The Benefits Of A Fuel Contract
One major question that all fuel retailers must ask themselves is, “Do I sign a contract or take my chances on the spot market?” Before you decide one way or the other, you should understand the benefits of a fuel contract and what it could mean for your retail business.
What is a fuel contract?
A fuel contract is an agreement between a wholesale provider and a retailer. The retailer agrees to only buy gas from the wholesaler for a given amount of time. The wholesaler agrees to provide the product to the retailer at a given volume and price.
What are the benefits of signing a fuel contract?
This agreement is good for companies that need a consistent supply of product. Major retailers along major vehicle routes always need a supply of fuel to keep customers happy. Signing a contract ensures a steady supply at a predictable price. This agreement is great for keeping customers happy while making a profit at the same time.
A contract means less time spent shopping for fuel prices. Independent retailers often spend a lot of time calling around to various wholesalers to find the lowest price. These phone calls take up time that could be better spent on other aspects of the business. Having a contract takes all the price shopping out of the equation.
This agreement also guarantees that a retailer gets fuel when supplies are running low. On occasion, refineries and pipelines do go down. That can mean a decrease in available supply. When supply gets scarce, the retailers without a contract scramble to get even a small shipment at an exorbitant price. With a fuel contract, low supply is not a problem. Contract customers are given priority when it comes time to distribute the available supply of fuel.
A fuel contract helps retailers avoid the perils of a price inversion. Price inversions are rare, but can be very costly to retailers. These inversions happen when unbranded supplies go so low that the fuel prices skyrocket. The scarcity of the product drives the price above that of branded or contracted fuels. Having a contract means that a retailer has a steady supply and can still turn a profit during a price inversion.