FUEL the difference

Spiking diesel fuel prices have been driving some propane marketers to take a closer look at their operations to better maximize the efficiency of their routing procedures and considering adding a fuel surcharge.

Slashing will-call accounts and otherwise minimizing one-tank-trip deliveries are among the suggested route enhancements.

Few are taking direct pricing action just yet, as diesel’s per-gallon cost has been steadily dropping by the week. But those who run diesel bobtails are still casting a wary eye toward what winter might bring to pricing at the pump.

Last year’s overall strong winter has most propane marketers taking a wait-and-see attitude as they absorb the high fuel cost. Some transport companies are bumping fuel surcharges, however.

Forecasting from the Federal Energy Information Administration predicts that by the time the snow flies the national average price for a gallon of diesel will hover around $1.62. Last winter’s average price was $1.53.

“The average crude oil costs to refiners is higher,” EIA economist David Costello explains. Unforeseen events, such as a domestic pipeline disruption or a terrorist incident in the Middle East, can create unpredictable availability problems and the resulting price spikes, he adds.

In early June, diesel’s national average price per gallon was at $1.71 – down 2.3 cents from the previous week but up 28 cents from the same time last year. In California it averaged $2.05, a 40-cent increase over a year ago. Prices there have been topping $2 for more than 10 weeks.

Consumer demand and environmental refinery-based requirements play large roles in the accelerated cost of Golden State fuels. “It’s always much higher in California,” Costello confirms.

Powered by propane

In the area around Los Angeles, diesel was selling in the $2.30 to $2.40 range, according to Ted Olsen, general manager of Globe Gas in Long Beach. That same June day, propane stood at 62 cents per gallon. That’s good news for Globe, as four of its five bobtails are propane powered.

“I’ve been running propane trucks for 30 years,” Olsen reports. “We have storage here; I can fill my trucks up anytime, and it’s certainly cheaper than diesel.”

A spike in diesel is still bad news for Globe, though. A subcontractor who provides propane transports has added a diesel surcharge to the price of his load.

“At this time I haven’t passed it on yet. It’s the wrong time of year to be raising prices, and the customers know it,” says Olsen, noting that 90 percent of Globe’s accounts are commercial.

The price of diesel is likely to play a larger role as the winter heating season approaches. “I hope they go down by then, or else I’ll have to think about passing on my costs,” Olsen reports.

Meanwhile, routing procedures are constantly monitored to avoid unnecessary drops for non-profitable top-offs. “I have my drivers keep their eyes on my customers,” Olsen points out, heaping praise on the diligence of his crews. “My drivers know their customers’ usage pretty well.”

Some Globe customers have remote tank level monitoring systems in place. But at $500 per account, few are taking advantage of this newer technology.

The most fuel-efficient advice for other propane marketers is to “keep your eye on your dispatch and avoid unnecessary deliveries,” Olsen suggests.

Dedicated to diesel

In Mississippi and Louisiana, diesel was priced from $1.85 to $2.07, according to Mike Carraway, fleet and safety officer for Herring Gas in Meadville, Miss.

Of 74 bobtails, 42 are propane powered and Herring has had it with them no matter what the fuel price.

“We’re going diesel. We couldn’t get a propane vehicle that has worked correctly, and they’re not available when we need them,” Carraway says.

Herring officials have discussed it, but there are no plans to alter routes or explore other cost-saving options.

“We’re having to take more money off the bottom line to pay for fuel,” Carraway says. “If it doesn’t go much higher we can hold out until the end of the year.”

Buying early

Lyons LP Gas in Lyons, Ohio, had the foresight to fill a 1,000-gallon diesel tank in April. A gallon then cost $1.73, compared to the current price of $1.78.

“We haven’t had to buy too much of the expensive stuff yet,” reports Lud Seaman, president.

Still, expenses are up. Should high prices remain for a sustained period, Seaman may consider raising the price of his product too. “We’d just add it to our margin,” he explains.

Like Herring, Lyons is putting the brakes on propane-powered bobtails.

“Our whole fleet was once propane,” says Seaman. A “beater” propane truck relegated to tank painting duty is still on the road; the five bobtails and two service trucks are now diesels.

“We basically doubled our mileage with diesel,” Seaman notes. Propane provided 3 to 4 miles per gallon, compared to 7.5 mpg with diesel, he says.

Seaman’s company is paying close attention to its route planning, topping off only those customers needing it. His drivers are especially skilled at accomplishing this mission without the need for specialized software, he says.

“All of our drivers are experienced enough that they can do the routing as well as a computer can.”

Grouping calls

Diesel was selling for $1.60 to $1.70 per gallon throughout the Arkansas and Louisiana service area of Southern LP Gas, based in DeQueen, Ark. President Ron Moore hopes the price continues to fall.

“We can survive the summer with it, but come winter we’ll have to recognize that this is a serious issue for us,” Moore says.

“We’ve started grouping our calls, not just going (to the customer’s tank) when somebody calls.”

Southern’s fleet of 44 bobtails includes 12 diesels. The rest are propane powered, but not for long. The diesel contingent offers “a lot more longevity and less repairs,” Moore reports. “It seems like that’s the direction we need to go in.”

Diesel fuel’s cost is up 50 percent over last year for Propane Central in Salina, Kan. “It put a pretty big dent in our bottom line this year,” reports General Manager Dave Payne, citing a $1.80 per gallon price. Forty percent of his 17 bobtails run on propane.

“We talked about adding surcharges,” to its price of propane, Payne says. Enhancements such as tank monitoring equipment and routing software are other options being considered should price relief not come.

“We try to be efficient on that, but we have a way to go,” Payne admits. “We stress the size of the delivery, especially for customers not on a route.”

$ervice and value

Putting will-call bargain hunters on hold will save on pricey bobtail fuel, advises consultant Jeff Thompson of Propane Resources.

“Get away from the customer who is looking for the lowest cost this second,” he suggests, “but pursue people looking for the best value and service. These are your keep-full customers – your best customers.”

Review the account paperwork generated from previous years to spot situations that may be improved upon, he says. Perhaps a budget-billing plan is in order.

Routing software and other programs are the way to go, according to Thompson. “Maximize your efficiencies on routing your bobtails,” he says. “Schedule as much as you can on a routing system.”

Projecting future costs and revenues can also be helpful, says Thompson. “Plan not for two days ahead of you, but plan for six months to a year ahead of you.”