How to Negotiate a Fuel Contract

A consistent fuel supply to meet your customers’ needs is critical to your company’s success.  However, there are many options you can choose from when you initiate a contract with a fuel supplier.  Understanding how to negotiate a fuel contract that best fits your needs can make the difference in achieving your desired profitability.  

10 Tips to Successfully Negotiate a Fuel Contract:

1. Carefully select the length of the contract.  All contracts should have a start and termination date.  A longer length is not always in your best interest.  You will be locked into the terms and the pricing until the contract ends, so you will need to assess current fuel prices and what you think will happen in the future.  Most retailers limit contracts to two years.
2. Check for a renewal or cancelation clause.  It’s important to know when you need to cancel the contract towards its termination and if it will automatically renew if you don’t.  Also, the renewal terms may be different than the original contract terms.
3. Make sure the contract meets local regulations.  Some areas of the United States are more heavily regulated than others.  It’s a good idea to have your legal partner review the contract to ensure it meets all regulations governing your business.
4. Keep volume requirements realistic.  Most contracts will require you to purchase a minimum volume of fuel per week (or another timeframe.)  Keep in mind that there may be stiff penalties if you don’t meet those minimums, such as contract cancellation of additional fees.  It’s better to under-commit than over-commit.  Review your historical purchase trends to figure out what is appropriate.
5. Know who is delivering the fuel.  While you may be negotiating a contract with a fuel wholesaler, it’s essential to know whether they handle the deliveries themselves or if they hire another third-party company for deliveries.  If it’s a third party, you should also do your due diligence on that company to understand its reliability and reputation.  
6. Negotiate the price.  You don’t necessarily have to accept the first price the supplier offers you.  You will need to determine which price reporting agency (PRA), such as OPIS or DTN, will become the cost basis for your contract.  Next, the contract should specify if you use a rack (most common) or spot price and which wholesale rack location will be used.  Finally, determine if you will be charged a supplier price, an average price, or the low price.  Your contract should describe how the pricing will work in simple enough terms that your store managers can quickly check to ensure the right price is being charged.
7. Don’t forget about freight and mark-up fees.  Find out what other suppliers charge for freight and other mark-ups to ensure you are charged competitively.  You don’t want to save money on product just to find out they made up for it with additional fees.
8. Understand the fine print.  Take your time to read the entire contract and ask your legal partner any questions you have about the details.  It’s often the fine print that skews the expectations about what a contract expects and delivers.
9. Ask for a prompt payment discount.  Your supplier may not always be in a position to provide this to you, but it’s always a good idea to ask.  Sometimes you can get a discount from your invoice for paying quickly–within a day or two of receipt.  With electronic payment systems, this is much easier for your accounts payable department to handle, and it could lead to significant savings.
10. Have a professional review of the contract.  If you haven’t managed many fuel contracts before, you may want to have a professional check the contract and help you understand whether or not the terms are in your best interest.  A legal partner can advise about the specific terms; however, an industry expert like GP Energy will work with you to determine how the contract will impact your business performance.  

Are you ready to achieve unbelievable goals this year?

Contact our experts at GP Energy to help analyze your business and introduce you to strategies to increase your revenues and profitability.  We work with business owners to review business practices, evaluate methods for improving operational performance, and implement programs to boost bottom-line profitability.

We can help you search for the right location, select between branded or unbranded fuel, build your business brand, diversify your product line, select ancillary services to boost your bottom line, and so much more.  By partnering with GP Energy, we can help your business unlock its potential with new opportunities and achieve unimaginable success.  Contact us today to get started.