By definition, individual smaller lubricant suppliers do not impact the market as much as individual large companies. Collectively, though, smaller companies are a significant part of the industry. Companies other than multinationals – mostly small to mid-sized independents – account for 38 percent of lube sales volumes in Europe. Its clear then, that there is significant demand for the services these companies offer and that their perspective is worth considering.

Base Stocks & Approvals

Our industry has seen a proliferation in the number of base stock suppliers. Theoretically, this should be a good thing for buyers because it means more competition. In reality, though, we often find that only one base stock is approved for certain products, so choice is actually limited. For companies making a wide range of lubricants, this increases the number of base stocks they must work with. This, in turn, can impact the number of bulk storage tanks a company needs, which affects capital investment.

Smaller blenders must also weigh whether to purchase base stocks through long-term contracts or on a spot basis. Customers purchasing large volumes on contract often get preferential prices, which can be an advantage in competitive finished lubricant markets. But small companies usually do not have the cash flow or credit to afford large purchases. Some spot buyers try to time their purchases to take advantage of swings in prices, but this is difficult and does not always work out.

One thing that would help lubricant blenders in general, and small compa-nies in particular, is more pragmatic base oil interchange rules. There is a lot of talk about base oil interchange; it is always on everyones wish list. But industry bodies are often slow to make progress, and even slower to look at base oil interchange.

A wealth of test data is available that could be used to show how one base oil can be substituted for another without compromising performance. But much of this information is never made available, and ethics are often cited as the reason. Perhaps base oil interchange is not on the wish list after all. And if, as some sources suggest, unregulated base oil interchange is a fairly common practice, do we actually have the biggest no-harm field tests going on in the market?

OEM (original equipment manufacturer) approvals are key to any company competing in the engine oil market, but smaller blenders can find them difficult to obtain. Lead times for approvals are long, even for rebrands or reblends, where formulas for existing products are adjusted to meet new specifications. Some independent blenders believe they are disadvantaged by OEMs. They complain that approvers are slow to respond to their applications or fail to respond altogether.

Approvals for some finished lubricants are perceived to be closed, especially for driveline fluids, which is to say that OEMs do not seem interested in adding more products to their lists. This causes supply gaps that affect end users and result in lost opportunity for would-be suppliers. Fortunately, these situations are gradually being addressed by UEIL, the Independent Union of the European Lubricants Industry. The European Unions Motor Manufacturers Block Exemption prohibits such anticompetitive activities in the supply of automotive aftermarket products, and UEIL has an ongoing effort to help members bring complaints before the EU.

Regulatory Impact

Smaller companies are disproportionately hurt by regulatory requirements. Legislation such as REACH (Registration, Evaluation and Authorization of Chemicals) and HazCom 2012 (U.S. Occupational Safety and Health Administrations requirements on communicating chemical dangers) are intended to reduce hazards for end-users. However, they carry tremendous costs for industry, in part because the requirements for compliance are so extensive. Regulation EC1907/2006, the main REACH document, contains more than 840 pages plus many guidance documents.

Trade associations provide some help for smaller companies. ATIEL (Technical Association of the European Lubricants Industry) and ATC (Technical Committee of Petroleum Additive Manufacturers in Europe) are cooperating to offer generic exposure scenarios that can serve as starting points for companies documenting potential chemical hazards. ILMA, the U.S.-based Independent Lubricant Manufacturers Association, conducts seminars to help companies grapple with the requirements of various regulations.

But REACH and other laws undergo continual updates that require ongoing review and updates of safety data sheets. Considering both materials and mixtures used in of lubricant manufacturing, companies commonly have to maintain thousands of safety data sheets. Keeping them up to date requires many hours and constitutes a proportionately larger expense for small companies.

The Quality Challenge

Ensuring product quality is another challenge for smaller companies. Surveys suggest that as much as 50 percent of some lubricant categories may be out of specification. The question is whether this is deliberate or results from poor quality control. Quality control requires resources, and not all companies have a sufficiently qualified technical staff to ensure their products consistently meet specifications.

Without enforcement, industry standards offer no true protection or guarantee of compliance, and this creates an unlevel playing field that can penalize those that stick to quality controls. On the other hand, some blenders that would like to comply are unaware of or unable to understand their obligations. It is worth asking whether they receive enough help from additive companies.

The U.S.-based American Petroleum Institute exerts some control. The organization, which licenses companies globally to bear labels indicating that their products meet its engine oil specifications, conducts an Aftermarket Audit Program that involves obtaining oil samples from points of sale and checking for compliance. API also requires engine oil suppliers to provide documentation that they are controlling delivery throughout the chain of custody. The organization has been known to sue marketers that it finds to be out of compliance or misusing its trademarks.

But what about Europe? ACEA and ATIEL are ILSAC and APIs European counterparts. Companies registered as meeting ACEAs engine oil sequence requirements are required to sign letters stating that they comply with the European Engine Lubricants Quality Management System. However, at the start of this year only 72 signatories actually had letters on file, most of them European. However, neither organization has a licensing or monitoring program, and some ATIEL members are opposed to such a step.

Absentees included many notable companies. One wonders what these companies are doing, and it also raises questions about what industry is doing to ensure compliance. We can see that national bodies have begun taking action due to the lack of response by ATIEL or ACEA.

As a group, smaller blenders have a significant share of the lubricant market, thanks to the fact that they actually deliver the service that major oil companies promise. Thus, smaller blenders are an important part of the industry. Individually, however, they face a number of challenges due to their size. Base stock sourcing can be extremely difficult. Base oil interchange revisions are unnecessarily slow. Well-meaning legislation is especially burdensome for these companies. They, in particular, would benefit if industry bodies were more active in quality enforcement. Despite these challenges, there is a great future ahead for smaller lubricant companies.

Editors note: This article is based on a presentation by the author at the ICIS World Base Oils & Lubricants Conference in London in February. At that time, Trocki was general manager for marketing and technology for Morris Lubricants, an independent lubricant supplier in Shrewsbury, U.K. He is now vice president of strategy for Gulf Oil International UK Ltd., which is part of Indian conglomerate Hinduja Group.