Fuel rack management faces extra complexity due to the diversity of buyers and their purchasing representatives:
- Distributors can pick up loads for multiple brands/customers
- Distributors can also subcontract delivery to 3rd parties
This complexity creates a unique challenge in reconciling actual supply with corresponding nominations, allocations and invoices, which are tracked with daily averages.
This also creates the potential for fraud and counterfeiting, which can affect quality control but also has the potential to affect the rack price, which then has effects all the way down the supply chain.
The rack price is one of the key wholesale price points in the fuel supply chain. It embeds every cost and margin if supplying fuel from the terminal, inclusive of terminal fees, including blending with ethanol if necessary, the cost of additive packages, and contract premium or discounts.
Individual supply contracts can have different premiums or discounts, for example if they are branded or unbranded, which creates further complexity for distributors.
Fuel rack prices are subject to a high level of volatility, as are rack-to-retail spreads, the difference between the average bulk fuel price and retail prices at a truck stop or gas station.
Rack prices fluctuate up or down every day at 6pm, contingent on the movements of the spot market, which tends to be very volatile. Additionally, price movements and regional price swings are common within the day.
This volatility affect jobbers, retailers, and end users like trucking companies, which are the three main categories of fuel rack users. Jobbers are also known as distributors or marketers, and purchase the fuel to resell it. Jobbers have three buying options: unbranded contract, branded contract, and open rack. Each of these in turn comes with its own terms and risks.
When fuel is loaded, a “bill of lading” or "BOL" is produced, which is a receipt showing a transfer of ownership and detailing where the fuel was loaded, where it was, and the quantity. The name on the BOL incurs the liability for the fuel, meaning jobbers take on a lot of liability during the transfer of fuel and absolve the end users of this risk.
The supply chain is clearly complex and often opaque, which can drive up volatility and uncertainty around prices, creating inefficiency as a whole.