions of customers drive into gas stations across the country, and on average, only around 30 percent make an instore purchase. Therefore, cleanliness starts at the pumps and parking lot. Curb appeal matters.
Retailers need to ask themselves the ageold question: “Who am I?” Am I a gas station that sells snacks and roller-grill items? Am I a food service destination that also sells gas? Why do customers choose to come into my store?
The foodservice customer has higher expectations than the customer who is only coming in to buy tobacco. Fortunately, the most important customer needs are also the most basic. The NACS Coca-Cola Research Council identified those core needs in their 2013 “Playbook for
HOSPITALITY CLEANLINESS SAFETY first presented six years ago. Top-rated sites for cleanliness have six percent more foot traffic than average performing sites and 15 percent higher foot traffic than bottom performing sites. Customer service ratings have up to a 13 percent impact, while outdoor lighting can be as high as 18.8 percent. To match the top-rated sites, you start by taking a good hard look at your sites through the customer experience lens. How would you rate your customer service, lighting and cleanliness? Are you above average or is there opportunity for growth?
If top retailers have made the switch to foodservice, then why are so many retailers lagging? While there is no easy answer, the two core challenges to the switch are selfidentity and customer experience.
Understanding how customers see you and how you fulfill their needs is the first step. Along the journey to foodservice, the customer experience becomes critical. Would you stop at a site when you knew that the restrooms were horrible? No. Thankfully, poor restrooms are not nearly as common as they were only 20 years ago.
SIMPLICITY AND EASE
Friendly staff is often the #1 reason cited in online gas station reviews for a 5-star experience. When customers receive a friendly greeting and leave smiling, the core needs are now met. The recent GasBuddy 2019 Q2 Foot Traffic report shows the impact these factors make on foot traffic by correlating tracking data with real-time online reviews. In fact, it confirms core needs
To match the top-rated sites, you start by taking a good hard look at your sites through the customer experience lens.
In retail operations and leadership, it is so easy to get caught up in the “next big thing.” The data tells us that these basics are even more important as the industry evolves and must remain a top priority. I’ve often heard the saying: “What my boss finds interesting, I find fascinating!”. I believe to be successful through the changing evolution of retail petroleum we must adopt a similar mantra: “What my customer finds interesting, I find fascinating, and then I deliver.” n READ MORE at FuelsMarketNews.com
Mike G. Zahajko Mike G Zahajko, Executive Vice President, Sales for CAF. CAF is a leader in outdoor cleaning and c-store image solutions. CAF helps convenience retailers eliminate their toughest cleaning challenges. Partnering with CAF means access to top-notch operational support, personalized training and award-winning products. For more about CAF, visit www.mycaf.com.
What You Find with Tank and Sump Inspections?
On October 13, 2018, new Federal underground storage tank
By Christopher Bouldin,
(UST) regulations took effect in much of the nation, which required that all owners/operators of regulated USTs should have completed their ﬁrst 30-day walkthrough inspection. Since that time, Tanknology’s Inspection Services Division has performed more than 75,000 walkthrough inspections, covering fueling facilities of all shapes and sizes, in all 50 states. Tanknology Inc. is a leading international provider of environmental compliance testing and inspection services.
“Our statistics show that we ﬁnd minor deﬁciencies at roughly 90 percent of the sites that we visit monthly.” Jason Bloch
From this extremely large sample size, Tanknology acknowledges that conditions have improved since early adopting states (and later the EPA) began requiring monthly inspections, but the industry has a long way to go. “Our statistics show that we find minor deficiencies at roughly 90 percent of the sites that we visit monthly.” said Jason Bloch, Tanknology’s Vice President of the Inspection Services Division. “Many times, it is something as small as liquid in a spill bucket. And right now, one of our biggest opportunities is working alongside our customers finding solutions to remedy those issues.”
A familiar refrain, corrosion on the metallic components in sumps often causes inspection failures. Corrosion has been found in more than 75 percent of all sites inspected by Tanknology since 2018.
According to Bloch, Tanknology’s “hands on” approach to inspecting spill containment buckets often uncover integrity issues in containment components like spill buckets, sumps and under dispenser containment systems. “Most of the issues we find are fairly routine. For example, we see a lot of liquid in spill buckets, but our hands-on approach to the inspection also has our inspectors getting down on hands and knees and feeling their way around the spill bucket identifying any rips, tears, bulges, gouges or deformities.” The inspectors look for man-made flaws that wouldn’t necessarily be seen by simply flipping the lid.
“This is equipment that’s getting used quite often,” Bloch continued, “by a lot of different people. And if the spill bucket is structurally deficient, it will leak quickly, and we know that the spill bucket is the most common point of failure in a UST system and poses the greatest risk for forecourt contamination.” Another common cause of inspection failure is piping. “Mostly dispenser piping,” Bloch said. “Coming from the meter, filter or piping to the shear valve.” Bloch estimates that about 25 percent of the inspections performed by Tanknology find small weeps or leaks originating from piping connections in the dispenser. A familiar refrain, corrosion on the metallic components in sumps often causes inspection failures. Corrosion has been found in more than 75 percent of all sites inspected by Tanknology since 2018. Tanknology also inspects hanging hardware and can help operators monitor the condition of their equipment, reducing their risk of equipment failure and deploying resources where needed to keep them up and running while minimizing their repair costs. Despite hiding in the dispenser, not all the findings simply pose a potential risk to the environment. “Several customers have gone above and beyond and engaged us to look for the presence of credit card skimmers while we’re on site,” Bloch said. “They do this to minimize their economic risk on a 30-day basis.”
As inspection programs with clients mature, major operational compliance issues become less frequent. “When we are asked to come in and inspect, most of the major failures happen in the first couple of months,” Bloch said. “But as our program matures, the issues become more routine in nature, as we work with our clients to identify and remedy the deficiencies.” “At this point, we are finding a lot more of the routine issues like water in spill buckets and far fewer leaks and that’s to be expected as we are regularly opening containment sumps and dispensers to inspect for small problems before they become large ones.” “We may find a small weep, but we don’t often find major leaks with inches of standing fuel.” With such a complicated matrix of inspections and hundreds of clients, Tanknology’s Inspection Services Division has grown from three inspectors in 2012, when the company began offering walkthrough inspection services in early adopting states such as California, Colorado and Vermont, to almost 50 today. Since that time, the company has performed more than 135,000 monthly inspections. In 2018, Inspection Services was elevated to a division of the company. n
“We have a device that checks for rogue Bluetooth devices, specifically skimmers. When it alerts to something suspicious, we open the dispenser doors to validate the detector’s information and we physically inspect for the presence of skimmers.”
Jason Bloch Jason is the Vice President of the Inspection Services Division and is responsible for the operations of Tanknology’s Periodic Visual Inspection Group. Tanknology offers more than 30 compliance-related service offerings and holds 22 patents for leak detection and tank monitoring technology. Internationally, Tanknology licensees span more than 20 countries, providing services to the largest petroleum operators in the world.
“When we find a skimmer, we immediately alert the authorities.” Bloch continued. “We shut the dispenser down, get local authorities on site and then in the presence of the authorities, we remove the skimmer prior to putting the dispenser back in service. There was a point where we were finding multiple skimmers each week.” FMN Magazine
Fuel Site Safety: Damage Control
for Today’s Distracted Drivers
Fact or Fiction? While it’s evident that mobile phone usage contributes to distracted driving, cellphones do not look to be a fire hazard at the gas pump as previously rumored. The Petroleum Equipment Institute (PEI) conducted research to investigate fires occurring during fueling and it did not document a single incident that was sparked by a cellphone. Learn more at www.pei.org/static.
1.Verify the emergency shutoff valves under dispensers are meeting industry best practices for installation.
by Joe O’Brien
Imagine driving along on your morning commute and looking over to see the motorist in the next lane eating a bowl of cereal and reading a newspaper. It would probably make you tighten your seatbelt. Not only did this incident actually happen, this level of distracted driving is not an uncommon occurrence. This kind of recklessness is a major challenge facing operators tasked with maintaining safety at businesses where storing and dispensing flammable liquids is a fundamental part of the job.
Preventing distraction-related accidents at fuel sites is an issue of increasing importance for station operators, technicians and fuel suppliers.
Preventing distraction-related accidents at fuel sites is an issue of increasing importance for station operators, technicians and fuel suppliers. Recent statistics show: n 80% of all car accidents are caused by the driver being distracted in some way n Once a driver has been distracted, it takes only three seconds for an accident to occur Averting mishaps caused by distracted driving is extremely challenging because much of the risk is created by human behavior. Operators can do little to change this. For that reason, it is imperative for operators to control what they can. Taking extra precautions through strong safety practices is the best defense against disaster. Here are three important considerations for enhancing fuel site safety to help avoid a catastrophic distracted-driving incident.
Emergency shutoff valves (also called impact valves, fire valves, shear valves and crash valves) are critical safety features at fuel sites. These valves automatically shut off the flow of fuel if the dispenser is dislodged or the piping is damaged. This could be caused by a collision with the dispenser or a driver pulling away with the nozzle still in the car’s fill pipe. (A quality fuel hose breakaway can help limit damage that might be incurred by a motorist driving off with the nozzle still in their car.). It is essential emergency shutoff valves meet industry best practices for installation, otherwise their protective capabilities may be eliminated. Emergency shutoff valves need to be securely mounted (usually using a stabilizer bar) and they need to be level with the top surface of the pump island. If moisture is observed on the emergency shutoff valve or on piping below it during inspections, PEI’s “RP500: Inspection & Maintenance of Motor Fuel Dispensing” 1 recommends removing the dispenser for service until it can be repaired.
3. Evaluate how the fuel site’s layout contributes to overall safety.
Is the fuel site laid out in a way that vehicles—including fuel suppliers—are safely circulated through the property?
Many of the catastrophic automobile-related accidents at fuel sites are caused by vehicles that are driving at high rates of speed on the road that borders the station’s property line. In these situations, the vehicle leaves the roadway and speeds out of control over station property until they collide with something—or someone—at the fuel site. Here are a few traffic-control considerations for a station’s layout: n Is the fuel site laid out in a way that vehicles—including fuel suppliers—are safely circulated through the property? Avoid installing station equipment near high-traffic areas such as exits and entrances, drive-throughs or car wash lanes. n Are there landscaping or other curbside features that could be used to slow out-of-control traffic near the perimeter? n How close are the dispensers to the roadway? In many ways fuel sites with more acreage are at a significant advantage because they have more flexibility with the layout of their site. Regardless of the property’s size, all operators need to strike a balance between making their station inviting to customers and adopting measures that may help protect them. Trusted fuel system design professionals such as the Source SOLUTIONS Design Group2 can help develop a fuel site plan that addresses these concerns.
2. Make safety barriers as highly visible as possible to protect operators conducting maintenance and deliveries. An effective safety barrier is part common sense, part ingenuity. Here are few tips:
n Conclusion In an effort to reduce distracted driving, many states have banned or limited the use of cellphones while driving. That notwithstanding, enforcement of these laws doesn’t apply to incidents that occur on private property. Will motorists who are unable to legally use their mobile devices on the road adopt the same safe-driving practices in parking lots, at gas stations and in drive-throughs? Or will they be more likely to pick up their cellphones as they enter and exit private property?
n Position the barrier at a height that is visible from multiple vantage points and a safe distance around the work zone. n Make safety your first priority, but avoid disrupting traffic as much as possible. n Strategically park a vehicle to block traffic.
Although we’ve focused mostly on distracted driving here, distracted walking is also problematic. The intersection of these two behaviors at any given moment can be a deadly combination at a fuel site. With that in mind, station operators should proactively adjust for today’s distracted lifestyle as soon as possible to create an experience that is safer for customers, employees and partners. n
n Utilize reflective materials, lights and yellow warning tape. Large barricades improve visibility, but often pose a challenge for maintenance operators who haul their equipment in a trailer. Space in storage trailers is often at a premium. Two simple ideas to help improve visibility of work areas—and which take up minimal space in a trailer— have recently been presented to Source: n Include strings of pennant streamers/flags to mark a work zone perimeter.
n Insert orange bicycle safety flags into traffic cones to significantly increase their visibility.
Joe O’Brien Joe is Vice President of Marketing at Source™ North America Corporation. He has more than 20 years of experience in the petroleum equipment fuel industry. Contact him at email@example.com or visit sourcena.com to learn more.
While these ideas provide little protection in the way of a physical barricade, they are compact, inexpensive and their somewhat unorthodox use at the fuel site may draw extra attention to the work zone. FMN Magazine
The Future of Convenience Store POS Systems:
2020 Predictions by Gavin Bisdee Convenience stores have long been a staple in consumers’ worlds, providing the ultimate pitstop for road trips, last-minute items, a quick coffee break or meal. But unprecedented consumer expectations and shopping behaviors in the industry are putting pressure on c-stores to create new levels of consumer engagement and convenience.
In 2020, convenience stores will be looking to adapt their existing POS capabilities to deliver new levels of frictionless checkout and omnichannel convenience to consumers in order to compete.
As we move into 2020, innovative point-of-sale (POS) offerings will take center-stage at convenience stores—why? Just as consumers have responded favorably to the added convenience of easily purchasing items from their nearest c-store location while on the road, consumer expectations are presently fueling a demand for increased technology in c-stores to deliver the types of frictionless service they are experiencing in many other retail environments. As such, in 2020, convenience stores will be looking to adapt their existing POS capabilities to deliver new levels of frictionless checkout and omnichannel convenience to consumers in order to compete.
Customer Expectations in 2020 Quick, effortless c-store shopping will continue to be key to customers in 2020. According to NACS, 45 percent of shoppers say they have entered and left convenience stores with a purchase in hand in under three minutes—highlighting an emphasis on checkout speed and wait times as a key consideration for consumers. In addition, 44 percent of convenience store shoppers answered that they would be interested in technologies that allow them to instantly pay and skip checkout lines. This, of course, includes self-checkout, but customer trends are moving rapidly in other directions, such as favoring pay at the pump, pre-ordering food for “pickup” and home delivery. The rise of third-party convenience store delivery services such as GoPuff, Uber Eats, DoorDash and GrubHub enables consumers to buy meals, snacks and additional items from their nearest convenience store online and have them delivered to their doorsteps. In fact, eMarketer predicts that U.S. food delivery app usage will surpass 44 million people in the U.S., reaching nearly 60 million by 2023. The stakes are higher than ever, so ﬂexible payment options are key and no time should be wasted once a shopper lands in the store. As other retailers strive to encroach on the growing convenience store market, c-store retailers cannot afford inconveniencing their on-the-go consumers with long wait times at the checkout. Today’s consumers demand a digitally enabled and efﬁcient shopping experience, and c-store retailers must evolve with consumer demands to continue gaining market share and deliver on the promise of convenience. As such, the technology in place must be simple and fast, making a pitstop a true pitstop.
As other retailers strive to encroach on the growing convenience store market, c-store retailers cannot afford inconveniencing their on-the-go consumers with long wait times at the checkout.
Offering More in 2020 with Improved POS Systems According to our recent Convenience Stores Technology Insight Report*, which surveyed c-store directors and IT managers from U.S. convenience store chains, c-store retailers believe POS technology will be the key to offering consumers an enhanced customer experience. Our respondents highlighted the top IT capabilities to support future business strategies and deliver higher levels of convenience: • 38 percent home delivery capabilities • 34 percent mobile pay at the pump • 33 percent self-checkout • 32 percent order online, pickup in-store • 29 percent mobile payment apps We can certainly expect these initiatives to become more prevalent across stores. However, they all require a ﬂexible POS system, and many stores are unfortunately burdened with aging systems that can impede new in-store technology. Ineffective POS technology prevents retailers from rolling out new applications and services across their store demographic and driving improved performance and operational efﬁciency. Security is another key concern that will continue to be of the utmost importance in 2020. Support for legacy POS systems is fundamental to the maintenance of payment card industry data security standard (PCI-DSS) compliance. Without it, POS terminals can’t access the latest updates and patches, exposing c-stores to much higher security and compliance risks. To overcome these challenges, centralized management of stores through a software-deﬁned store strategy will become a key tool retailers will implement in order to continue in-store innovation at a rapid pace and meet the demands of consumers. No longer will c-stores continue to add more devices on top of existing legacy infrastructure as they understand it will only add more complexity and higher maintenance costs. Adopting a software-deﬁned strategy means we are moving into a new era where c-stores will move away from a device-orientated store infrastructure. This gives c-stores the ability to run the latest POS software on aging hardware or transition to thin client devices that are multi-functional and come with full peripheral (scanners, printers and more) integration. Improving staff productivity with store associates using a single multi-functional device that allows them to swipe the screen from POS to kitchen management system to many more applications is just one example and better still, it could be portable.
* www.zynstra.com/convenience-store-technology-insight-report FMN Magazine
Increased M&A Activity 2019 saw more mergers and acquisitions— some large deals such as EG Group completing the acquisition of Cumberland Farms, and some smaller such as Par Mar Stores purchasing Mountaineer Mart and GPM acquiring 63 c-stores from Riiser Fuels. In 2020, we can expect more marriages of convenience. As market leaders recognize there is an opportunity to scale further, many of the largest chains in the industry are looking for both tactical acquisitions and organic growth. However, the speed at which these deals can impact the bottom line is often down to the speed of technical integration. Having inﬂexible legacy infrastructure can hinder the time it takes to roll out new stores or integrate newly acquired stores. A software-deﬁned store infrastructure can improve the speed of new store integration by up to 50 percent, saving huge amounts of time and money. Moving forward, the stakes will only get higher as consumers have more and more options to turn to so it’s up to the c-stores to respond. As such, in 2020, upgrading POS systems will be a key priority for c-store owners who want to deliver higher levels of convenience for their customers and evolve to a more ﬂexible store infrastructure that can accommodate rapid change. n
READ MORE at FuelsMarketNews.com
Gavin Bisdee Gavin is the VP of global marketing at Zynstra, an NCR Company. He is responsible for marketing strategy and execution, focused on building brand and demand in the retail software market and in communicating the unique value delivered by Zynstra solution to both partners and customers. Zynstra enables retailers to deliver superior customer and employee experiences through powerful software that optimizes existing store technology and enables digital transformation.
Gasoline speciﬁcations and formulations change seasonally. Historically, retail gasoline prices are generally lower in winter months and tend to gradually rise in the spring and peak in late summer when, unfortunately, people drive more frequently. Environmental regulations require that gasoline sold in the summer be less prone to evaporate during warm weather. This requirement means that reﬁners must replace cheaper but more evaporative gasoline components with less evaporative but more expensive components. Source: EIA Gasoline Price Fluctuations
Bottom Line: We still have a “Balkanized” fuels environment, not only seasonally but regionally. For all the complication involved in getting the right fuel to the right place and in the right quantity relative to demand, the industry does a remarkable job with limited disruptions.
WINTER FUEL TIPS by Glen Sokolis
Winter brings with it a range of challenges for fleets operating trucks and fueling sites in cold, northern climates. As the frigid months start to arrive, it’s a good time to review some of the best practices to keep the fuel flowing and vehicles moving down the slushy, salty roads.
Diesel Exhaust Fluid (DEF) and Cold Weather i DEF is required to remain pure to operate correctly. Additives should never be added to DEF.
i Replace fuel filters at manufacturer recommended intervals. Particles in the filter make it easier for wax to gel. Use the highest original equipment manufacturer (OEM) accepted micron filter possible.
i DEF freezes at 12 degrees F. The
i Keep your fuel tanks full and free of water. Cold air on top of warm fuel creates condensation. This can be reduced by limiting the amount of space in your tanks.
i Test any bulk tanks for water. Water freezes faster than the wax in the fuel. If your fuel has 100 ppm or higher water content, it should be treated with a drying agent.
i Drain fuel water separators weekly and be sure to monitor them even between scheduled maintenance.
i Open the drain at the bottom of the fuel tanks to drain off any water and/or sediment.
i If your vehicle is going to be idle for long periods of time (four hours or more) you may want to install a fuel heater or find heated parking. Moving liquid takes longer to freeze than stationary liquids.Keep your fuel moving or keep it warm.
32.5% urea concentration in DEF allows both the urea and water to thaw at the same rate, therefore keeping the solution from being diluted or over concentrated.
i Selective Catalytic Reduction (SCR) systems are designed to provide heating to the supply tanks and lines during normal operation. If the DEF freezes when the vehicle is idle, normal start-up and operation will not be inhibited. The DEF will thaw as the vehicle is operated. Freezing and thawing will not degrade the product. READ MORE
i Tighten all fuel tank mountings and brackets. At the same time, check the seal in the fuel tank cap, the breather hole in the cap and the condition of the flexible fuel lines. Repair or replace the parts as necessary.
i After your vehicle has been off the road for an extended period, start and let the engine idle for 30 or more minutes allowing warm fuel to return to the fuel tanks to break up any wax buildup.
Glen Sokolis Glen is the Founder and President of Sokolis Group, a nationwide fuel management and fuel consulting company. He has more than 25 years of experience with ﬂeet fuel and founded Sokolis Group in 2003. Sokolis Group’s mission is to reduce and control their clients’ fuel spend through tightly managed, customized programs. Sokolis can be reached at GSokolis@SokolisGroup.com or 267-482-6160.
The Propane Education & Research Council
Propane Autogas Innovations in Step with
Clean Fuel Goals Fuel providers can get on the cutting edge of green trends with propane autogas
The future for ďŹ‚eet vehicles of every make, model and class is becoming a deeper shade of green. Not only are companies facing state and local government regulations to meet lower emissions and tighter Corporate Average Fuel Economy (CAFE) standards, but pressure from communities and customers is requiring many companies to consider switching their ďŹ‚eets to use alternative fuels. And with the growing number of options for alternative fuels, fuel marketers and retailers need to make an informed decision on what fuel to commit to in order to meet current and future customer needs. One fuel that continues to stand out for not only having an established reputation as a reliable alternative fuel with the lowest total cost-of-ownership, but for also continuing to advance clean energy technology, is propane autogas.
Renewable propane is redefining what it means to have clean, accessible fuel In addition to the ultra-low NOx propane autogas engines, renewable propane is changing the standards of what it means to be a clean fuel. Renewable propane is a byproduct of the production processes for renewable diesel and jet fuel, which converts plant and vegetable oils, waste greases and animal fat into fuel. In fact, several U.S.-based refineries are already capable of producing renewable propane.
Two recent innovations with propane autogas also ensure that the fuel will continue to have a place in the clean energy conversation: the announcement of ultra-low NOx engines and the continued development of renewable, biologically-sourced propane.
Because renewable propane’s chemical structure and physical properties are the same as current propane production, renewable propane behaves in the same way as propane autogas, providing fleet owners the same performance and reliability they depend on. At the point of combustion, renewable propane is carbon neutral, meaning no new carbon is added to the atmosphere during combustion. Renewable propane produces fewer lifecycle carbon dioxide emissions than traditionally sourced propane.
Over the past four decades, propane autogas has emerged as a proven alternative fuel, with more than 200,000 propane autogas vehicles on the road in the United States.
As more research and attention is given to what is possible for renewable energy across the U.S. and the world, this puts propane autogas at the forefront of the conversation among solar, wind and other biofuels. Additionally, as renewable technology gains traction beyond the on-road market, fuel marketers and retailers can see even greater long-term benefits. It’s predicted that renewable propane will be capable of supplying most of the world’s propane needs by 2040.
Ultra-low NOx engine innovation In 2018, not one, but two original equipment manufacturers (OEMs) introduced ultra-low NOx propane autogas engines that are 90 percent cleaner than mandated Environmental Protection Agency standards and certified to the optional ultra-low NOx emissions standard as defined by the California Air Resources Board (CARB) for heavy-duty engines with .02 grams per brake horsepower-hour. The new engine technology, available from Roush CleanTech and Greenkraft, Inc., is classified as near-zero emissions and has moved propane autogas even closer to achieving zero emissions levels.
These innovations are tremendously important, as the future of engine fuels continues to aggressively move to zero emissions. These recent improvements and those that are in development are possible thanks to the strong foundation propane autogas has established in the transportation industry over the last four decades. With these new innovations, propane autogas continues to set itself apart from other alternative fuels as a proven, clean, domestic, and affordable fuel option for both fuel marketers and retailers, and the fleet customers they service. n
This technology also alleviates one of the pain points of traditional fuel combustion. By reducing NOx emissions to near-zero levels, it shows that propane autogas can help improve air quality. When used in school buses and public transit vehicles—two of the prime uses of these engines—it can reduce concerns about breathing-related and other health issues associated with exposure to NOx emissions, too.
The Propane Education & Research Council is a nonproﬁt that provides leading propane safety and training programs and invests in research and development of new propane-powered technologies. PERC is operated and funded by the propane industry. For more information, visit Propane.com. To learn more about propane autogas vehicles, visit Propane.com/Fleet-Vehicles.
The Lease Versus Own Dilemma:
by Doug Siefkes, for PACCAR
Whatâ€™s Right for Your Operation?
The Lease Versus Own Dilemma: What’s Right for Your Operation?
When it comes to trucks and product
distribution, there are three choices: use a carrier (for-hire or dedicated), own your fleet or lease your fleet. Each has its pluses, but what’s right for your operation? According to Chuck Davis, PACCAR Leasing’s director of sales, much of the decision comes down to the regularity and volume of your shipments, coupled with how much control you want with your ﬂeet. “The ﬁrst step is to determine if you really need a private ﬂeet by asking yourself the following questions,” said Davis. “How important is it that my product arrive on time? Can I trust my reputation with someone who doesn’t know my customers? And, can I trust someone else to carry a hazardous material (if required)?”
“While most trucking ﬁrms are reputable,” Davis said, “in some cases, your product moves on their schedule rather than yours. And their drivers are not likely to know your products, routes or customers. If on-time delivery and putting a face with your company isn’t critical, the trucking company option may be right for you. If control of shipping is paramount to your operation and you transport often, your best option is to have direct control of your transportation and that means either owning or leasing equipment.” According to a National Private Truck Council 2019 Survey, the top reasons companies operate a private ﬂeet are customer service (by an almost 3-to-1 margin), followed by cost, capacity and control. The survey also showed that those companies measure customer satisfaction through on-time deliveries with performance windows from just 10 minutes up to 60 minutes.
Should I Purchase or Lease My Fleet? Today, according to Davis, a good percentage of companies hauling petroleum products include some level of leasing in their ﬂeet strategy. “Many of our customers will tell you that they were staunch advocates of owning and maintaining their own ﬂeet, but they’ve changed their stance over the years,” he said. “Fuel hauling, for example, tends to be a very personal industry where safety is extremely important, and the thought of losing any control is troubling for them. However, once they see all the possibilities of leasing, they recognize it can be a competitive advantage.” According to Davis, there are three primary considerations to keep in mind when making a lease-versus-buy decision: your ﬁnancial resources, the size and complexity of your ﬂeet, and the geographic range of your operation. “As a rule of thumb, if the purchase cost of your vehicles will hinder the growth of your primary business, it’s probably a good idea to consider leasing to protect your capital,” said Davis. “A primary goal of all companies is to obtain the best ﬁnancial return on its money, which includes acquiring a single vehicle or a ﬂeet of trucks. With leasing, you’re paying for the use of the vehicle, and since you don’t own the vehicle, the residual value is backed out. The monthly cost is less than if you ﬁnanced in ownership. The most recent development in the U.S. Financial Accounting Standards Board’s ASC 842 that requires all leases be on-balance sheet, which has been in effect for public companies starting 2019, has a proposal to extend the FMN Magazine
effective date for private companies from 2020 to 2021. While there is some related administration burden in the beginning, it will become business as usual ,and leasing remains attractive since the amounts capitalized will be signiﬁcantly lower than in ownership. The asset investment decision is one of the most important decisions a company can make, so ﬁnancial ofﬁcers really should be involved.
“If your ﬂeet is large enough to justify the expenses of your own maintenance facility, other considerations may or may not make full-service leasing the most economical solution.”
“The second consideration—size and Chuck Davis, PACCAR complexity of the ﬂeet—centers around customized speciﬁcations and anticipated maintenance costs, including the signiﬁcant expense of technicians, service facilities and tooling if you operate your own shop. Generally, if you run a small- to medium-sized ﬂeet, leasing is often the most cost-effective alternative since you’ll bypass these expenses. However, if your ﬂeet is large enough to justify the expenses of your own maintenance facility, other considerations may or may not make full-service leasing the most economical solution. Your decision will require a thorough ﬁnancial analysis, ideally performed by an outside consultant familiar with all the costs—tangible and intangible—of running a truck ﬂeet. Keep in mind that while today’s modern, high-tech trucks are very efﬁcient on the road, they require a modernized maintenance facility with specialized diagnostic equipment as well as thoroughly trained and certiﬁed technicians.”
While the shortened development cycle of new technology is delivering signiﬁcant improvement in truck performance and fuel efﬁciency, it comes at a cost of tooling, training and hiring technicians with new skill sets. “Environmental strategies are also a growing element of responsibility. The management of ﬂuids and other regulated components must be monitored to avoid spills or leaks as well as maintain compliance,” adds Davis. “Once you have a full understanding of your maintenance shop, we recommend doing a pro forma, which identiﬁes all the costs of operating a maintenance facility— it’s something PacLease and other leasing companies do on a regular basis. The numbers will help you decide the best way to go.” According to Davis, the range of a ﬂeet’s operation can also have a major impact on the lease-versus-buy decision. “For instance, many of our customers lease more than 30 vehicles. For them, leasing is more economical because they distribute in a multi-state or regional operation. A service bay 300 miles away won’t help a 66
The Lease Versus Own Dilemma: What’s Right for Your Operation?
stranded truck. Many leasing companies have emergency roadside service programs to provide repairs anywhere in the country, 24 hours a day. Owning and operating trucks can be a very expensive proposition when you factor in the frequency of breakdowns and subsequent repairs. Leasing eliminates this worry by taking lease customers off the hook for these expenses, giving them the advantage of a reliable, high performing ﬂeet as well as accurate cost accounting. And, unlike ownership, the lease customer can accurately budget for transportation expenses over the term of the lease.”
Finally, Davis said a good leasing company will provide objective lease-versusownership comparisons, including an operating and a ﬁnancial analysis that includes a net present value of cash ﬂows. “This comparison should include your company’s own numbers for the ownership option (labor, facilities, maintenance costs, cost of borrowing, etc.). It will give you the means to weigh the tangible ﬁnancial beneﬁts and the intangible operating beneﬁts that fullservice truck leasing offers versus ownership.” In today’s business environment, a company’s emphasis, both strategically and operationally, should be focused on its core business. The answer to the transportation dilemma is never the same for any two companies. By carefully examining your needs and reviewing the beneﬁts of using trucking ﬁrms, purchasing trucks or leasing them, you’ll reach the most cost-efﬁcient solution for your business. n
Hidden Costs of Vehicle Ownership Can Make Leasing More Appealing
What Does a Full-Service Lease Provide? For people accustomed to automotive leasing, full-service truck leasing is something altogether different. Whereas automotive leasing generally stops with the ﬁnancial arrangements, full-service truck leasing typically includes a myriad of services, such as access to product engineers, full preventive maintenance support, emergency roadside service, electronic logging device (ELD) solutions, driver safety and fuel programs, as well as ﬁnancing. In addition, a full-service leasing company can handle all the paper work that can monopolize a manager’s time—fuel tax reporting, tollmanagement, licensing and permitting.
Choosing the Right Lessor
$ Consider and quantify the following questions when making your lease-versus-buy decision: • What is the cost of your time to manage truck and maintenance operations? (Some companies ﬁnd that r e-allocating time toward their core business in revenue-generating capacity provides a greater return.)
• Does your company have the buying power to purchase high-quality truck parts and supplies at a low cost? (Many l easing companies have access to volume parts programs that can reduce your cost.) • What is the cost of your working capital tied up in parts inventory? (Old parts that become obsolete are a common problem in shop operations.)
Choosing the right leasing company to work with is an important decision. You are, in effect, entering into a long-term relationship (typically three to six years) that should be beneﬁcial to both parties. “Leasing a truck is a bit like buying a suit,” said Davis. “You can either buy it off the rack or have it custom tailored. While the suit off the rack may appear to be less expensive, you’ll probably be happier with the custom-tailored suit down the road. You’ll also enjoy a more professional image with a suit designed speciﬁcally with you in mind.
• Is your workﬂow steady enough to optimize shop labor? (New ﬂeets require less maintenance than old ﬂeets and the units have to be available when technicians are present.) • Are your technicians in a consistent, formalized training program? (This is a requirement to keep up with annual improvements in technology.) • Is your shop tooling and equipment keeping pace with the advanced technology found on today’s trucks?
“Look for lease companies that are willing to ‘tailor’ a lease to meet your speciﬁc transportation needs. Do you have speciﬁc load or route requirements that can be best met with a custom-spec’d vehicle? For a fuel hauler, spec’ing is critical since there is a balance between durability and lightweight components to maximize payload. Would premium vehicles, like a Kenworth or Peterbilt, enhance your company’s image and be appreciated by your drivers—who typically are some of the most qualiﬁed and highly paid drivers in the industry? Will your leasing company provide maintenance services around your schedule and provide extra or substitute vehicles to ensure you won’t miss deliveries and be on the hook for a product shortage? “It’s important for your lease sales representative to clearly understand your transportation requirements and business needs. Only then can they become a transportation partner.”
• Would an additional credit facility through a full-service lease help your ﬁnancial picture and line-of-credit with your bank?
• With federal, state, provincial and local regulations, are you prepared to upgrade your facilities and processes to meet current and future environmental standards? (Similar to trucks, regulators require facility improvements resulting in costly upgrades and on-going risk management.) • Would premium trucks on a full-service lease reduce your driver turnover? (Well-spec’d top truck brands can make an impact on driver satisfaction. The loss, replacement and training of a single driver can exceed $7,000 in cost.) • Are you in a position to risk the resale value of trucks in ownership, or would it help your business to have the guaranteed residual value that full-service leasing affords?
What Does That Mean? Test Your FMN Acumen The list below represents acronyms used in this issue of Fuels Market News. AEO AFD ANG API ASTM b/d B2 B20 BOL bpd BTU CAFE CARB CDL CDU CH4 CIS CO2 DEF DOT DSS E15 E85 EIA ELD EMV EPA EV FMCSA FMLA GGE H20 HAZMAT HDC HDT HOS HVAC IEA IMO IT LCLF LNG mmbpd mpg MT NACS NFC NORA NOx OEM OSLT PCI PEI PERC PMAA POS ppm R100, R80 RFS SaaS SCR SNAP SOI TCO ULSD UST VMT Y2K ZEV
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Annual Energy Outlook Automatic Fuel Dispenser Air National Guard American Petroleum Institute American Society of Testing and Measurement Barrels Per Day 2% Biodiesel Blend 6% – 20% Biodiesel Blend Bill of Lading Barrels Per Day British Thermal Unit Corporate Average Fuel Economy California Air Resources Board Commercial Driver’s License Crude Oil Distillation Unit Natural Gas (Methane) Commonwealth of Independent States Carbon Dioxide Diesel Exhaust Fluid Department of Transportation Data Security Standard 15% Ethanol Fuel and 85% Gasoline 85% Ethanol Fuel and 15% Gasoline U.S. Energy Information Administration Electronic Logging Device EuroPay, Mastercard, Visa U.S. Environmental Protection Agency Electric Vehicle Federal Motor Carrier Safety Administration Family Medical and Leave Act Gasoline Gallon Equivalent Water Hazardous Materials Hydrocracking Hydrotreating Hours of Service Heating, Ventilation and Air Conditioning International Energy Agency International Maritime Organization Internet Technology Low Carbon Liquid Fuel Liqueﬁed Natural Gas Million Barrels Per Day Miles Per Gallon Metric Ton National Association of Convenience Stores Near-Field Communications National Oilheat Research Alliance Nitrogen Oxide Original Equipment Manufacturer Oil Spill Liability Tax Payment Card Industry Petroleum Equipment Institute Propane Education & Research Council Petroleum Marketers Association of America Point of Sale Parts Per Million Renewable Diesel Renewable Fuel Standard Software as a Service Selective Catalytic Reduction Supplemental Nutrition Assistance Program State of the Industry Total Cost of Ownership Ultra-Low Sulfur Diesel Underground Storage Tank Vehicle Miles Traveled Year 2000 Zero-Emission Vehicle
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