By Doug Haugh

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 offset what is expected to be a 25% decline in gasoline demand for the same period. So the question for 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.

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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 the lower of the two formulas 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 truck stop chains offering these discount price programs is public: TravelCenters of America (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 10 cent-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.

 

DougHDouglas S. Haugh is currently President of Mansfield, a $9 billion industry innovator recently ranked by Information Week as the No. 1 technology innovator in Energy & Utilities and the only nationwide provider of fuel supply, biofuels, propane and diesel exhaust fluid. Haugh is a frequent speaker on energy, supply chain technology and entrepreneurship.  He can often be found leading general sessions or seminars at many national conferences and conventions.  He also blogs on energy issues at: http://thinkingonenergy.com. The opinions expressed there (and here) are his, and not those of Mansfield.