Bulk Fuel Distribution Costs For Cooperatives in North Dakota

Economic-engineering cost data and a simulation model were used to analyze the impact of sales density, size of sales area, sales volume, and equipment configuration on costs of bulk fuel delivery by cooperatives. Fixed costs accounted for the majority of delivery costs regardless of sales density or size of sales area, at least for the relevant range of these variables for North Dakota. Increasing the radius of a sales area from 5 to 50 miles increased average costs only $.02 to $.09/gal. Doubling sales by either doubling the size of the sales area or the sales density reduced average total costs by nearly 50%. Thus, cooperatives with excess delivery capacity could achieve significant savings if they consolidate to operate closer to the capacity of delivery equipment. Small storage facilities (say 50,000 gal.) place little or no restriction on operations because deliveries from bulk fuel terminals are reliable and on a timely basis. Therefore, the economic rationale for building larger storage facilities would include speculation on price changes and as a response to future expectations rather than current operating requirements. The impact of the size of load-out pipes (2" or 3") and delivery trucks (2,000 or 4,000 gal.) is significant in some instances. The larger load-out pipes are most economical for high sales densities. Larger trucks have a comparative advantage in large sales areas with lower sales densities.