Company tinkering with policy market-wide, regionally

SAN RAMON, Calif. — In a move that has rattled jobbers, Chevron has changed the terms of its prompt payment discount for wholesalers buying branded gasoline and diesel, CSP Daily News has learned. The revamp was effective January 5, the refiner told marketers in a message late last week.

Most major oil companies offer their branded marketers a discount off the rack price of fuel if they pay within a set number of days of lifting product at the terminal.

Chevron offers a 1% discount, but told branded jobbers Thursday that it would now cap the amount it pays at 4.5cents per gallon. The new policy will apply once the rack price for gasoline or diesel exceeds $4.50 per gallon, the company said.

Branded wholesalers are naturally sensitive to any change in a supplier’s prompt-pay terms, since many of them rely on the discount to help bolster slim profit margins at retail.

“We charge our dealers a penny over rack, and we’re locked into contracts at that rate. Most of our margin comes from the 1% we get from Chevron, and I’m beginning to think that if Chevron had its way it would eliminate it altogether,” said one wholesaler. “And once Chevron does it, all the other majors will do it too.”

The marketer said he was particularly concerned with Chevron’s decision to tinker with its prompt-pay policy because Iran has started to ratchet up its anti-American rhetoric.

“All it would take would be for Iran to lob a missile over one of our ships–they wouldn’t even have to hit us–for the price of gas to go crazy and trigger the discount cap,” he added. “It looks to me like Chevron is getting ready for something.”

Marketers are also jittery because Chevron has been tinkering with its prompt-pay policy on a regional basis, too.

The move to cap the discount at 4.5 cents per gallon applies market-wide, but the refiner has also made a separate revision to its policy in its western markets.

In February 2010, Chevron switched from a 1% discount at racks in the West to a flat 1.5-cents per-gallon price cut. The move prompted protests from marketers who pointed out that a flat 1.5-cent discount would lead to additional profits for Chevron if rack prices rose, since it would be paying marketers a lower discount.

The change applied to racks in Albuquerque, Artesia, Bloomfield, Boise, Burley, Ciniza, El Paso, Moriarty, Pasco, Pocatello, Salt Lake City and Spokane. At the time, Chevron marketing exec Carey Knuth told wholesalers that the change would provide them with “added stability and predictability in times of market volatility.”

Now Chevron said it’s going back to a 1% discount in those western markets, again effective immediately. The company gave marketers no reason for its change of heart.

“We continuously evaluate our business operations seeking opportunities for improvement,” a spokesperson for San Ramon, Calif.-based Chevron Corp. said last week. “The revision of the incentive program for prompt payment is part of our ongoing effort to remain competitive in these marketplaces.”

He did not address the matter of the 4.5-cents-per-gallon cap on payments.