The fuel distribution industry is like a giant game of chess, where every move counts, and the stakes are high. Fuel and oil play crucial roles in the global economy, with a staggering 94.1 million barrels circulating worldwide each day in 2021. The industry comprises an intricate network of suppliers, distributors, and customers, all of whom rely heavily on the consistent availability and stability of these essential resources.
At the heart of this industry is the need to manage the supply chain and ensure products are delivered seamlessly from the refinery gates to customer’s sites, with a focus on efficiency, reliability, and safety. However, this process is not always straightforward, and there are often bottlenecks that can cause delays or disruptions in the supply chain.
In this blog post, we'll look at the challenges and strategies for success in the fuel distribution industry. And more specifically, on managing inventory, route planning and optimization, and compartment planning. We also briefly touch upon factors that impact the supply chain, such as the global energy crisis, volatile fuel prices, and the increasing demand for greener fuels.
Global Energy Crisis Leads to Greener Alternatives
The global energy crisis has significantly impacted fuel distribution across the world. In Europe, the partial ban on the import of oil and petroleum products from Russia has led to a decrease in Russian oil imports into the European Union. According to the European Parliamentary Research Service, Russian oil imports into the EU fell from 2.5 million barrels per day in January 2022 to 1.4 million bpd in October 2022.
Additionally, as of December 5, 2022, an EU ban on Russian crude oil imports became effective, and a ban on refined petroleum products will take effect on February 5, 2023. These bans have led to a significant increase in the prices of diesel, petrol (Euro-super 95), and liquefied petroleum gas (LPG).
Fuel expenses outweigh other operating costs
The American Transportation Research Institute also reported that fuel expenses were 35.4% higher in 2021 than in 2020, erasing the cost savings that fuel distributors experienced during the pandemic. This increase in fuel expenses outpaced other significant expenses, including driver wages, which increased by 10.8%, and repair and maintenance costs, which rose by 18.2%.
Transport costs make up a significant portion of the overall cost of fuel distribution in both the United States and European Union, accounting for 40% of the total expense. This is a major challenge for fuel distribution companies, particularly those that rely on heavy-duty trucks using diesel as their primary fuel source.
Rising fuel prices boost transitioning towards greener transport modes
However, the crisis has also led to governments and companies taking steps towards a more sustainable and secure energy system. The World Energy Outlook 2022 highlights the crisis as a catalyst for significant disruption in natural gas, coal, and electricity markets. Governments are diversifying oil and gas supplies and accelerating structural changes to increase or maintain energy security in the long term.
Some fuel distributors are already taking initiatives to provide cleaner lower-carbon renewable fuels as well as biodiesel from waste. By collecting cooking oils from restaurants and other food producers to use as raw materials for biodiesel manufacturing they help save carbon saving of diesel supplied to customers.
Vendor Managed Inventory: Forecasting Fuel Demand in Real Time
During the pandemic, holding onto inventory proved very costly due to limited demand and storage space in oil terminals. This demonstrates the importance of quickly moving finished oil products through storage tanks and making way for new shipments from the pipeline.
Distributors need to maintain adequate stock levels to meet demand, but they also need to be careful not to overstock, which can lead to increased storage costs and the risk of inventory becoming obsolete.
To tackle this challenge, many distributors have turned to advanced inventory management systems that use real-time data to forecast to help them make better decisions about how much fuel to order and when to order it.
If you're curious about how distributors are using Vendor Managed Inventory to streamline their operations and stay ahead of the game, check out this infographic below.
How Vendor Managed Inventory Streamlines Fuel Distribution operations!
Download the infographic to learn how VMI helps Fuel Distributors reduce inventory costs
Efficiency on the Road: The Role of Route Optimization in Fuel Distribution
Distributors need to be able to transport fuel from refineries to storage facilities, and then from storage facilities to gas stations and other customers. This requires careful planning and coordination, as well as the ability to track deliveries in real-time. It also means finding ways to be more flexible, cost-efficient, and adaptable to fluctuating market conditions.
By optimising delivery routes, distributors can reduce the transport costs (eg. reduce number of miles travelled, decrease fuel consumption, and improve the overall delivery times).This not only benefits the distributor but also their customers who receive their fuel deliveries in a more timely and reliable manner. Additionally, route optimization can help distributors to reduce their carbon footprint by minimising unnecessary emissions.
Greenergy Case Study
To address this challenge, many distributors are investing in Intelligent Optimization technologies to optimise routes and thereby reduce transport costs. As competition within the fuel industry continues to grow, distributors who invest in route planning and optimization technology will be able to stay ahead of the game by providing more efficient and cost-effective services to their customers.
Find out how Greenergy Flexigrid was able to improve efficiency in delivery scheduling and demand planning using AMCS Fuel Planner.
Safety and efficiency using compartment planning
In the world of fuel distribution, compartment planning and loading rules are critical components that help ensure safety and efficiency. By following specific rules for gravity orders, cross-compartment contamination, and sequencing, compartment planning can minimise the risks associated with transporting liquids, such as weight shifting and sideways forces during acceleration, braking, and cornering. This not only ensures safety but also reduces wear and tear on vehicle components like brakes, making them last longer.
Compartment planning also enables fuel distributors to cater to a broader range of customers by carrying different fuel types and delivering the appropriate amount to each customer based on their specific requirements.
However, compartment planning is just one piece of the puzzle. Loading rules, such as axle pressure and load sequencing, are equally crucial. Different scenarios require different strategies, and fuel distributors must be able to adjust their plans accordingly to ensure the best possible outcome.
Watch this 20-minute webinar on demand to learn more about downstream fuel distribution compartment planning and loading rules.
Conclusion
The fuel distribution industry faces a range of challenges, from volatile fuel prices to the need for greater efficiency and sustainability. However, by adopting innovative technologies such as advanced inventory management, route optimization, and compartment planning, distributors can improve their operations and meet the demands of their customers. As the industry evolves, those who embrace new technologies and processes will be better positioned to succeed and thrive. Additionally, by investing in cleaner and greener fuels, distributors can help to mitigate the impact of the global energy crisis and play a role in creating a more sustainable and secure energy system.
Improving efficiency and improve margins in the Downstream Fuel Industry