Special Report: Cutbacks in Transport Logistics May Make for Challenging Summer Fuel Distribution

Spring break 2021 has come and gone but in some portions of the U.S., it provided a dress rehearsal for something marketers haven’t dealt with since 2018 – a battle to keep stations “wet” with adequate fuel supply.

“We were biting our nails for three weeks, hoping not to have station run-outs,” one large Florida marketer told OPIS.

The problems came despite nationwide and regional inventory stats that didn’t hint of any problems. Nationwide stocks of gasoline cruised through spring break at just under 235 million bbl. In 2019, the country didn’t see that much primary inventory save for the first quarter and December. If measured in days’ supply, late March and April 2021 stocks varied between 26 and 27 days’ worth of fuel, some 3-4 days above where problems have surfaced in the past.

But COVID-19 has changed the landscape. One might say that the last leg of the distribution chain has a pronounced limp. Hundreds of transport truck drivers were either laid off or found alternative driving “gigs” when the pandemic cut demand by as much as one-half last year and many have not been replaced. A palpable fear that they will not be replaced is emerging.

Combine that shortage of drivers with the unpredictability of U.S. motor fuel demand and you have a recipe for trouble.

“There has been a driver shortage for a while, now the problem has metastasized with the pandemic,” said Ryan L. Streblow, executive vice president of the National Tank Truck Carriers industry group. “It’s going to be a problem for shippers, carriers and consumers across the board.”

The pandemic hit just months after the federal Commercial Driver's License Drug and Alcohol Clearinghouse went online in January 2020. The clearinghouse, which all drivers are required to register with and all employers are required to check, knocked about 40,000 to 60,000 drivers out of the national employment pool, estimates Holly McCormick, vice president Talent Office at Groendyke Transport, Inc. and chair of the Workforce Committee for tank truck carriers association.

The pandemic led to driver deaths and decreases in the workforce, as older drivers chose to retire while others simply left the profession, McCormick said. Groendyke, which has about 1,300 employees in 15 states, saw retirements double during the pandemic, she said. Increases in online shopping provided additional jobs in local deliveries, further draining the pool of available drivers. Increased unemployment benefits, as well as federal stimulus payments have slowed some drivers’ return to the workforce, she said.

Meanwhile, the closure of driver training schools during the pandemic choked off the pipeline of new drivers.
“It really was a perfect storm in 2020,” McCormick said. “I have never felt the pressure to hire drivers as I’m feeling now.”

Streblow estimates the trucking industry “could hire one million people today,” with a majority of those hires needed behind the wheel. The driver shortage is particularly critical in the tanker sector, despite offering salaries about $10,000 to $13,000 higher than the average $57,000 annual driver pay. Tanker drivers need to be more experienced and skilled due to the difficulties of transporting a hazardous or liquid cargo, Streblow said. That means jobs in the sector can’t be filled with hires fresh out of driving school.

More Run-Outs Ahead for Vacation Spots?

It’s no coincidence that the bulk of spring outages of gasoline occurred in getaway destinations like Florida, Arizona, and Las Vegas. That raises the possibility or even the probability that fueling stops on the way to the beach or mountains might be compromised if there is the occasional weekend, week, or even month where consumption surges.

“We’ll probably move to a ‘keep full’ strategy for gasoline this summer,” one marketer told OPIS, adding that “it’s just too dangerous” to play the “dispatch or delay” games that come with gasoline price volatility.
Beyond the driver issues, one 21st century trend deserves special mention. Even before COVID-19, demand for U.S. motor fuel became increasingly “lumpy.”

In 2019, for example, the Energy Information Administration (EIA) showed weekly gasoline supplied as low as 8.565 million b/d and as high as 9.9 million b/d. The breadth between the low and high demand tides in 2020 was a never-before-seen 4.63 million b/d. In 2021 so far, a gap of 1.66 million b/d has separated the extremes. More extremes may lie ahead thanks to the uncertainty of COVID-19 variants, and the surge in “social” driving and the more stubborn nature of driving behavior related to work and events.

Beyond that macro or monthly lumpiness, gasoline consumption has become much more uneven from day to day.
Friday retains its traditional spot as the highest demand day of the week, and it may add to share during peak driving season. In 2020, consumers turned more to trip aggregation, benefitting Saturday and Sunday sales at Big Box warehouses as well as supermarkets.

A slump in the generally soft midweek period may worsen in the summer. The comeback in commuter traffic has stalled in many portions of the country, and it’s unlikely to improve when companies move to summer hours.
The two sides of a weekend could be particularly daunting. The prospect for Friday consumption of 10 million b/d looms, despite weekly assessments that still suggest demand attrition of at least 10% from 2019.

The definition of time to shine for many marketers is the stretch between the summer solstice and Labor Day Monday. In 2019, those twelve weeks produced average gasoline demand of 9.63 million b/d. In 2020, COVID-19 knocked the number down to 8.7 million b/d. The rogue EIA reading of 9.161 million b/d in late August 2020 was tied to hurricane-feared purchases and was not approached in the subsequent eight months. A hurricane impact in 2021 might be particularly resonant given the difficulty in forecasting fuel needs.

There’s one other consequence of the driver shortage. In recent years, multi-state jobbers often benefitted from large disparities between prices at terminals hundreds of miles away from one another. Driver tightness keeps marketers from taking advantage of those arbitrage opportunities.

This spring has occasionally seen differences in diesel and even gasoline prices of as much as 25-35cts/gal. A few weeks ago, the gap between diesel prices in El Paso and Albuquerque was over 30cts/gal, or nearly double the freight cost. Some Southeast locations have also seen similar opportunities recently. The lack of long haul drivers though means those differences don’t mean much in 2021.

And summer likely isn’t the end of delivery concerns, as there appears to be no quick fix to filling the ranks of tanker drivers.

“I think we'll be looking at shortage for a while,” McCormick said. “It’s like there is this sense of urgency, but no one knows how to fix it.”

--Reporting by Tom Kloza, tkloza@opisnet.com; Steve Cronin, scronin@opisnet.com
--Editing by Beth Heinsohn, bheinsohn@opisnet.com

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