Fuel price hikes are as bad for petrol station operators as they are for consumers, motorists, despite widespread belief to the contrary. Petrol price is expected to rise significantly at the end of this month with some economists forecasting a 70c/l hike on the back of rising oil prices in the international markets and a weaker rand.
“A petrol retailer’s profit is fixed for every rand of fuel sold, regardless of the fuel price. Fuel price increases do not mean that your local fuel retailer makes more money – potentially the opposite,” says Leslie Mitchell, MD of Garagesure Consultants & Acceptances, a specialist underwriter.
“When the fuel price rises by a significant margin, the R200 that bought 18 litres of fuel is now maybe only buying 16 litres. Many people will rather travel less than pay R20 more for fuel, which in turn has an effect on the volumes being sold by fuel station owners and results in lower spending in the convenience stores at the petrol station forecourts.”
There is also the problem of being suddenly under-insured on the value of the fuel inventory a petrol station is holding. The price of fuel has a significant effect on the value of fuel inventory at petrol stations. For example, a petrol station with a 100 000 litre tank capacity of 95ULP would have had a fuel inventory value difference of R335 000 in August 2009 versus August 2012. This would mean that the owner of the petrol station could have been 30% under-insured for this brand of fuel – a potential disaster in the event of a fire, for example.”
For petrol station owners, it is always advisable to make sure that their sums insured are accurately reflected on their policy schedules, but this can become administratively intensive when there are sometimes monthly changes to the price of fuel.
Mitchell advises petrol station owners to double-check their insurer’s criteria relating to fuel price increases. He adds, “As an insurer in this niche market, we understand the impact of fuel price adjustments and would not apply average to fuel inventory, provided that the sum insured value stated on the schedule is within a 10% margin.”
And what about the actual cost of a delivery of petrol when the price has just gone up again? “Dealers or franchises have contracts with their oil companies that compel them to keep a minimum fuel inventory level, so it is inevitable that your fuel inventory purchase will increase or decrease with fuel price fluctuations.”
In addition, increases could put a petrol station owner’s cash flow under pressure, as some pay for their deliveries using cash up front. To use a simple example: take a petrol tanker with a maximum load capacity of 34 tons (34 000 litres). At the current price of R11.04c (95ULP) the load would cost R375 360. If the price goes up by 20c, the same load would cost R382 160, or R6 800 more – a hefty amount of emergency cash to have available!
Mitchell comments, “A solution would be to speak to your brand about fuel guarantees that are available in the market and which are accepted by them. This could help ease the extreme burden of a cash upfront purchase.”
“Consumers may often feel that they are getting short changed with regards to their fuel consumption but the reality is that many of those working within the industry, particularly the petrol station owners, are also feeling the financial impact of the recent spikes in fuel prices,” concludes Mitchell.