Petrol station owners fear price hike

Cape Town - The price of petrol is set to increase again this week, with 95 ULP rising 41 cents to a record high of R12.27 per litre, leaving motorists exasperated at the effect on their wallets.

But it is petrol station owners that may feel the pinch even more, as fuel price hikes are just as bad for business when your business is selling fuel.

Leslie Mitchell, MD of Garagesure Consultants & Acceptances says, “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.”

“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 January 2010 versus January 2013.

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 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 R11.86c (95ULP) the load would cost R403 240.

If the price goes up by 41c, the same load would cost R417 180, or R13 940 more – a hefty amount of emergency cash to have available!

“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 continuing spikes in fuel prices,” says Mitchell.