Guidebook for Evaluating Fuel Purchasing Strategies for Public Transit Agencies (2012) / Chapter Skim
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Pages 47-53
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From page 47... ...
47 Delivery Price Risk Management Delivery price risk management is the practice of employing competition and contracting strategies to lower the level and volatility of fuel prices. The delivery price, which is often known as the supplier's margin, is the cost of distributing and marketing fuel from the rack facility at the refinery or pipeline terminal to the transit agency's fueling station plus the supplier's profit.
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From page 48... ...
48 Guidebook for evaluating Fuel Purchasing Strategies for Public transit Agencies contracts typically involve the delivery of fuel to a fueling station that is owned and operated by the transit agency. The cost per gallon of operating this station has not been added to the long-term contract margin and will vary from agency to agency based on a number of factors.
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From page 49... ...
Delivery Price Risk Management 49 more efficient cost structures because they are able to leverage economies of scale to provide lower per-unit distribution costs. Suppliers' margins may also be lower in areas that do not require diesel fuel to be blended with biodiesel.
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50 Guidebook for evaluating Fuel Purchasing Strategies for Public transit Agencies of fuel, and the timing and location of fuel deliveries required by the agency. The fuel supplier that can guarantee performance of the contract at the lowest bid wins.
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From page 51... ...
Delivery Price Risk Management 51 to off-spec fuel. For this reason, a transit agency may need to subject fuel distributors to a very thorough prequalification process before allowing them to participate in the reverse auction.
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From page 52... ...
52 Guidebook for evaluating Fuel Purchasing Strategies for Public transit Agencies consumption needs but also convincing each partner to give up some degree of independence in order to realize price savings as an combined entity. Creating a cooperative may be very difficult if each partner is already locked into a firm-volume (guaranteed purchase)
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From page 53... ...
Delivery Price Risk Management 53 Competition strategies such as calls for tenders and reverse auctions can also achieve greater savings on the supplier's margin. From 2007 to 2010, the ULSD price savings from reverse auctions were in the range of 1.5 cents to 3 cents per gallon.
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