Following last month’s barrage of letters from the majors announcing price increases for finished lubricants, lubricant marketers are now seeing what could be the start of a new letter writing campaign. Specifically one advising them that their supply of finished lubricants will be allocated.

The first of these letters were penned on February 28 by Shell. That letter advised marketers that effective March 1, 2006; Shell would be limiting purchases of heavy duty engine oil, passenger car engine oil, tractor hydraulic fluid, and natural gas engine oil to 95% of a customer’s 2005 average monthly purchase.

The next letter came from ConocoPhillips, and the cuts were even deeper.

Castrol Industrial North America Inc. (“Castrol Industrial”), will implement a transformation of its US and Canadian industrial lubricants and services business in the first quarter of 2006, to deliver greater growth, improved customer focus, reduced complexity and long-term business sustainability.

The company says segmentation work at Castrol Industrial has created clear space for its distributor and direct channels to grow by complementing each other. Direct sales will serve certain industries and certain accounts while the indirect channel will serve all other customers.

In less then a year the world of buy back fees has begun a transformation like non other seen in the industry before. Whereas buy back fees have traditional been a flat fee paid to marketers based on the number of gallons they delivered to national accounts, that simple and often "unfair" model is being revamped by some suppliers.

ExxonMobil and Chevron have moved their fees to a progressive formulaic model. These models consider a number of variables that truly do influence the profitability of buyback fees and service requirments. Moreover, they provide majors and marketers with a better chance of making buyback business a win-win for both.

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