There was a time when the lubricants business was dominated by major oil companies that produced both base oils and additives. They blended all products in-house, and sold finished lubricants with their own sales forces directly to installers, on- and off-road fleets, industrial accounts and retail outlets. Their products were delivered in company-owned and operated vehicles. And although there were some lube distributors in the early days, most were dedicated to one brand.
The majors owned and controlled most of the value chain back then, and the quality and integrity of lubricants was comparatively easy to manage since the majors had direct control over most of the manufacturing, sales and support, and delivery activity. But times have changed.
Its a much more complex business today with more players, layers, specifications and choices to make. This also makes it a more challenging business when it comes to assuring the quality and integrity of the lubricants in the market.
To understand the significance of this, start with a look at the changes in the U.S. lubricants business over the years.
One fundamental change is that most oil majors long ago exited the lubricant additives business. (Remember Amoco Additives, Texaco Additives, BP Adibis, Exxon Paramins and others?) Starting in the 1980s and through the next decade, many shut down or sold their additive manufacturing units and dissolved their lubricant research and development staff. Rather than bear the heavy, and what many considered redundant costs of these operations, most simply turned to the Big Four – Afton Chemical, Chevron Oronite, Infineum and Lubrizol – for their additives supply, product development, testing, approvals and technical support.
This certainly made good financial sense and actually enhanced the quality of additive technology by rationalizing efforts, but the majors did lose some direct control of the value chain and proprietary technologies. In addition, this shift opened the doors wide for independent lubricant manufacturers to grow their businesses with me-too technology sourced from the same additive companies supplying the majors. And grow the business they did.
The national majors still rule the roost today, but independent lubricant manufacturers have grown impressively. Although they have always been around, independents were primarily engaged in manufacturing and marketing industrial lubricants, metalworking fluids, greases and other specialties, mostly for regional customers. Since that time however, independent blenders have evolved into sophisticated and respected suppliers of mainline lubricants such as motor oils, transmission fluids, hydraulic fluids, gear oils and more. What were once called the seven sisters now vie with close to 250 sizable U.S. independents.
A second major change came in the area of blending and packaging. In the old days, the majors made and packaged lubricants almost exclusively at their own manufacturing plants. Today, many rely on toll manufacturers to do some if not all of the blending for them. The majors specify the base oils, additives and recipes, and the contractors get it done. This can be very cost effective, but the majors again lose direct control over the process, product and quality.
Another very big change in the business is how the majors go to market. While once they employed an army of sales representatives pounding the pavement and a fleet of company-owned trucks and drivers to deliver the goods, its not so today. The majors have effectively outsourced the majority of this activity to their channel partners, otherwise known as distributors and marketers.
Lubricant distributors touch close to 85 percent of the U.S. majors output. They either buy and resell direct to customers on their own paper, or through buyback agreements, where the distributor delivers the product for a fee to customers on the majors paper. In either case, the product comes from the marketers storage facility and is delivered by the marketers trucks and drivers, or designated carriers.
In addition, most distributors are authorized to repackage bulk oil they receive from the majors. They receive product in railcars and tank trucks, move it into bulk tanks at their facilities, and from there transfer it into 55-gallon drums, 5-gallon pails and other packages bearing the majors name. Further, the distributor may pump the same bulk oil into trucks that deliver the majors brand directly to fast lubes, new-car dealers, fleets and industrial accounts. This too is a very efficient and cost-effective way to move product – but it also distances the majors from another and very important quality link in the value chain.
These are just a few examples of how the lubricants industry has changed. Others include the variety of base oils now in the market, the splintering of specifications, unproven additive suppliers offering knock-on chemistries, private-label products available in flavors of API licensed and unlicensed, and some participants who simply thumb their noses at the self-governing rules that have kept this business honest and clean for decades.
It doesnt take much imagination to understand how the changes we have seen over the years have opened up cracks for the unscrupulous to game the system and put honest suppliers at a disadvantage. Maybe its time to change how the system works to assure the quality and integrity of the lubricants sold, so that those doing it right are competing on a level playing field.
Tom Glenn is president of the consulting firm Petroleum Trends International, the Petroleum Quality Institute of America and Jobbers World newsletter. Phone: (732) 494-0405. E-mail: tom_glenn@petroleumtrends.com