Fuel firm claims it makes little profit from supplying the isles
By JOHN ROBERTSON
The company with the monopoly on petrol and diesel supplies to Shetland says it earns less profit from its range of products in the Scottish isles than it makes from sales on the UK mainland.
The mark-up of only around four pence a litre was revealed by GB Oils in an attempt to counter allegations of profiteering by hiking motor fuel at least 10p a litre above prices on the Scottish mainland.
After his first meeting with concerned members of the Shetland transport authority ZetTrans in Lerwick, GB Oils managing director Sam Chambers told The Shetland Times: “I can confirm to you that our gross margins are not disproportionate to what we achieve on the mainland.” He declined to detail the level of profit made from petrol and diesel alone, stating: “There are commercial sensitivities in splitting this by product but you should realise that fuel distributors operate on very fine margins. There is a very fine line in this business between making a profit, breaking even or making a loss.”
After the meeting Mr Chambers said regional variations in price were magnified in the islands where the fuel had to be shipped, which cost more to the supplier. Small rural stations also needed to set their prices higher if they have only a small number of customers. “I think there is always a situation, when there is a remoteness aspect, that you pay some more.”
The figure of 4p profit from each litre of GB Oils’ range of products, which includes heating oil, comes from the company’s accounts for January. He claimed garage owners in Shetland made between five and nine pence a litre, depending on the time of year. Overall GB Oils operated last year on a gross margin of around six per cent, Mr Chambers said.
GB Oils claims to be the biggest independent fuel distributor in Britain, selling in the region of four billion litres a year. In recent years the big oil companies have pulled out of distributing fuel to small outlets, with the exception of Total. BP sold its Shetland business to GB Oils.
Mr Chambers said it was “vitally important” that GB Oils maintained the goodwill of its customers in the Scottish islands because it was “here for the long term” with plans for future investment. “Certainly it’s not to our advantage to actually be seen to abuse our monopoly situation,” he said on local radio.
His explanations for the high prices appear to have gone some way to addressing ZetTrans’ concerns, raised on behalf of the Shetland community, reflecting the anger about the unexplained price hike which was most noticeable during last year’s rocketing fuel prices. If GB Oils is making less on fuel sold in Shetland than on fuel sold much cheaper down south, why is it so much more expensive here?
ZetTrans chairman Allan Wishart said Mr Chambers explained GB Oils had little room left to manoeuvre on price while still keeping its operation profitable. Supplying Shetland and the other island groups meant not just the cost of hiring ships to carry fuel but having to operate small storage depots and jetties which have to be staffed and maintained, like GB Oils’ base at the North Ness in Lerwick. “Basically what he was saying was that in a place the size of Shetland the depot and distribution costs for a low volume are obviously much higher per litre than they would be in a place where you have a depot supplying a much bigger population.
“The fuel that goes through Shetland is less than what goes through one main service station south. It’s a question of scale. Obviously the higher the volume then your admin, distribution and operating costs become a far smaller percentage of the turnover.”
He said he had been told that BP had run the depot at a loss but kept the differential between Shetland and mainland prices to about 10p – similar to what it is today under GB Oils.
He said Mr Chambers also refuted claims that sending fuel by road tanker to places in the Highlands was more expensive than shipping larger cargoes by sea to Shetland. Another inhibiting factor is the relative small storage space for fuel in Shetland but the volume being consumed in the islands does not warrant providing much larger tanks, which the company is not keen on anyway since it requires large amounts of money to be tied up in stock that is not moving.
Despite the explanations Mr Wishart was not yet ready to concede that suspicions of profiteering had been allayed by Mr Chambers once and for all. “Overall we did get explanations to what it was that makes the difference and to some extent … I can understand where he is coming from. The more volume they put out the lower their costs can be – it’s just simple business economics.
“Having been told that we would never really get the chance to meet him I was quite pleasantly surprised to have a very good dialogue with him. I’m not saying we got anything out of him but at least we have opened a dialogue, we have a contact and we can keep an eye on things and speak to them. We certainly made the position very, very clear about how the people of Shetland felt that, especially when the price was going up, the disparity seemed to get bigger all the time.”
He said he had been given anecdotal evidence that the businesses in Orkney which started shipping in their own fuel tankers last year instead of buying GB Oils’ supply had done well while the oil price was rising, making their fuel worth more, but since prices had fallen and stabilised there was now little difference between the two operations.
Mr Wishart was joined in the meeting with GB Oils by fellow councillor Iris Hawkins, the new head of infrastructure Gordon Greenhill and head of transport Michael Craigie.
Meanwhile, SIC convener Sandy Cluness said the council was continuing discussions with GB Oils with a view to moving the fuel tanks away from the North Ness. The problem is in bartering a solution for who is going to pay for moving the tanks to another site, freeing up valuable harbour front land.
Mr Chambers said his company would need financial support from others to help pay for the move, which its consultants estimate would cost £7-8 million. He warned: “That is a very high cost and that has to be paid somewhere so that effectively would put up the price of fuel considerably on the islands.”
But Mr Cluness said he understood EU grants of up to 50 per cent were now available for projects to improve the environment which, along with a possible council sweetener, might persuade the company to make the leap out of the town centre.
“That might be some kind of incentive,” the convener said. “It might be worth our while paying something for the site because to clear that would be worthwhile both from the safety point of view but also because it would make the North Ness area more viable for offices or indeed some kind of housing.”
These days the tanks are seen as too close to houses, shops, offices and the museum. Soon to be added are the Mareel cinema and music venue and possibly council office blocks and although problems with planning issues have now largely been resolved there remains a desire to free up the land for practical and aesthetic reasons.
Mr Cluness added: “If you look at most ports around the UK, you can renew the area by building flats, shops and so on. It adds very much to them and that’s the way we’re going with the North Ness.”