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Battling for Market Share
Lubrizol Hikes Prices
Farrell Oil Hiring

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JobbersWorld Reaches Out to Over 10,000 Professionals in the Lubricants Business


April 7, 2011    

JOBBERSWORLD...MARKET INTELLIGENCE FOR INTELLIGENT MARKETERS...  The First and Only Independent Newsletter to Focus on Lubricant Distributors.



Battling for Market Share; So What's New?

The battle for market share got interesting last month when Energy Petroleum in St. Louis, Missouri aligned with Shell. In the process, a number of significant events occurred. The first is that Energy Petroleum, a Signature Class Chevron marketer, walked away from Chevron to become a Shell "Alliance Distributor." Alliance distributors are the Crème de la Crème of the Shell distribution network. They are the ones who commit to Shell and its family of brands. By committing, an Alliance Distributor agrees 80% of its sales will be with Shell. This commitment also means that the Alliance Distributor cannot have any other major brand contracts. They can, however, still sell private label and/or OEM brands in bulk. Clearly, this meant Energy Petroleum had to make a choice between Shell and Chevron in order to be a Shell Alliance Distributor.


The immediate impact of Energy Petroleum's choice is that it will be working to convert its Chevron sales to Shell. Further, since Energy Petroleum parted ways with Chevron, other distributors will be vying to get close to Chevron with hopes to pick up Chevron's national account business in the region.


But the story does not end here. This is because in addition to these events, Shell also changed its relationships with four other marketers in the region. Three were moved from direct Shell marketers (the old-style contract) to become an "associate marketer." This means that although they can still represent themselves as Shell marketers, they will likely, for all intents and purposes, be a sub-jobber buying from Energy Petroleum.  The fourth distributor impacted by the change moved from the old-style contract to become an "Authorized Distributor."


Whereas these changes will likely drive swings in regional sales volumes, they appear to also be creating some unintended consequences. In short, this is because some Shell distributors with old-style contracts who see what happened in Missouri are now expressing fears they may find themselves relegated to Associate status. Additionally, some new Authorized distributors are concerned they may suddenly find themselves with a new and unexpected Alliance distributor inserted into their market, thereby eliminating their access to any new National Account business.


As a result of these concerns, there is a growing chorus of Shell marketers asking, "Whereas we have, or are being asked to commit to Shell, will they remain committed to us?"  


No doubt after getting to this point in the story, some are now asking, so what's new? This happens all the time, marketers have been aligning with majors for many years and they have always felt some level of vulnerability in the process.


In fact, those asking this question are right; Energy Petroleum's alignment is not unusual. Instead, it's just one more example of a natural evolution taking place in the lubricant supply chain and the growing pains and gains that go with it.  Just as Shell will win some from Chevron, Chevron will win some from Shell, and others majors and marketers will continue to choose to align with one supplier over another as time goes on.


So why is Energy Petroleum's alliance with Shell newsworthy?  Well the answer is; this move is bigger than most. Moreover, it serves as a reminder to majors and marketers that no relationships are guaranteed. Because of this, neither the majors nor the marketers should become complacent in their relationships.   


Major-marketer relationships require continuous investment to assure alignment of business plans and principles.  If these become misaligned, the majors and marketers can either work together to bring them back in line, or run the risk of watching their relationships fall apart.  And in reality, if they can't be aligned, both the major and the marketer may be better off going their separate ways.  


At the end of the day, business relationships work best when both partners are aligned in their culture and objectives.  When that happens, both the marketer and the major have the best chance of an effective, productive, and sustained relationship.

Lubrizol Announces Increase on Lubricant Additives

Lubrizol will implement a price increase across all of its product areas effective May 1, 2011. Whereas Lubrizol says this increase will be 9% for the majority of its product segments, some products will increase by differing amounts. 


Lubrizol says its taking this action due to increases in the price of feed stocks for the raw materials used to make additives, strong demand for petrochemicals, and shortages of many raw materials that developed due to capacity rationalization occurring in 2009.


Additive Price Increases - What they Mean

With Lubrizol announcing a 9% price increase on the heels of what appears to be another round of price increases on base oils, a question you can be sure many will ask is; how do price increases in lubricant additives impact the cost and price of finished lubricants?


The answer is, it depends on the type of lubricant. The reason is because passenger car engine oil (PCEO), heavy duty engine oil (HDEO), hydraulic fluids and others require different additives and additive treat rates. In the case of PCEO, for example, additives account for roughly 30 to 40% of the cost of goods (in bulk). This includes the dispersant and detergent additives (DI),  the viscosity modifiers (VI), and PPD.


In the case of HDEO, the price of the additives account for even more (close to 40 to 50% of the total). In part, the higher net additive treat costs in HDEO are due to higher additive treat rates, and the use of boosters. Also, HDEO does not require the same higher cost Group II+ and III base oils as those used in most PCEOs.  


Automatic transmission fluids (ATF) typically require treat rates of 16 to 20% (the viscosity modifier is built into the package). Since ATF requires the use of API Group III, the contribution of the additives to the cost of goods in ATF is nearly on par with PCEO.



Hydraulic fluids are an example of products at the other end of the spectrum. Hydraulic fluids are primarily base oils with roughly 1% or less of antioxidant and (sometimes) antiwear additives. Consequently, additives contribute comparatively little to its cost.


But cutting right to the chase, most of our readers will likely want to know what additive price increases mean for the price of PCEO and HDEO, not hydraulic fluids. Based on JobbersWorld's calculations, the 9% increase Lubrizol announced will translate to roughly $0.15 to $0.20/gallon increase in the cost of goods for PCEO and HDEO.  When you add that to the recent price increases in base oils, it looks like we will be facing some interesting times over the next few months.




Posted March 30, 2011 



We currently have exciting opportunities for experienced and proactive outside sales representatives to help grow our business by taking initiative to reach our goals of positive growth and expansion into new territories.


Farrell Oil, a successful and growing, 2nd generation company, has been a distributor of quality lubricants for the Capital Region and has reliably serviced customers throughout the region for over 33 years.  Since 2004 we have also serviced the Hudson Valley.  We have been certified by Conoco Phillips as a Top Tier distributor since 2007.  We are a "family style" firm with a professional attitude.



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