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DOE-EPA Regulated Benchmarking the Shift in Demand for Commercial Vehicles, Fuels, Equipment, and Services Driven by New Federal Regulations
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Regulations are forcing fleet operators away from on-site refueling with petroleum fuels.
Havill Consultants began researching the commercial fleet market in the 1970s after two successive Arab oil embargoes. Concerns about "supply security" created a boom market for on-site refueling facilities. The majority of underground storage tanks (USTs) that were installed for petroleum storage were not adequately protected against corrosion. By the 1980s, leaking USTs had become an environmental concern. Havill conducted numerous proprietary research studies to position environmental products and services in this rapidly expanding EPA regulated market. New York, California, and Florida had enacted legislation to protect their drinking water supplies from leaking USTs. Federal UST regulations were promulgated in 1989. That year, Havill & Company launched the first major syndicated study ever conducted on the petroleum equipment industry. Market research firms that "mass produce" industry studies were optimistic about the prospects for a strong petroleum equipment market. Their research methodology relied heavily on the opinions of industry experts. Many station owners were out of compliance with the technical and financial responsibility requirements of the new EPA regulations. It only seemed logical that they would spend heavily to upgrade their facilities. The research methodology employed by Havill Consultants was more robust. Since UST registration was a federal requirement, EPA lists were compiled for an exhaustive national survey of facility owners. After all, it was the station owner that would decide whether or not to make the investments required to comply with new federal regulations. Interviews with 800 facility owners revealed that the market had already peaked, and that the early 1990s would be lean years for industry suppliers. Following the multi-client study conference in Detroit, April 1990, Havill Consultants received proprietary contracts to plan down-sizing and restructuring of client organizations. By 1992, shipments in some segments of the industry were off 50 percent from historical levels. Today, this is old news. In the spring of 1990, this was valuable intelligence that provided focus to the strategic planning activities of client organizations. During the early 1990s, Havill & Company conducted a multitude of proprietary and syndicated petroleum industry studies. They fell into three broad areas: Credit and Debit Card Networks and Site Controllers, Alternative Fuels, and Stage II Vapor Recovery. Each research project pointed toward the same conclusion. The 1989 EPA regulations had brought a structural change to the industrial and commercial fleet refueling market. In May 1993, Havill Consultants published its second major syndicated study of the petroleum equipment industry. While distribution of the actual industry forecast has been restricted to subscribing companies, National Petroleum News (NPN) published the 1998 compliance statistics in their November 1993 feature article. NPN called the research "the most detailed analysis and outlook to date on the impact of the EPA's UST regs on the petroleum marketplace." Over 1,600 owners of motor fuel facilities throughout the country were interviewed. One major finding from the study was that over 30 percent of the fleet refueling facilities included in the study had no plans for upgrading to meet the UST corrosion protection deadline in 1998. This statistic takes into consideration planned closures, which have been running in excess of 6 percent per year. The high cost of equipment and the potential liability of a spill have replaced supply security as the owner's primary concern. It is apparent that on-site refueling can no longer be justified for convenience alone. Havill Consultants estimate that the 50,000 facilities with no compliance plans purchase over 5 billion gallons of gasoline and diesel fuel annually. Some of these facilities will upgrade, some will remove their USTs and replace them with above ground tanks, others will convert to alternative fuels, many will close down their on-site facilities completely and refuel at retail locations. These structural changes will occur over the next six years, establishing a new trend in the commercial refueling market. Separate research conducted by Havill Consultants on the purchase behavior of fleet administrators has shown that the decision to upgrade on-site facilities involves a trade-off between cost and control. Fleet administrators are concerned about fuel contamination, spills, pilferage, cross-fueling diesel and gasoline, refueling with the wrong grade of fuel, underfilling, and unauthorized vehicle refueling. Their central refueling facilities control these variables. Refueling takes place in a secured area, frequently by specialized service personnel. A log is maintained showing the date and time of each refueling, the gallons of fuel dispensed, the vehicle identification number and odometer reading, the driver's name, and the service performed. Management reports are generated that allow the fleet administrator to plan maintenance schedules and analyze fuel usage and operating costs. Unusual patterns can be detected for further analysis. Major oil companies are installing new fleet management systems to increase the control that fleet administrators have over off-site refueling. The infrastructure for these new fleet management systems has been made possible by advances in dispenser and POS technology, and the growth of debit and credit card networks. During the first quarter of 1994, Havill Consultants completed a proprietary study of Major oil company trends for POS and fleet programs. Three-fourths of the majors aggressively market their commercial fleet programs. They are developing proprietary systems that replicate the management controls that fleet administrators have at their central refueling centers. Major oil companies have been investing heavily in the hardware to implement their fleet management systems. The research found that two out of every three new dispensers that are shipped to major oil companies have internal card readers installed. This is almost twice the number shipped two years ago. The growth in commercial fleet systems has not gone unnoticed by independent oil companies and C-store chains. The ‘94 State of the Industry Report published by the National Association of Convenience Stores (NACS) reported that 49% of stores accepted fleet cards in 1993, up from 22% in 1992. Third party suppliers like Fuelman, Wright Express, GasCard, CFN (Commercial Fueling Network), and Pacific Pride are providing fleet card programs to fuel marketers who choose not to develop their own programs. Some third party suppliers have seen their business double over the past two years. These new fleet programs offered by major oil, independent oil, and c-store companies have increased the control that fleet administrators have over off-site refueling. At the same time, EPA regulations have escalated the cost and liability of on-site facilities. The combined impact has resulted in a shift in the refueling methods of industrial and commercial vehicles from on-site to retail locations. To capture a share of this emerging market, the alternative fuels industry must replicate the most important commercial refueling amenities. Convenience and control are important. Therefore, the most successful alternative fuels suppliers will develop fleet card programs and provide commercial customers with management reports like they now use. The early philosophy of "build it and they will come" is giving way to locating refueling facilities based on commercial vehicle traffic patterns. Realizing their strength is production, some industry participants are turning to petroleum marketers to add alternative fuels to their stations. To date, progress has been slow. In a recent alternative fuels survey, most major oil companies reported to Havill Consultants that they had built "several pilot facilities". However, the demand for alternative fuels is negligible compared to petroleum sales. As fleet operators evaluate their refueling options, they must consider how they will be affected by the Clean Air Act Amendments of 1990 (CAAA), the Energy Policy Act of 1992 (EPACT), and state alternative fuel mandates. Excluding off-road vehicles and truck stops, Havill Consultants estimate that 23 billion gallons of gasoline and diesel fuel are consumed annually by commercial vehicles. Regulations will force the annual consumption of about 600 million gallons of gasoline and diesel fuel to alternative fuels by 1998. This represents less than 3 percent of the available market. The challenge to the alternative fuels industry in the 1990s is to capture a greater share of the commercial refueling market. Cost alone will not determine success.
----------------------------------------- OBJECTIVES OF THE 1994 FLEET STUDY The primary purpose of this research is to forecast the changes that will occur in the refueling of private and commercial fleets through 2000. The report will provide an accurate benchmark of current vehicle and refueling demographics. The study will detail the fleet administrator’s needs in each market segment and evaluate how satisfied fleet administrators are with the vehicles, fuels, and refueling systems offered by competing suppliers. The study will also define actions that suppliers must take to influence fleet administrators to consider their products and services. Follow-up research planned for 1996 and 1998 will allow subscribers to track their effectiveness in the marketplace. The commercial fleet market is large and diverse. It can be divided into eight major segments: government/public owned vehicles, over the road (OTR) carriers, dispersed corporate vehicles, utility vehicles, delivery vehicles, service vehicles, airport vehicles, and auto rental vehicles. Currently, almost half of all refueling is at private facilities. Over one-third of all underground storage tanks are owned by non-retail businesses. To clearly understand the changes that will occur in this market during the 1990s, it is important to determine the underlying trends impacting each market segment. The overall study objectives will be achieved by analyzing and aggregating these individual segments. The primary objectives are to:
----------------------------------------- Havill Consultants have a proven track record of developing accurate industry forecasts for syndication and for individual clients. From our experience, the most reliable information source for predicting future buying patterns comes from the end-users themselves. For this study, in-depth interviews will be conducted with over 1,000 fleet administrators. They will be asked detailed questions about their future vehicle, fuel, and refueling plans. This study will build on research compiled in previous studies including the well-respected "United States EPA Regulated Retail, Commercial, and Industrial Gasoline Service Station Market, 1992 - 1998." From that study, we know that nearly one-third of all private facilities have no plans to bring their sites into compliance with all of the UST regs. Furthermore, it is well known that many fleet administrators have yet to evaluate off-site refueling and alternative fuels. For these reasons, the study methodology will focus on defining the underlying decision making process of fleet administrators. By clearly understanding the trade-offs that fleet administrators make between cost, convenience, and control, the decision making process for each major segment of the private market will be modeled. The composite forecast will be built by aggregating the major market segments. An added reason for our rigorous methodology of interviewing a large cross-section of fleet administrators is to develop an accurate benchmark on the refueling patterns of fleet operators. The Federal Government tracks the distribution of fuel to retail outlets and to non-retail facilities. However, there are no reliable statistics on the volume of fuel that is channeled into the fleet market through retail outlets. We know that it is significant. In a recent study, a large number of fleet owners reported that they closed their on-site refueling operations and are now buying retail. What is not known is the volume of fuel being sold to fleets through retail outlets and how much growth is left in this sector of the market. It is difficult to improve something that is not being measured. Our clients report that they would like benchmarks every two years so they can evaluate the effectiveness of their marketing programs and implement necessary improvements. In preparation for this study, Havill Consultants conducted the background research necessary for achieving the study objectives. Primary information sources included government agencies, fleet associations, and petroleum industry associations. Next, the project team surveyed over 200 executives at major corporations in the automotive, petroleum marketing, alternative fuels, refueling equipment, and fleet management systems industries. This process yielded the objectives for this study and the initial set of questions for the fleet administrator questionnaires. Our research follows a proven methodology. The field work will begin by designing questionnaires for the interviews that will be conducted with fleet administrators. All questionnaires will be pre-tested by conducting a dozen interviews, analyzing the results, making any necessary revisions, and then continuing the cycle until all refinements have been made to the questionnaires. Subscribers will be given the opportunity to review these questionnaires and suggest revisions so long as the changes do not substantially change the scope of the research. This study will employ a stratified random sample of at least 1,000 fleet administrators. The list will be obtained from fleet publications, associations, and other secondary sources. It will represent all types of fleets in all areas of the country. An average of 125 interviews will be conducted for each of the eight industry segments listed below:
As interviews are completed, they will be entered into the Survey System®, our full-featured market research software program. Market survey data from each questionnaire will be computer tabulated and projected to the fleet population. Fleet population statistics will be based on our secondary and primary research. Statistical procedures will be applied to establish the significance of the research findings. Havill & Company will personally manage all aspects of the project. Each of the professionals assigned to this project have petroleum marketing research experience. They will share responsibility for the total project including secondary research, questionnaire design, interviewing, analysis, and writing the final report. All study findings will be fully documented in a report of approximately 200 pages. Where appropriate, graphs will be used to visually support the analysis. Charter subscribers to the study may request special analysis of specific questions that were included in the research. Subscribers may also suggest special analysis as long as their suggestions are submitted prior to the primary research phase, and do not materially increase the total cost of the research. Approximately one month after the delivery of the final report, Havill & Company staff members will be available to meet with individual subscribers to discuss issues arising from the study. If there is sufficient interest, a multi-client study conference will be held in the Detroit Metro Airport area.
----------------------------------------- In 1989, the industrial/commercial UST population was 768 thousand. Today it stands at a mere 406 thousand, which represents a 47 percent decrease in the population in only 6 years. As would be expected, the primary reasons for the reduction in population are the EPA's corrosion and leak detection regulations. When asked, more than half of the fleet administrators who, at one time, had on-site refueling facilities cited the regulations as the primary reason for the closing of their facility. High operating expenses are also a reason cited for closing facilities. CURRENT COMPLIANCE WITH 1998 FPA REGULATIONS In the current
market, 70 percent of the USTs being utilized for fuel storage are in
compliance with the 1998 EPA corrosion protection requirements.
Nevertheless, there is more to the regulations than just tank corrosion
protection. UST FACILITIES CONVERTING TO AST SYSTEMS
MAJOR CHANGES SPURRED BY EPA REGULATIONS
FLEET VEHICLES AND THEIR REFUELING PRACTICES AND REQUIREMENTS Until recently, the true size, refueling volume, and segmentation of the I/C vehicle and refueling market was all but a mystery. No one had quantified the fleet vehicle population and its corresponding fuel consumption, especially not at the business segment level. Because information pertaining to the commercial market was sparse, at best, marketers had not implemented strategies that targeted the commercial market. In recent years, marketers have begun to realize that the commercial segment represents a significant portion of their business volume. Therefore, market intelligence is needed to facilitate the targeting of the commercial market and its segments. One of these targeting opportunities lies in the market for diesel fuel. In the commercial fleet market, diesel fuel consumption represents 46 percent of the total fuel consumed, yet few retail outlets offer diesel fuel. The segments consuming the most diesel fuel include construction, OTR, manufacturing, and agriculture, each of which consumes at least 1.5 billion gallons of diesel fuel per year. In order to target these segments effectively, marketers must first define the segments of the commercial fleet population. Once this has been completed, the population and composition of the fleets must be determined. Following these two tasks, the travel patterns, number of miles traveled annually, and the average miles per gallon for each vehicle type should be determined so that the total annual consumption for each segment can be determined. In the United States today, fleets with 4 or more vehicles account for 19 million vehicles, or 10 percent of the total domestic vehicle population. Interestingly enough, fuel consumption of 4+ commercial fleets represents in excess of 20 percent of the total annual domestic fuel consumption. This high level of concentration makes the I/C market very attractive to petroleum marketers. In terms of fuel consumption, government, construction, and the OTR segments combined account for 53 percent of the annual 4+ fleet fuel consumption. Among the top three segments for fuel consumption, on- site versus off-site consumption varies. For the government and OTR segments, the majority of fuel consumed is dispensed through on-site refueling facilities. Seventy-three percent of government refueling takes place at on-site facilities compared to 54 percent for the OTR segment. For the construction segment, however, only 35 percent of the refueling is done on-site, leaving 65 percent of the refueling business to be conducted at off-site or retail facilities.
----------------------------------------- The final report will be based on the outline shown below. Approximately one chapter will be dedicated to the executive summary and each major topic. The executive summary will provide an overview of the fleet market and the core market characteristics. Each chapter will discuss the particular objective and related data. Each client will receive three copies of the final report.
----------------------------------------- Executive Summary
Fleet Market Characteristics
Identification of Needs and Features of Fleet Refueling Programs
Benchmark of Fuel Consumption In the Fleet Market
Benchmark of the Commercial Credit Card Market
Benchmark of Alternative Fuel Plans
Forecast of Market Conditions, through 2000
Recommendations Profiles of Fleets Interviewed Appendix
Note: The specific final report outline is subject to change based on survey results. This outline is the basis for the intended final deliverable.
----------------------------------------- WHO WILL BENEFIT FROM THE STUDY This study has been designed for clients in the automotive, petroleum marketing, alternative fuels, refueling equipment, and fleet management systems industries. During the design phase of this project, "issue ballots" were mailed or faxed to 200 executives in these industries. While each company was interested in market research on their particular product and service, the interest in defining the structural changes occurring in the fleet market cut across all industries. The differences in the type of information executives needed were more a function of the stage of "product life cycle development" than the product itself. Several companies reported that they had formed multi-function task forces several years ago to develop their commercial fleet strategies. Today, their fleet programs are well underway and their teams have disbanded. These companies wanted market statistics that would compare their performance against competitors and measure the effectiveness of programs already in place. They also wanted a forecast of unit growth for planning purposes. Other executives that we talked to said that they were now in the process of developing their fleet strategies. They wanted the fleet administrator "needs and satisfaction analysis" to guide market development activities. Equally important was the segmentation analysis so market niches could be exploited.
----------------------------------------- To ensure that the study is thorough and complete, five consultants will be assigned to the fleet market study team. This team will be available for consultation and follow-up projects at the conclusion of the 5-month project. The cost of this study will be $12,500 for charter subscribers that sign up by December 15, 1994. After December 15, 1994, the subscription fee will be $14,000. To subscribe, please fill in the purchase agreement and return one copy to us. We are confident you will find that we have earned our reputation for achieving significant, long-lasting results for our clients.
----------------------------------------- FLEET MARKET STUDY PROJECT TEAM Havill & Company consultants routinely conduct both syndicated and proprietary studies of the petroleum market. Major research studies have included:
These studies have covered the full gamut of refueling equipment: underground tanks, flexible connectors, piping, sumps, spill containment, overfill protection, leak detection, in-tank gauging, dispensers, hose, nozzles, Card Locks, POS, and site controllers. From this research, we have developed contacts with contractors, distributors, and petroleum marketers including the major oil companies. We have conducted research outside the United States, in both French and Spanish speaking countries. All work on this project will be directed by Nicholas R. Havill, founder and President of Havill & Company. The project will be managed by Joseph Slagle and Justin Zohn. Both have extensive project management experience in the petroleum industry. All staff members assigned to this project has been involved in previous petroleum market studies.
----------------------------------------- This agreement is a contract to subscribe to The DOE-EPA Regulated Commercial Fleet Market for Fuels, Equipment, and Services, 1994-2000 as described in this October 1994 prospectus, which the undersigned acknowledges having received and read. To enroll, please complete and sign this agreement, and return to: Havill & Company, Inc., 3178 N. Republic Blvd., Toledo, OH 43615. The following terms formalize this agreement between Havill & Company, Inc. ("Havill"), and the undersigned participating company (the "Subscriber"), who hereby agree as follows:
Date:_______________, 19____ Date:_______________, 19____ ___________________________________ HAVILL & COMPANY, INC. Accepted For: By_________________________________ By_________________________________ (Signature) (Signature) ___________________________________ ___________________________________ Print or Type Name and Title Print or Type Name and Title Address:
Telephone: FAX: Please send a check payable to the Havill & Company, Inc., for $6,250 and return this signed agreement on or before December 30, 1994 by mail to:
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