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Posted on Wed, Nov. 23, 2005


Ricochet's bumpy ride
Euless fuel distributor scrambles to keep up with volatile fuel prices in a tight market

By DANIEL C. BARTEL
SPECIAL TO THE STAR-T! ELEGRAM


EULESS -- Ricochet Fuel Distributors lived up to its name in September as volatile fuel prices bounced it around a bit.

The company buys fuel from refineries and sells to companies that operate truck fleets or that maintain their own bulk fuel storage tanks.

The company watched warily last year as oil climbed to $40 a barrel and then $50, trying to keep a slim profit margin as prices moved up and down in an increasingly volatile market.

But when hurricanes hit the Gulf Coast in August and September, and oil shot up to $65 and $70 a barrel, Ricochet found itself in a tight spot.

The first problem was keeping enough inventory on hand as wholesale prices jumped by half.
That meant that a $300,000 line of credit at a particular refinery would only buy two-thirds of the volume it did in the weeks before the hurricanes.

"I was glad we have a good relationship with our bank. If not, we would've been in serious trouble," said Kelly Roberts, president, chief executive and proprietor of the Euless company.

Ricochet resells fuel to rental-car companies, construction companies, electric utilities, any company that uses vehicles to move goods or provide services. Its customers measure fuel purchases by the thousands of gallons. Ricochet buys fuel from refiners and wholesalers by the millions of gallons, and profits are measured by pennies -- or less -- on the gallon.

For example, the average national wholesale price for regular unleaded gasoline in August was $1.93 per gallon, according to the Department of Energy. Tack on federal and state taxes and the price bumps up to $2.32. Costs for a retailer or the reseller can be an additional 12 to 15 cents. That leaves an average 3-cent per gallon profit for the average price of $2.50 in August.

In Ricochet's case, a customer typically calls in an order for next-day delivery. On delivery day, a Ricochet truck goes to the refinery and picks up the fuel, which is when Ricochet's cost is set. If prices jump 20 cents a gallon from one day to the next, or over a period of hours as it did in September, profit margins can be wiped out or worse.

"In a normal market, it's no big deal," Roberts said. "But when the market is volatile, prices can change every couple of hours."

Ricochet officials said inventories were averaging 2 million gallons per month and rising.

Although they get hardly a whisper in terms of publicity, resellers are ubiquitous. As many as 700 resellers, from small mom-and-pop businesses to multimillion-dollar companies, operate in Texas. From 20 to 50 resellers operate in the Metroplex alone, according to the Texas Petroleum and Convenience Store Association.

Most of them are just as diversified as Ricochet, selling other products such as motor oil, antifreeze, temporary fuel tanks and fleet-service credit cards.

Roberts got into the business with a degree in marketing and management and a job at Texaco representing the company to its customers, including resellers.

She launched Ricochet in 1988 with a single sale, and the company has grown ever since. Gross revenue has increased an average 30 percent in the past three years, she said. The company grossed $17 million in 2003, $24 million in 2004, and is expected to do $30 million in 2005.

The resale business thrives on pennies, lots of them, said Linton Allred, executive vice president of the Texas Petroleum and Convenience Store Association. The difference between the wholesale and retail costs per gallon is small after factoring in tax and overhead.

Right now, Ricochet's seven employees service more than 100 clients in Texas with plans to branch out to other states.

As fuel prices rose in September, Roberts renegotiated lines of credit and worked to ensure that the company had enough cash on hand to pay the bills.

By the end of October, prices had stabilized and wholesale prices for refined gasoline had fallen dramatically as refineries along the Gulf Coast came back on line, said Tom Kloza, chief oil analyst with the Oil Price Information Service.

In fact, most resellers will look back to October as one of their best months, Kloza said.

"The resale business has an irregular heartbeat right now," he said. "A sweet spot can turn into a sour spot pretty quickly."

Still, Roberts and her small band are ready.

"DFW is a tremendous place to do business," Roberts said. "If you can't make it here, you won't make it anywhere."