Frederick J. Passman, PhD, Biodeterioration Control Associates, Inc.
Does this photo look familiar? If you are a petroleum retailer who either owns or operates c-stores in urban areas, or if you are a fleet operator whose trucks line up at your fueling depot each morning, this article is for you. If you never have vehicles waiting to fuel up, you probably aren’t taking the revenue hit that leaves an astonishing amount of money on the table. Let’s call this revenue hit “opportunity cost,” a well-known business term.
Opportunity Cost Is the Net Revenue Not Realized Due to Conditions or Circumstances That You Can Control
In this article, I will focus on a single type of opportunity cost: retail fuel sales and fleet operations revenues lost because of sub-optimal dispenser flow rates.
Let’s begin with considering the opportunity cost at a fuel retail site. First, you’ll need to know:
- P (fuel price in $/gal);
- H (hours/day during which vehicles wait to pull up to a dispenser—common estimates are 4h – 6h per weekday);
- T (minutes/hour during which fuel is dispensed—this is typically 30 min/h; customers are either paying for their fuel purchase or moving their vehicles during the other 30 minutes);
- R (actual dispenser flow rate in gpm); and
- D (difference between actual and maximum flow rate—RM = 10 gpm for retail; RM =40 gpm for truck stop dispensers)
Here are the equations (click here for an excel workbook that will do the calculations for you):
OCw $/w = P $/gal x [(T min/h x H h/d x 5 d/w) x (M gpm – R gpm)]
OCy $/y = OCw $/w x 52
Where OCw is the opportunity cost per week, w is week, d is day, h is hour, y is year, and OCy is opportunity cost per year. Now multiply OCy by the number of dispensers at which lines form to get OCs—annual opportunity cost per site. If you own multiple sites, do this calculation for each site, and then add up the OCs for your entire retail site network. I’m guessing that your first thought will be, “This can’t be right! It’s just not possible!”
If you are a fleet operator, determine how long your fleet vehicles spend lined up to refuel. How much revenue would each vehicle be generating if it was on the road instead of sitting in line? How much more revenue would you generate if the waiting time was reduced by 20%? Your opportunity cost is the additional time waiting to refuel multiplied by the typical revenues/h while the vehicle is on the road. The same general principle applies regardless of whether you are a municipal bus or transcontinental transport truck. The opportunity cost per vehicle only becomes substantial for fleets with at least 100 vehicles (see sample calculation here).
What do these equations have to do with this article’s title? Premature filter plugging is the leading cause of reduced dispenser flow rate, and uncontrolled fuel system microbial contamination is a major cause of premature filter plugging. The microbes that contaminate fuel systems are commonly referred to as “bugs.” A recent U.S. Environmental Protection Agency (EPA) survey of corrosion issues (bug activity is a major cause of fuel system corrosion) at fuel retail sites revealed that although 83% of the sites they investigated had moderate to heavy corrosion, only 25% of the sites’ owners/operators were aware of the problem.
Let’s put this disconnect into a different context. The primary reason that heart disease and cancer are responsible for 50% of all deaths in the U.S. annually is that the victims of these diseases do not seek diagnosis until it is too late. We each tend to believe that others are at risk, but not us. Similarly, in a recent survey conducted by a major insurance company, 64% of all drivers reported that they believed they were above average drivers. Again, we tend to overestimate our own performance and ability. I am guessing that for every 10 petroleum retailers or fleet operators who read this article, only one of you will use the equations I’ve provided here to estimate your OCy. Even fewer will look at the impact of reduced flow rates on c-store revenues or fleet drive productivity. For those of you who do the math, in my next article, I’ll explain how bugs contribute to the costs we’ve now identified.
Fred Passman is a PhD Microbiologist with more than 40 years’ experience studying damage that microbes cause to industrial systems. Fred is Founder and President of Biodeterioration Control Associates, Inc. (www.biodeterioration-control.com) and can be reached at firstname.lastname@example.org.