Fuel Prices Will Continue to Swing Wildly
Our analysis of the U.S. Department of Energy’s (DoE) historical price information revealed a “new normal” in fuel price volatility. Prior to 2004 fuel buyers had little to worry about in terms of day-to-day price changes – changes of over 5 cents occurred only 1.5 percent of the time. Now moves of 5 cents or more happen 25 percent of the time. Worse, price swings of 3 cents or more happen nearly 50 percent of the time versus just 6 percent pre-2004. Businesses that still operate with manual processes and spreadsheets are effectively rolling the dice every day hoping to be on the low end of the price swing. This volatility will continue into 2013 and beyond as a result of the continued increasing cost of fuel, rising global demand, continued political instability in the Middle East, reduced supply, and the impact of speculators and investors on fuel markets.
Superstorms Will Continue to Best the Retailers Superstorm
Sandy’s impact to the Northeast exposed not just the industry’s lack of contingency plans, but also its inability to quickly meet shifting demand patterns around such events. As the total number of tropical storms reaches 80 to 90 each year, businesses will need to establish protocols to assist recovery efforts before the next storm hits Retailers and distributors across the globe would be wise to learn a lesson of Sandy and pre-plan for fuel shortages, outages or lack of electricity at the pump. Aspects of a recovery plan should include communications, stand-by supply commitments and forecasting, as well as calculating the fuel needs of generators and other emergency backup systems that will be critical for operations if there is a power outage. With so much to tackle, retailers will likely not be able to do everything that’s needed in time for the next wave of storms, but they should begin to work towards these goals now.
Mergers & Acquisitions Accelerate and Put Pressure on Small Fuel Retailers
The retail landscape is shifting as M&A activity continues to shake up the fuel industry. The acquisition of regional chains will give larger retail chains a benchmark to enter new markets. Midwest chain Speedway is evaluating options on expanding into western Pennsylvania in the coming year, to compete with locally-based GetGo and Sheetz. Established Florida retailers 7-Eleven and Circle K have new competitors with the entry of two iconic U.S. regional brands, Thorntons (based in Louisville, Ky.), and Wawa (headquartered in Wawa, Pa.). The new canopies on the landscape and upscale in-store experiences will force older, existing retailers in these areas to upgrade their sites to drive in-store traffic. Competing at the pump against larger companies and their greater resources will be a concern for smaller chains in these and other areas of the country. Technology exists to obtain fuel inventory, supply costs, pricing and even margin details down to the corner store level. This granular visibility lets retail operators – regardless of their size – manage their businesses with timely and accurate data to capitalize on market price swings, driving in-store traffic and beating their competitors with smarter fuel management.
Fuel-Based Businesses Will Get Stung By Tax Compliance
With the economy churning towards a slow recovery, many states are exploring every possible way to increase tax revenues. The impacts to fuel-based businesses are many. Organizations will have to be wary of more frequent audit and increased penalties for non-compliance. Savvy companies should be thinking ahead on how to maintain compliance with changing fuel tax rates and rules. Companies dealing with bulk fuel will need to act swiftly to comply with these evolving requirements, as well as future-proof themselves to deal with additional changes in the future.
California Will Become Epicenter for Fuel Debates
California is the largest consumer of fuel in the U.S., however due to gasoline formula requirements related to air quality standards, the state can only consume fuel that is refined within its borders. This makes the state especially vulnerable to global events that affect supply since California receives nearly 50 percent of its oil from foreign imports. Without oil pipelines from nearby states, California is literally separated by time and distance to supplies from outside the state. Maintaining steady pricing is a balancing act with these unique supply factors. There is no relief in sight to fix California’s underlying structural issues, which are subject to constant debate. But perhaps this imbalance will be the impetus for the state to relax its regulations and open up additional supply options. Changes will allow retailers and distributors, at the very least, to have additional options in the event the constant balancing act fails to keep prices in check.
Challenge or Opportunity? You Decide.
Though fuel volatility is expected continue to increase and the competitive landscape will no doubt change, one thing remains certain for fuel-based businesses in 2013 – companies can view these trends as challenges or opportunities. Many leading companies are taking advantage of fuel management automation technology to accurately assess inventory levels, consumption, sourcing options, and tax and environmental compliance. By doing so, these fuel-based companies are able to compete more effectively in this changing industry.
Fuel Price Volatility