Lessons to Learn From Last Year's Late Harvest
In this article, we’ll explore some solutions to avoid the mistakes which were made in the fall and winter of 2019 during grain drying season.
From October through December 2019, the propane supply chain broke due to a late harvest and grain drying season in states like Iowa, North Dakota, Minnesota, and Wisconsin. While the entire region was affected, Iowa was hit hardest. In short, there simply wasn’t enough gas to go around, and propane marketers paid heavy premiums to truck in gas from out of state, buying shipments from as far east as Indianapolis and as far south as central Missouri. A few weeks into the crisis, FERC officially declared a state of emergency in the region and dispensed its resources to assist.
At the NPGA meeting in Scottsdale this past February, there was much discussion about what happened and why, and to an extent there was a fair bit of finger pointing taking place. Some felt FERC’s response was belated. Others felt they, the propane marketers, could have prepared better on their own and taken more responsibility. For those pragmatic business owners who operate a propane business in the midwest who have a vested interest in controlling for disaster on their own terms, without relying on help from elsewhere, the path to salvation is a simple one: better preparation and more product on hand in the months of August and September.
For those who have storage enough to handle and soften the blow of an overnight spike in demand, who have already spent hundreds of thousands of dollars in installing bulk storage locations, the ability to fill their storage heading into the grain drying season is a boon that they should be vigilant in taking advantage of.
What does a company do if their bulk storage is nowhere near the level of demand?
If a company moved 1.5 million gallons of product last year during its busiest six months, but their available bulk storage spans 5 locations or fewer and under 200,000 gallons in total, where are they going to put gas if they buy it? The traditional solution is to, well, just buy more storage. The average 30,000 gallon bulk storage plant, of which 24,000 gallons are useable at capacity, costs somewhere in the neighborhood of $100,000 - $130,000 to install after accounting for the steel, permits, and construction fees. It is a costly, slow process, and attempting to complete a project like that now (it is Mid-July at time of writing) before harvest season would perhaps be feasible but not easy. A propane marketer could start the process this year in preparation for next year, but it is too late to achieve a justifiable ROI during the upcoming 2020-21 winter.
The lack of on hand storage is a reason why the midwest wasn’t prepared, and it ended up being costly. There is a solution to exponentially increase storage capacity, and it doesn’t require anyone to buy more steel.
- The average propane marketer with 2,500 residential customers in the midwest has approximately 2,000 home tanks that they lease out to customers.
- If the average tank size is 500 gallons, that leaves a total of 800,000 gallons of available space within tanks which are not currently being used as accessible storage, but are being used in some capacity to service the customer.
- There are still hundreds of thousands of gallons of storage going unused. In some cases, this could be as much as half a million gallons.
- This concept is known as tertiary storage, or field storage.
A basic method of leveraging field storage involves mass budget billing for as many customers as possible.
- If a customer is paying a prorated amount monthly, there is no longer a limitation on when a customer’s tank may be filled. Theoretically, the filling schedule of each route should ideally coincide with the times at which propane prices are lowest as much as they can.
- This is not a common practice as it is not easy to optimally route trucks for deliveries without knowing the exact levels in the tanks.
- Many propane companies operate this model successfully after years of trial and error, but without precision due to a lack of visibility into hard data about which tanks need to be filled and when.
Inaccuracy can be solved via the use of tank monitors. Any tank monitor which is reliable and accurate in its reporting will illuminate the areas of need and help a propane company focus its team where they’re needed, cutting down on wasted stops and short fills. If you’d like to know what that looks like for your bottom line, here’s a link to our ROI calculator for traditional tank monitoring solutions. Because this method of monitoring does not meter consumption on the tank, the routing for deliveries does not look much different from traditional business operation methods and the company still mostly delivers on the customer’s schedule, as deliveries must be agreed upon with the customer due to price.
One-Tank's method of managing field storage removes the calculation and guessing by simply monitoring consumption on the tank remotely, then producing a monthly statement for billing. With a back office software API integration, the billing process is seamless and requires no user input.
- Once tanks have met the level threshold for delivery, they are flagged as Time For Delivery and can be added to a route by the user.
- Under the remote metered consumption billing model, there are no longer any restrictions on when a tank can be filled. Because the company owns the product in the customer’s tank (and the tank itself), that tank can be filled at any time.
- The best way to take advantage of this is to fill the tanks when propane is at its cheapest. This method is implemented in a basic form with summer fill programs, but those methods lack the agility of taking advantage of the small price dips throughout the busier seasons of the year as well.
- Time is the limiting factor in implementing and rolling out tank monitors on a mass scale, and converting accounts over to the One-Tank program requires buy-in from end customers.
For the midwest, and Iowa in particular, we’ve heard speculation that crops seem to be coming in late again this year, and propane marketers are starting to gear up for the grain drying season. It may be too late to buy bulk storage this year, but an average large scale implementation for tank monitoring can see a marketer deploy hundreds of monitors each month during the busy season by simply installing monitors with every delivery.
With luck, the harvest season will arrive on schedule in 2020. If it doesn’t, we hope our article helps illuminate the path forward. If you’ve been successful in implementing tank monitoring to soften the impact of supply chain problems, reach out to us at firstname.lastname@example.org. We’d like to hear your story.