Wetstock losses. It’s a drum that’s been banged for the past 10 years, and now PRA director Ray Holloway is upping the beat by launching a fighting fund to tackle the problem and put fuel delivery in a respectable, professional place. At the moment it is in a dark, murky hole because no retailer gets to check the quantity of product actually being delivered as a result of an order being placed.
What seems like fractional amounts per delivery can stack up to emormous financial losses when totted up over a year. Examples given by the PRA (see charts) show that on a loss of 0.45 per cent per annum, a 1.5 million litre site could be losing £4,455. At the other end of the scale, a nine million litre site could suffer losses of nearly £27,000. None of which is acceptable simply because there is no system in place to measure the actual amount of fuel being delivered. Retailers are billed on what they’ve ordered.
The subject was raised in the huge legal action against Esso by its licensees last year, but the judgement ducked out of changing what has become a traditional practice, particularly as it is an industry issue, and not just confined to one oil company.
“In what other industry would this practice be allowed? questions Holloway. “For years in this industry everyone believed there was an amount of motor fuel that you could lose and that was just the system. Many retailers have a different view of how much that is. The fact is you shouldn’t accept any loss as a process of doing business. All losses should be challenged by a retailer.
“The accepted norm in this industry is a loss of 0.3 per cent. My question is, why?”
Holloway believes the figure is not a true reflection of what is going on: “It used to be quite close to reality. But we live in different times and we’re selling different products today. The process applied by the oil company to deliver product from a terminal source that is a refinery has also got an impact here, and that practice has grown in recent years. It’s become quite clear to us over recent weeks and months that retailers’ losses are rising through the problem of summer, source of product, and a little bit of temperature in some cases. The temperature is too easy a definition as to why retailers lose money. Temperature adds to the problem, but it isn’t necessarily the principal cause. The main cause is movement. Whenever fuel is moved it releases vapour. You’ve got two stages of vapour recovery. When you put product into a delivery truck to take to the forecourt, you’re capturing vapour and it’s collected by the oil company, so where does it go? It’s called Stage 1B Vapour Recovery. When you get to the filling station and offload under pressure into the storage tank the vapour has been collected again – Stage 1B – because it goes back so there are two losses that the retailer must bear. But in these days of 75 per cent taxation, why should the retailer bear that loss? If the product is not there for resale, why do retailers have to pay duty on it?
“That’s why I say oil companies should be working with us to have the Treasury accept that when they offload from a vehicle into a tank it’s measured, the density is taken into account, the weight is taken into account, and that the retailer only pays to the Government that which the Government is entitled to.”
Holloway claims he has had various attempts at talking to the oil companies about doing something voluntarily to address the wetstock loss issues. He believes it would be a goodwill coup in their relationship with retailers if they would take part in any moves to introduce measured fuel deliveries.
“The problem is there isn’t a measuring system at the point of delivery, so one will have to be introduced. It exists in other countries. The system that was introduced in Germany recently measures precisely the quantities from the delivery truck into the storage on site; and that technology comes from a company in Princes Risborough in Buckinghamshire. So if they can do it in Germany, Italy and Scandinavia, why can’t we do it? The same oil companies are operating and complying there as operate here.”
Any compliance, however, would not be an overnight process. The oil companies would have to foot the bill as the technology to measure fuel on delivery is fitted onto the tanker. Also it cannot be retrofitted – so it’s only affordable on new vehicles. The rest of it is software and accounting processes.
However, Holloway insists the industry has to start somewhere. The other more short-term alternative is to re-introduce the dipstick, which was banned a couple of years ago through health and safety issues.
“It began as an environmental issue concerning vapour containment, and then it became a health and safety issue,” said Holloway. “The oil companies felt there were risks involved they didn’t want to be responsible for. But you could overcome them by putting a holding rail alongside the walkway on top of the tankers. But it didn’t suit them to do that. They said the additional payload would reduce the quantity of fuel they would carry – so there’s lots of sides to the argument.
“Whatever comes from this, the problem is of the oil companies’ own making. They’ve been warned about it for so long, and their arrogance and belief that they can go on getting away with it is really what will deserve them the changes and costs that may come out of it.”
To kick off the campaign, the PRA will be sending out letters to all petrol retailers.
“The letter will make them aware of what we want to do, telling them about our objective of a funds target that we would like to reach. It will give them the opportunity to do one of two things. One is to immediately send us a set amount, or the second is to pledge (a legal document) a set amount. The effect is the same.
“They’re going to share a part of the costs of any determined PRA action to address this problem. How much we need will depend on what proportion of the industry I can eventually be happy with taking part.
“We’re now going to work with lawyers. If ultimately we determine what the advice is for action and what steps have to be taken but the funding is inadequate, all funds pledged or paid will be returned to the retailer. There will be clear steps taken to ensure that retailers can rely on the accounting methodology.
“We’ll take the rest of this year to raise funds. Realistically people who don’t know quite what the effect is on their business will have to take time to find out.”