Every day around closing time, Roger Mahoney, operations manager at Tri-Valley Transportation, sorts through incoming faxes and schedules pickups and deliveries for the next day. The fuel prices have just arrived, and he can’t wait any longer to plan tomorrow’s schedule.
Mahoney manages the fuel purchasing and distribution from wholesale sites to 75 “Tri-Mart” convenience stores and truck stops in eight western states. Tri-Valley Distributing, the parent company, owns and manages the Tri-Mart stores, but it’s Tri-Valley Transportation, a 40-truck carrier in Heber City, Utah, that keeps the fuel prices competitive with large regional and national franchises.
Chains such as Flying J, Maverick, Chevron, Texaco, and Arco have their own refineries and deliver the fuel themselves, cutting down wholesale markup and transportation costs, Mahoney says. Profit margins are razor-thin for independently owned stores like Tri-Mart.
“It’s tough to compete with the major brands and big company-operated stores,” Mahoney says. “That’s why you see a lot of small stores going out of business. You don’t see any unbranded stores anymore.”
Efficiency at all costs
Efficient fuel purchasing and transportation is how Tri-Valley keeps fuel prices competitive at its retail stations, Mahoney says.
“I receive prices every night then determine the cheapest for each load,” Mahoney says. “I have to look hard at the cheapest geographical area.” After 17 years, Mahoney says he instinctively knows when and how much fuel is needed at each location. Where the fuel comes from, however, depends on current prices. At times, for example, it may be cheaper to bring fuel to central Utah from Las Vegas rather than Salt Lake City.
“Staying loaded and cutting costs is complicated depending on pricing,” he says. “As soon as you get something set, it changes.” Purchasing decisions are based on Tri-Valley Transportation’s total fuel cost per gallon from wholesale facilities. Mahoney uses a cost-per-mile calculation – updated quarterly from company financials – based on the distance from where a truck is located to a wholesale facility, and then to the customer. He then divides his cost by the number of gallons he needs to purchase for certain Tri-Mart locations.
Mahoney compares his cost per gallon among several wholesale racks and finalizes his dispatch for the following day. Area supervisors of Tri-Mart’s convenience stores, officially employed by Tri-Valley Distribution, also influence Mahoney’s purchasing decisions. Because they live and travel in their regions, the supervisors can watch the competition’s fuel prices and keep Mahoney posted.
Having the connection with Tri-Mart stores saves money on fuel costs for Tri-Valley Transportation. The company burns about half of its diesel at wholesale cost, says Jeff Smith, an accountant at Tri-Valley Transportation. Granted, the wholesale price is not much lower than the retail markup, Mahoney says, but being able to fuel-up at delivery points also saves time. For its other fuel purchases, Tri-Valley uses the Pacific Pride commercial fueling network for discounted diesel prices.
Tri-Valley keeps its tractors to 1,000,000 miles and beyond with tight PM schedules and engine overhauls at 600,000 miles. Head mechanic Gary Mortensen has been with Tri-Valley for 12 years.
The competition hasn’t always been so fierce in the gasoline business. Thirty years ago, a small service station could sell fuel at the pump for a handsome profit. Back then, Noel Cook, president of Tri-Valley Distributing and Tri-Valley Transportation, quit his 12-year job as a Texaco sales representative and bought his first “Tri-Mart” Texaco convenience store in Heber City, Utah. He launched Tri-Valley Transportation to haul fuel from wholesale markets to his station. Cook also began hauling fuel for other regional convenience stores.
Tri-Valley Transportation followed the growth of the Tri-Mart convenience stores. It is now a 40-truck, 50-trailer fleet. In the past few years, however, the fleet has hit a growth stunt. With competition at almost every corner and higher state and federal fuel taxes, retail profits are pinched.
“Now is not a good time to be growing in the oil business,” Cook says. With tight margins, turning a profit depends on specializing in the one area they do control – their transportation costs.
Fuel-oriented equipment management
Besides buying fuel for less, Tri-Valley specs its trucks for optimal fuel economy at high speeds. Tri-Valley buys Kenworth 900s with Cat 550s and 18-speed transmissions. Its goal, for fuel economy purposes, is to get tractors that run at 1300 rpm at 75 mph – the speed limit through southern Utah and other rural areas in the West.
Tri-Valley also trims its operating and delivery costs – as measured in costs per gallon – by pushing the weight limits in each state it hauls in. California and Arizona, Mahoney says, don’t allow GVW over 80,000 pounds, but in the other western states he hauls – Utah, Nevada, Wyoming and Idaho – he is able to run at 86,000 GVW using a 4-axle tractor (a tractor with a drop-axle) or a 3-axle trailer. Tri-Valley also has some trailer trains to haul even more than 86,000 pounds.
While pulling extra weight lowers the cost per gallon to deliver the fuel, extra weight and extra wheels on the road increase equipment wear and maintenance responsibilities. In the shop, Tri-Valley’s experienced mechanic and established maintenance routine get the most out of its equipment.
Like many small trucking operations, Tri-Valley Transportation keeps its tractors longer than the average three-year cycle. Gary Mortensen, a licensed diesel mechanic who has been with Tri-Valley for 12 years, overhauls the engines at around 600,000 miles. Mortensen and his shop hands bring all tractors and trailers through every other week for detailed inspections. Shop employees keep electronic maintenance records on all the equipment in a computer, and Tri-Valley ensures that drivers keep maintenance logs.
Other than its five-year hazmat inspections, which must be conducted by a third-party vendor, the only maintenance activity Tri-Valley outsources is structural welding on tank trailers. Mahoney has found that it’s not cost-effective to hire a part-time welder. All other mechanical needs, however, are better left in house, he says. Outside shop costs have risen to $65 to $80 an hour. Compared to the hourly rate he pays Mortensen – a “master mechanic” – that is significant savings, he says.
Hauling hazardous materials imposes significant compliance costs and challenges for Tri-Valley. One way Mahoney tries to offset costs such as permits, inspections and training is to maximize payload by bumping up against the weight limit in each state.
“The more you can haul the better off you are,” Mahoney says. “The fewer trips you can make into a state that charges you for hazmat is just a benefit that makes up over the years. It’s not a large difference per trip, but it adds up.”
Roger Mahoney, operations manager
Part of the team
Training new and existing employees for hazmat operations is a constant concern for Mahoney. Tri-Valley has to “refresh” its employees every 6 months on safety procedures, he says. For new employees, Tri-Valley uses a peer-based training and mentor system. A new employee is paired with an experienced driver for a few days. Experienced drivers train new hires on paperwork, loading, unloading and “the style of doing things.” After spending time on the road with peers, Mahoney assigns experienced drivers to keep in touch daily with their assigned new employees through cell-phone calls.
“Guys that have been around awhile have seen a lot of things happen in the industry when people weren’t environmentally sensitive,” Mahoney says. “You get a younger guy, and he looks up to the older guys. The stories they tell stick out in their mind.”
Fortunately, Tri-Valley doesn’t need to look for new employees often. One of Tri-Valley’s drivers has been with the company for 27 years. Sixty-five percent of the drivers have been with the company for at least 10 years, and very few have been with the company less than 5 years, says accountant Jeff Smith.
The key to having low turnover is an “excellent pay scale,” Smith says. The pay may not be at the top tier for truck drivers – Mahoney says they try to stay in the midrange for driver wages – but the pay scale includes compensation and incentives for every minute a driver is on duty.
Tri-Valley pays its drivers 23 cents per mile to drive a standard 18-wheel assembly; 24 cents per mile for a drop-axle tractor; and 26 cents per mile to pull a trailer train. For drivers that have been there longer, Mahoney negotiates raises. Drivers get $8 each time they load and unload and get $8 an hour for any loading and unloading that lasts beyond an hour. They also get additional pay for split loads, Smith says. Benefits include a paid vacation, a 401(k) and health and dental insurance.
Drivers also get a four-cent safety bonus for every mile they drive, Smith says. If drivers have an accident of any kind, caused by negligence, the safety bonus is rescinded and goes toward paying for the accident.
“I’m a firm believer that if you give a guy a piece of equipment that doesn’t perform, or you cut back on speed limits below the posted speed, he will abuse the truck,” Mahoney says. “He’ll take shortcuts to make the same amount of money. If you pay him decent and give him good equipment, he’s more likely to be safer and make you more money.”
At Tri-Valley Transportation, analyzing costs is a daily routine. In the competitive gasoline retail business, where profits are only pennies per gallon, efficiency in buying and distribution is a must. Truly, in this business a penny saved is a penny earned.
Location: Heber City, Utah
Operations Manager: Roger Mahoney
Equipment: 38 Kenworths, 2 Peterbilts; Caterpillar and Cummins engines and Fuller transmissions; 50 tank trailers, including Timpte and Beal
Freight: Gasoline, diesel
Challenge: Getting the best wholesale price for product while minimizing transportation costs.
Solution: Cost analysis, burning fuel at wholesale cost, peer-based hazmat training, safety incentives and comprehensive pay scale.