National Petroleum News Supplement, December 1995

Fleet Study Forecasts Burst of Demand for Marketers by 1998

By Don Smith

Like everyone else in the motor fuel business—jobbers, oil companies, convenience store chains—commercial fleet operators who fuel their vehicles onsite are staring down the throat of a regulatory double-barreled shotgun. The options for these fleets are simple and straightforward: Get in compliance with the federal Environmental Protection Agency underground storage tank regulations or pull the tanks and start refueling offsite.

That’s a tall order for thousands of fleet operations, which face significant capital outlays if they want to maintain onsite fueling capability. Many can’t afford, or can’t justify, the expense of upgrading or replacement. For these fleets, option number two—tank closure and offsite fueling—is the only alternative. A number of fleets, of course, have already exercised that option since the regulations were promulgated in 1988, much to the delight of petroleum marketers who have been able to tap into the incremental gallons now needed by the fuel-orphaned fleets.

The main beneficiaries of the switch to offsite fueling have been the commercial fleet fueling service companies such as Pacific Pride Services Inc., Gascard Inc., Commercial Fueling Network (CFN) and others. Fred Bertetta, Jr., president of San Francisco-based Olympian, CFN’s parent, says many of the network’s member marketers have enjoyed annual increases in commercial gallons in the 18-20% range over the past four years. "The shutdown of fleet fueling sites has been a big factor in this growth," Bertetta tells NPN.

Critical to the success of the fleet service firms has been their ability to provide the around-the-clock data and services that the fleets need, such as 24-hour fuel access (mainly through unattended cardlocks), detailed billing, security and operations reporting data—all this without the liability associated with onsite fuel storage. "Fueling networks are going to be even more important to the fleets as they develop new services and information tools," Bertetta says. CFN, for example, is testing a new online system that will give customers realtime access to and control of their fleet cards across the United States in a matter of seconds. The company is shooting for a rollout of the new system in April, Bertetta reports.

The days dwindle down

The outlook for additional sales opportunities for petroleum marketers only gets better as the Dec. 22, 1998, deadline for compliance with the EPA regulations closes in. By 1998, it is projected that more than two billion gallons of fleet fuel could move offsite into the welcoming arms of the petroleum marketing industry.

Much depends on how the fleets respond to environmental obligations. The EPA’s compliance target date calls for all UST owners to have installed corrosion protection and leak detection, along with piping and spill/overfill protection. The rules also require owners to comply with financial responsibility requirements to ensure that they can clean up any contamination.

Will the EPA back off on the 1998 deadline? Not likely. As most marketers now realize, the agency is taking a tough stance on that deadline—no more Mr. Nice Guy extensions for procrastinating tank owners. In this, it has the full support of the four major petroleum industry associations—the American Petroleum Institute, the Petroleum Marketers Assn. Of America, the National Assn. Of Convenience Stores and the Society of Independent Gasoline Marketers of America.

The four groups reaffirmed their support of the existing deadline in a joint letter dated September 22 to EPA Administrator Carol M. Browner. The letter noted that the associations’ members had spent billions of dollars in upgrading their storage tank facilities and in remediating UST leaks and spills, that any deadline extension would reward tank owners who "knowingly" have waited until the "last minute" in the hope that an extension would be granted. "While there may be isolated hardship cases, many states have developed financial assistance programs for such tank owners, and such instances do not justify a deadline shift," the letter said.

On the whole, self-fueling fleets have responded by to the EPA’s mandates at a much slower pace than the rest of the tank-owning community—oil companies, jobbers and others. Data from a new in-depth study of the commercial fleet market by Havill & Co. Inc., a Toledo, Ohio-based marketing research and consulting firm, shows that only 52% of fleet operators with underground tanks are currently in compliance with all 1998 EPA regulations. By comparison, Havill estimates that major oil companies will be in full compliance by 1998 and that about 65% of jobbers and C-store firms have their tanks in full compliance. Over 5 billion gallons of fuel will be dispensed this year at fleet sites that are not in compliance, the Havill survey notes.

Since many fleets, especially smaller ones, can’t afford the cost of compliance, the study projects a major exodus of gallons and dollars to the retail market. ("Retail" in this context includes commercial fleet sales). Joseph Slagle of Havill says, "Our forecast shows that an additional $2.3 billion in fuel sales will shift to the retail service station market by 1998. Add TBA, fast food and convenience store items, and it’s easy to see why this market has caught the attention of petroleum marketers."

"However, there are also many fleets that have the financial capability to comply," Slagle comments, "and equipment suppliers are anticipating a robust market as these fleet operators upgrade. Both petroleum marketers and equipment suppliers are gearing up to capture their share of this demand bubble." The Havill study found that more fleet administrators plan to upgrade their onsite facilities than plan to close them, Slagle reports.

The study, The DOE-EPA Regulated Commercial Fleet Market Fuels, Equipment, and Services Forecast 1994-2000, features the results of a survey of over 1,300 commercial fleet operators, plus additional research from industry and government sources.

According to Havill, the research was funded by leading companies in petroleum equipment manufacturing, fleet card processing and petroleum marketing industries, including six of the seven largest U.S. refiners. While much of this research is understandably client-specific or proprietary, the Havill organization agreed to share some of the major findings of this one-of-a-kind study with NPN.

A market in transition

America’s fleets consume an enormous volume of gasoline and diesel fuel, according to the Havill study. Excluding sedans and off-road vehicles in fleets of three and fewer units, commercial vehicles consume 62.5 billion gallons, or more than 40% of domestic motor fuel throughput.

Based on Dept. of Energy data and its own research, Havill found that onsite refueling facilities account for 15 billion gal. Of fuel dispensed to commercial fleets. "The remaining 47 billion gal. Of the fleet refueling market is, therefore, retail," the study reports. Havill data, by the way, suggests that all onsite fueling is done by fleets with at least four vehicles.

Other highlights from the Havill study:

• The population of onsite tanks at fleet sites has declined from 768,718 USTs in 1989 to 406,622 (at 206,000 facilities) in 1995. These facilities also operate 64,000 aboveground storage tanks.
• Fifty-one percent of the fleet managers who formerly fueled onsite said that UST regs were the primary reason for closing their facilities. About a third of the former UST owners cited operating expenses and over 20% said liability concerns were the reasons for closure. Only 12% of fleets that now fuel offsite would consider onsite fueling, citing the "hassle" and expense of dealing with regulations and the fact that they are happy refueling offsite.
• Reasons for maintaining onsite facilities include convenience, off-road refueling, 24-hour access, easier accessibility and cheaper prices.

How does the fleet market shake out between now and 1998? What is the projected mix between onsite and offsite fuel consumption?

Basing its trends analysis on respondents’ UST and AST facility plans, Havill notes that of the 15 billion gal. currently dispensed onsite, 12 billion gal. are dispensed through USTs and 3 billion gal. through ASTs. "Of the fuel dispensed at UST facilities now, approximately 6.2 billion gal. are dispensed at facilities that are in compliance with the 1998 EPA regulations," the study reports. "The remaining 5.8 billion gal. are dispensed at facilities that are not in full compliance with the 1998 regs."

The Havill study concludes that of the 5.8 billion gal. now dispensed at out-of-compliance sites, those facilities that plan to upgrade represent approximately 3.4 billion gal. "Facilities that remain out of compliance in 1998 will represent approximately 2.4 billion gal. of fuel dispensed."

And that’s the bubble of opportunity for marketers

For information, contact Havill & Co. at (419) 841-2244.g