April 27, 2020
Monday PM

Dear Editor,

So I see that the rants have started on FB again about fuel prices, their movement locally, and about how we are all getting ripped off.  Having lived in this community some 40 years, operating retail a good part of that,  it’s been interesting the number of times the rant comes up about how something is priced in this town.  The fuel business is not insulated from this, we’ve seen complaints for years.

If you buy high, you have to sell high unless you are a government entity or non-profit.  In this town, we have to have a lot of forward capacity for fuels (storage in case the barges don’t run). The fuel in that storage is purchased at a blend of pricing, and doesn’t move price at the pump in the same way we might expect.  Inventory is sold on one of three methods, first in/first out, last in/first out, and average cost.  The dealer can’t usually switch this, once a method is chosen, they’re mostly stuck with it.  So in the case of FIFO, while they are adding cheaper fuel to their tanks, they still have to charge for the expensive fuel left in their tanks.  With LIFO, they could price the fuel being sold based on their cheaper fuel being purchased, but then they are stuck with the original layer of fuel at a much higher price, which becomes a loss if they never move it by emptying their tanks. Using average cost, they add the cost of the current fuel being purchased, and divide the total cost now in the tank by the total number of gallons in the tank.  

So for instance, if the tank holds 500,000 gal of fuel, and is half full of $3.00 fuel ($750,000), and is then filled up when the barge comes in with $2.00 fuel (adding $500,000 of fuel),  the price is not based on the new fuel added, but on the blended average cost of $2.50 for the entire volume of fuel now in the tank.  So the pricing is based on how fast the dealer can get fuel, replace fuel, and even more importantly how fast the fuel moves through the tanks.  Some part of the price is static, like local sales tax, state and federal highway and consumption taxes as an amount per gallon, not based on price.

Using “down south” pricing is very mis-leading, since they are closer to production, use just in time delivery so they can nearly empty their tanks every day, and use pricing based on ability to get cheaper fuel the next day.  Anyone with a price advantage moves more fuel, just look at who is doing business when there is a gas station on every corner in a town, and one is cheapest.  We don’t have that situation in SE Alaska, we have a finite number of cars in any given town, a given number of gallons that can be sold, and now, with Covid-19, less fuel being consumed. 

The price will come down, it will take time, and we haven’t seen pricing jump in the past the same day the price jumps in Seattle, so don’t forget it won’t go up as fast either.  I don’t begrudge the independent dealer their being in business, and by merit of careful pricing, staying in business for the long term.  It’s when business like COSTCO, WalMart and Safeway base their pricing on national averages, rather than what they just paid for it to get it here in the ground locally, I have heartburn.  (Now note: Safeway normal pricing is right up there with most everyone else’s here in Ketchikan)  National pricing puts the local dealers at a distinct disadvantage, when they are the ones with local risk.  So it’s not greed, gouging, theft, or any of the other accusations mentioned on FB. Pretty much just a basic lack of understanding of how retail works, and what keeps a local retailer in business.  

It’s supply and demand, and local conditions, state and federal taxes added and applied, and not about what they’re paying in Tulsa, or Phoenix, or Miami.

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Received April 26, 2020 - Published April 27, 2020

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