Looking Back and Moving Forward, 2021 Edition
Like many years prior, 2020 started off with price increases. Most lubricant blenders announced these increases in mid- to late January, with effective dates in February and March. Although the increases were initially in the range of 5% to 8%, most were later adjusted up to as high as 14%. The adjustments were primarily attributed to increases in base oil prices occurring at the end of the year.
In addition to the price increases, there were a number of mergers and acquisitions that made the news early in 2020. The first was on January 2, when PolySi Technologies Inc., a global leader in specialty lubricants and packaging, acquired the silicone grease line of Specialty Silicone Products Inc. Days later, O’Rourke Petroleum announced it had acquired the marine fuel distribution assets of J.A.M. Distributing Co. On January 15, PetroChoice acquired Commercial Distributing Inc. in Oklahoma City, and a day later Kellerstrass Oil Co., market-leading fuel and lubricant business, announced it had entered into an acquisition agreement with Parkland.
Then in March, Cadence Petroleum Group acquired Davison Fuels & Oil, Conomart Super Stores announced it would be acquired by Parkland, and Offen Petroleum announced a pending acquisition of Bosselman Energy. And in December, Parkland signed agreements to acquire Story Distributing in Bozeman, Montana, and Carter Oil in Flagstaff, Arizona.
As for lubricant sales, the year kicked off with high hopes that demand in the consumer automotive sector would hold its ground and commercial and industrial lubricant demand would continue to grow due to the strong economy. The anticipated increases in demand together with the announced price increases and acquisition activity pointed to a promising year for growth.
But then COVID-19 hit.
Although the first confirmed case in the United States was reported on January 21, 2020, and the outbreak was thought to be contained through February, the pandemic accelerated. By the end of March, lockdowns were in place in 32 states. This brought an end to the longest recorded expansion in the U.S. economy and the steepest quarterly drop in economic output on record. Most businesses in the lubricants supply chain were hit hard.
In addition to experiencing a precipitous drop in sales, lubricant manufacturers, marketers and others in the supply chain incurred substantially higher operating costs and expenditure of unbudgeted funds to ensure the safety of employees and maintain business continuity. Such measures included sanitizing facilities, servicing customers from home offices, reducing on-site staff to essential personnel, converting lines to make hand sanitizer, providing personal protective equipment, and other measures.
Further, due to soft demand and intense competition, most blenders and marketers rescinded the price increases announced at the start of 2020.
But consolidation of the industry continued. On May 22, Offen Petroleum scrubbed its pending deal to acquire Bosselman Energy, but on the same day, Roberts Energy announced the sale of its Lubricants division to Dennison Lubricants.
Then, after a brief pause, M&A activity picked up. RelaDyne acquired Nick Barbieri Trucking LLC in September, and in October Pritzker Private Capital signed definitive agreements to acquire Highline Aftermarket and Warren Distribution. That same month, Matrix Capital Markets Group Inc. closed on the sale of the propane, petroleum and lubricant operations of Dixie Gas & Oil Corp. to Quarles Petroleum, Inc.
So, what was learned in 2020 that could benefit those in the lubricants business as we move into 2021?
Based on Petroleum Trends International’s survey of leading manufacturers and marketers in the supply chain, one key lesson is the importance of contingency planning, especially for a pandemic or other circumstances in which demand tumbles or employees cannot access the office and need to work remotely.
In addition to having a plan, several marketers noted the importance of expeditiously and aggressively implementing those plans, and accepting that doing so may require some tough decisions regarding expenses, credit lines, and inventory for both the marketer and its customers. Some also mentioned the value of including an updated list of projects in the plan that had been previously pushed aside or postponed. Many say they took the opportunity to improve their business and keep employees engaged by working on such projects during the pandemic.
The value of having a diverse product portfolio and customer base was also underscored in 2020. As an example, marketers with a large percentage of sales coming from automotive service dealers and exports were slow to recover, while retail, commercial and industrial did fairly well.
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But with all the challenges the lubricants industry faced in 2020 and the many other important lessons learned, one big takeaway from 2020 is the lubricant industry’s ability to weather a major storm.
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The importance of having strong partnerships throughout the supply chain was also driven home. Such partnerships helped many to work through numerous constraints and uncertainties related to availability of raw materials, transportation, supply to critical customers, transparency in demand projections and other supply chain issues.
But with all the challenges and lessons learned, one big takeaway from 2020 is the lubricant industry’s ability to weather a major storm. This is a testament to the extraordinarily talented, hard-working and dedicated people who continue to show up every day in this challenging environment to make sure their customers have the products that are critical for operation. The pandemic has been a reminder of how important our industry is. Our customers are spread across a broad range of essential businesses, and they and many others count on those in the lubricants business to keep America moving in both good times and bad.
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. Email: tom_glenn@petroleumtrends.com