August 26, 2024
Are Your Finances Fuel Proof?: The Economic Importance of Wetstock Management
Profit is what drives business forward, but for forecourt owners, margins can be razor thin. When fuel prices rise beyond an owner’s control, fuel can even be sold at a loss to prevent customers from jumping ship to competitors.
As a frequent loss leader, gas sales account for a large majority of revenue but a fraction of profits. Because of these small margins and intense competition, it is highly important that station owners keep track of wetstock as carefully as possible. Manually monitoring wetstock while operating the rest of the forecourt can be difficult, inefficient and, at worst, threaten the profitability of your business.
Most owners have some form of wetstock management system and are familiar with tracking variances to account for inventory. However, there are a number of ways that wetstock can be mismanaged, more so than many forecourt owners realize. With over 60 ways an actual or perceived fuel loss can happen, station operators may be at more risk than their systems can detect.
The most common types of actual or perceived fuel loss are due to delivery shortages, fuel theft, temperature fluctuations, tank leaks and meter drift. We’ll cover how these can affect your bottom line and how to analyze your wetstock management needs.
Possible Perceived Fuel Loss
Delivery Shortages:
The process for getting fuel from a refinery to an underground tank at the forecourt is a complicated one. It can be easy for fuel to be lost in the process and unintentional shortages of fuel during deliveries are common. While shortages may be small at the time of delivery, losses can add up and, at the very least, cause an accounting imbalance.
Promptly investigating variances after deliveries can help detect shortages and prevent future discrepancies. Automatic tank gauges can also help capture the delivery amount and detect differences between the anticipated and actual fuel volume. Wetstock monitoring services and systems are another method that can quickly measure and flag high variances before it impacts a station’s profitability. Wetstock management can also help determine when a perceived delivery shortage is a false alarm and is actually related to temperature fluctuations.
Temperature Fluctuations:
Temperature fluctuations are responsible for the majority of perceived fuel loss, or false alarms. In the delivery truck or fuel tank, fuel can expand or contract depending on the temperature outside in relation to the temperature inside. If it is cold outside, the fuel can contract in the delivery truck and cause a variance between the actual delivery and bill of lading. If the temperature is warmer outside, a fuel delivery can contract in the tank and result in the appearance of a loss without any discrepancy.
Investigating the cause of a fuel loss can be a heavy financial burden if the answer is not simple. Some causes are easier to identify than others, but knowing when a discrepancy is false and could be resulting from temperature fluctuations or another perceived loss is essential to avoid wasting time and money.
Wetstock management systems can reduce investigations of false alarms when deployed. In a case study of ten gas stations over a period of six months, DX Wetstock®, DFS’ wetstock management solution, collected and verified 4,000 alarms with less than 5% resulting in an escalation or site visit, compared to 20% of flags resulting in action without wetstock management solutions. With a significant reduction in unnecessary escalations and worry, DX Wetstock® proved effective in reducing financial investment in false fuel loss investigations.
Possible Actual Fuel Loss
Fuel Theft:
While there’s not much data on how often these instances occur, there are new headlines about fuel theft incidents every week. Recently, a new fuel theft method was reported by the Texas Food and Fuel Association stating that suspects are getting inside fuel pump cabinets and manipulating the valve coil wire with 9-volt batteries. Most fuel theft deterrents do not work for this method and occurrences are on the rise, meaning the best defense is carefully monitoring fuel inventory.
Hacks like this are a threat to small businesses and large networks alike. Many criminals target individually-owned stations that may not have advanced technology to detect such crimes, and because larger businesses have more forecourts, their reach increases the likelihood of being a victim.
Additionally, when fuel prices rise, incidents of theft and fraud increase proportionately, and since fuel prices can be extremely volatile, it’s impossible to know exactly when price hikes will come. During these times, profit margins for forecourt owners are even slimmer than usual, and committed criminals can steal hundreds of gallons at a time. Therefore, it’s important for station operators to be prepared for theft versus recovering after the fact.
Tank Leaks:
Likely the most costly type of fuel loss is tank leaks. Fuel tanks are more susceptible to leaks as they age, creating risks for safety and profits. Because of environmental regulation, fuel tank leaks can be devastating for owners. According to EPA statistics, average cleanup costs for an undetected leak is approximately $130,000, excluding cost of lost fuel, fines and reputational impact.
In the DFS case study, DX Wetstock ® detected 4 tank leaks, which lost over 2,000 gallons of fuel. Had the leaks continued for 12 months without detection, the incidents would have cost over $550,000 for the retailers! Given an average profit margin of $0.05 per gallon, it would take $11 million in fuel sales to recover the losses across these forecourts.
Given the high fines, revenue loss and potential reputational damages, avoiding tank leaks is of the utmost importance to forecourt owners. But, as DFS found, not all leaks are detected as early as possible and the time-to-response can make a large financial impact.
Meter Drift:
Another consequence of aging equipment is increased likelihood for meter drift. While investing in dispensers and meters that can handle your site traffic and require less steps for calibration will help improve longevity, meter drift can still occur. Meter drift happens when wear and tear on the meter causes dispensers to deliver more fuel than accounted for. Meter drift rarely causes less fuel to be dispensed, only more, which can significantly affect profitability until the error is caught.
The DX Wetstock® case study also monitored meter drift occurrences and identified two instances of over-dispensing meters that were responsible for nearly 600 gallons of loss. Had the meter drift not been detected for 12 months, an estimated 7,400 gallons of fuel would have been lost. At an average price of $3.50 per gallon, the loss over a year would amount to nearly $26,000 in revenue.
As meters age and become more susceptible to drift, other equipment may be aging too and need further maintenance. To avoid compounding maintenance costs, along with unexpected service costs, lost revenue from equipment downtime, fines due to non-compliance, warranty cost recovery, and unsuccessful accident claims, asset management solutions are available. Automated compliance and maintenance trackers can help relieve the financial burden of maintaining forecourt equipment, and when used in tandem with proper wetstock management, provide an end-to-end equipment solution that helps lower financial risk. Considering meter drift tends to occur because of aging equipment, forecourt owners may already be concerned with tank leaks and updating other systems at the same time. Losing fuel due to meter drift during this time when profit is necessary for repairs can be devastating and getting ahead of such errors using wetstock management systems that fit your business’ needs can help prevent financial squeezes.
Upgrading Wetstock Management
So how do you know if you need to update your wetstock management tools?
The first step is making a realistic assessment of the current wetstock management capabilities. While many retailers may think their basic wetstock management is satisfactory, DFS has found through looking at their programs more closely that fuel loss, data errors and operational inefficiencies are present in most instances , according to the DX Wetstock® case study.
Forecourt owners should then determine how committed their organization is to digital solutions, like DX Wetstock®. If continually improving your efficiency and leveraging technology to protect your site is of priority and budget allows, investing in more modern wetstock management technology could be a wise change.
Finally, think about the long-term improvements you can make to your wetstock management. Rather than updating systems after a loss occurs, get ahead of incidents by modernizing your organization and increasing foresight. Even if the current technology has been performing well, exploring options that could improve operations in the future can set up your business for success in an increasingly competitive industry.
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