June 25, 2013 | Vol. 64, No. 13

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Dear PEI Member:

I had lunch with the retired president of a major manufacturer of petroleum marketing equipment last week. Our conversation centered around the trend of accelerated consolidation among our industry's distributors and their end-user customers. He observed that he can't remember a time when so many companies were trying to increase market share through acquisition.

I asked him if industry consolidation helped or hurt manufacturers in our industry. In other words, would he have preferred five to ten large distributor customers instead of the hundreds that he had when he ran his company. This is what he said:

"While it was tempting to want to have all the big boys sell your product, we would purposely limit how much and at what price we sold them to make sure we didn't have too many eggs in too few baskets. We didn't want them to get so big that they dictated how we ran our business. We wanted to be in charge. To do that, we wanted a lot of distribution partners. I'm not saying we wanted 500 petroleum equipment distributors worldwide―that's too many in our industry. But we also didn't want a dozen or so accounting for 80 percent of our business. Our sweet spot was in the 150- to 200-distributor range. We considered that to be a healthy portfolio of diverse distribution partners back when I was calling the shots, and I notice that my former company continues to follow that strategy.

"Look what Procter & Gamble, a mammoth in the consumer products sector, recently did to their suppliers. According to what I read, P&G currently pays its bills on average within 45 days, faster than the 60 to 100 days that other consumer products makers and large companies in other industries generally take. Now P&G is looking to move its payment terms to 75 days. The companies that count on P&G to purchase a lot of materials and services from them will have to tie up more of their own cash in receivables or eat the interest costs charged by banks to bridge the gap until P&G pays its bills. We were unwilling to allow any customer to become so large and important to our company that we would be forced to accept their terms.

"To us, negotiating with a small group of larger distributors was not a reliable path to profitability. Negotiating leverage is better when you have more options."

This is one man's perspective as it specifically relates to the policies of one manufacturer to its distributor customers. But the same tenets can be applied to the sale of goods and services from a distributor to any one major customer or a small group of large customers.

Selling to Large Customers

Renewable Fuel Standard

Illinois E-Stop Compliance Deadline

Electric vs. Gasoline Car Costs

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The U.S. Supreme Court
on Monday refused to consider legal challenges by several industry trade groups to an Environmental Protection Agency (EPA) move to expand ethanol use in the United States. Trade groups for food producers, the oil and gas sector, and the auto industry all sued to contest a pair of EPA decisions that allowed the sale of gasoline blends containing 15 percent ethanol. Last August, the U.S. Court of Appeals for the District of Columbia Circuit threw out all of the legal challenges without passing judgment on the EPA's ethanol actions. The appeals court said none of the challengers had a legal right to sue (i.e., lacked standing) because the harms they might suffer were too far removed from EPA's decision to allow E15. Legal scholars had predicted that the Supreme Court was unlikely to take the case because the conservative justices on the Court were interested in finding cases to narrow standing, and a reversal here would have seemed to expand the doctrine.
A bipartisan group of U.S. senators June 19 introduced
a bill to repeal the Renewable Fuel Standard (RFS) in its entirety, saying the program is expensive and broken. The bill was introduced by Senators John Barrasso (R-Wyo.), Mark Pryor (D-Ark.), and Pat Toomey (R-Pa.). The bill has five co-sponsors, all Republicans.
The House Energy and Commerce Committee has issued its fourth white paper (see March 28, 2013 TL) as part of its review of the RFS. These papers identify a number of emerging issues with the RFS. The fourth white paper, issued June 7, addresses several energy policy considerations related to the RFS. In our opinion, it provides an excellent and well-balanced summary of the energy policy backdrop of the RFS, and how the energy landscape has changed since 2007 when the RFS was expanded.

Under a policy (10-PCS-005) passed in 2010 by the Office of the State Fire Marshal (OSFM) for the State of Illinois, September 1, 2013, is the deadline for compliance to meet the requirements in the state's regulations affecting emergency shutoff switches (E-Stops) at all classifications of motor fuel dispensing facilities. A notice to all underground storage tank owners/operators and UST contractors was posted June 21 on the OSFM website www.sfm.illinois.gov in the Commercial News and UST Operator Training sections. All UST regulations are available by link at the UST Operator Training page, and the entire text of Rule Policy Interpretation 10-PCS-005 can be found under "Policies & Interpretations" in the Underground Storage Tank section of the Commercial page.

The U.S. Energy Department has unveiled a web-based tool (www.energy.gov/eGallon) that allows consumers to compare the price of a gallon of gasoline against the equivalent cost of fueling an electric vehicle. The eGallon tool features a drop-down menu allowing users to view gasoline/electricity price differentials in all 50 U.S. states and the District of Columbia, as well as the national average. The eGallon price is based on monthly regional electricity prices published by the U.S. Energy Information Administration (EIA) and fuel economy data for five electric vehicles. The gasoline prices are based on weekly retail prices published by the EIA.

"Don't build a site without running CAT5/6 cable
to your fueling positions. EMV requires lots of bandwidth and legacy cabling may not provide optimal performance (although several vendors have solutions).NACS Magazine June 2013, article by Phil Schwartz, Manager I/S, Valero Payment Services Company.
Three CNG stations are open to the public in Kansas. They are located in Overland Park, Topeka and Wichita.―U. S. Department of Energy.

Tesoro Corp. has signed an agreement with a wholly owned subsidiary of Par Petroleum Corp. to sell all of its interest in Tesoro Hawaii, LLC, which operates a refinery, 32 retail stations and other assets in the state.
Atlas Oil Co., Taylor, Michigan, has purchased 20 retail sites and up to 50 retail fuel supply contracts in the metro Detroit area from the Hadi Group Distributors Inc. via a sale under the U.S. Bankruptcy Code.

Bennett Pump Company, Spring Lake, Michigan, has hired Bo Sasnett as vice president of business development. Most recently, Sasnett served as president and CEO of Additech.
Scott B. Fisher, vice president of policy and public affairs for the Texas Food & Fuel Association, received the E.K. Bennett Award for his contributions to the petroleum marketing industry. The award is presented by the Texas Food & Fuel Association.

As of December 31, 2012, 12,285 retail gasoline outlets
were operating in Canada. Fourteen percent of all gas stations come under the price control of one of the three major oil companies (Suncor, Esso or Shell). Twenty-three percent of all gas stations come under the price control of one of the nine refiner-marketers in Canada. The remaining 77 percent of all gas stations in Canada are price-controlled by individual outlet proprietors or non-refiner marketers, such as regional distributors and big box marketers.―2012 National Retail Petroleum Site Census, researched and published by MJ Ervin & Associates.
Empire Company Ltd., which owns the Canadian grocery chain Sobeys, has agreed to purchase the Canadian operations of Safeway Inc. for $5.8 billion CDN. The deal will involve Empire acquiring all of Canada Safeway Inc.'s assets, including 213 full-service grocery stores and more than 60 gasoline stations, among other things.

Honduras distributor
. Tecnica Electromecanica Aplicada S.A., Blv. del Norte, Col. Fesitranh, Zona 2, Pasaje 4, #558, San Pedro Sula, Cortes, Honduras, has applied for distributor division membership. Ramon Jose Padilla is president of the firm, which was established in 1999. The company represents EBW, Hosemaster, LSI, Nupi, OPW, Wayne and Zeppini. The firm also installs piping, tanks and dispensers. Sponsored for PEI membership by Blanca Hernandez, Nupi, Houston, TX.
Thermoplastic parts and seals provider
. RT Dygert, 2700 South River Road, Suite 116, Des Plaines, Illinois 60018, has applied for affiliate division membership. Adam Stowers is quality control/technical director for the firm, which was established in 1958. The company provides hydraulic and pneumatic seals, custom molded and machined elastomeric and thermoplastic parts, related products and support services. Sponsored for PEI membership by Betty West, EmcoWheatn, Wilson, NC. www.rtdygert.com


  • Bobby Barrett, Kent Oil Inc., Midland, TX (O&E)


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© 2013
Petroleum Equipment Institute
P. O. Box 2380
Tulsa, OK 74101-2380

The TulsaLetter (ISSN 0193-9467) is published two or three times each month by the Petroleum Equipment Institute. Robert N. Renkes, Executive Vice President, Editor. Opinions expressed are the opinions of the Editor. Basic circulation confined to PEI members.