Diesel demand in the US is growing and is expected to rise from roughly 48 billion gallons in 2015 to over 67 billion gallons by 2040. This growth will off set what is expected to be a 25% decline in gasoline demand for the same period. So the question to fuel marketers is how to capture more of this growth while dealing with a rapidly changing gasoline market.
For many fuel retailers the answer has been to add diesel pumps to their existing retail gas stations. For those fuel retailers now selling diesel the margins have proven to be an unexpected bonanza. At one point in January the average rack to retail margin was $0.90 a gallon. These breathtaking spreads have since come back to earth but are still ranging between $0.30 and $0.50 a gallon depending on where you are in the US.
I know those deeply involved in the diesel business will be quick to say, “that’s not how most fleets buy their diesel, they have deep discounts off of retail”. True. Most large fleets have cost plus, retail discount, or a lower of the two formula that provides significant savings as compared with the cash retail price that DOE reports.
So while neighborhood auto-diesel sales are sporting margins twice that of gasoline most of the volume is being sold a lot cheaper. Right? Well one of the major truckstop chains offering these discount price programs is public, TA. Reading the transcript of TA’s fourth quarter earnings call we find, “gross margin per gallon was nearly $0.28 or $0.11 per gallon over the same measure in the fourth quarter of 2013.”
So what can fleets do to save money on diesel? Seems that if you are a customer that has to purchase your fuel at a retail fuel island you simply must find a way to get access to the $0.10-$0.30 cent savings that the big fleets are saving. If you are a fleet that can possibly squeeze in a bulk tank on at least some of your properties or truck terminals the payback for doing so is painfully obvious.
What can fuel marketers do to capture more of this growing diesel demand while offering customers better value? For those with the technical and marketing experience continuing to invest in commercial cardlocks seems wise, at least where reasonable real estate can be obtained. Easier to deploy and environmentally safe bulk diesel tanks connected to convenient back yard dispensing solutions are a win-win for both the fleet customer and fuel marketer.
Lastly giving mobile fueling / wet-hosing another look may make more sense than ever. At these retail prices even if the fleet operator has low labor costs and is close to a retail station with diesel there is still a strong value proposition to be made.
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a look forward on your subsequent post, I’ll try to get the hold of it!
Wow, I was aware of the rise in gas prices but this is definitely an eye opener. I’m glad I don’t drive diesel! In fact, I’ve started riding my bike whenever possible to save on gas consumption. The exercise is great, and it looks great for my wallet.