Truck Movement Blending
Movement Gathering System
F3: CTRM SOFTWARE CAN HELP CREATE A PROFITABLE EXPORT LOGISTICS CHAIN
Without the right software solutions, the puzzle is just a pile of pieces.
A good commodity trading and risk management software (CTRM) will turn the
pile of pieces into a profitable export logistics chain.
same logistics movement. Instead of an organization having to consider, at most, a
few dozen refineries when marketing the crude and planning the logistics, it now can
potentially consider hundreds of potential refineries in several dozen countries. This
makes marketing and logistics planning cycles much longer. With exporting, one has
to decide which puzzle they are building before they even begin to assemble the pieces.
(See Figure 2.)
Going from a purely domestic logistics operation to an international one also brings
additional challenges that impact logistics. The foreign currency implications alone,
if not properly managed, could completely change the economics of a deal. Finally,
there is the timing consideration. With traditional Midcontinent operations, most
production in a given month could expect to be settled and paid for in the next month.
When utilizing crude oil tankers (which, aside from their long journey times and
multiple destinations), the process can take several days to load and unload at each
destination, one might not receive payment for two to three months or more after
production. This, in turn, makes credit even more important in determining where
the crude is delivered.
A MODERN SOFTWARE SOLUTION IS CRITICAL IN BUILDING YOUR PUZZLE
There is no doubt that putting together the puzzle of Midcontinent crude oil logistics
exports is extremely challenging. Logistics in the Midcontinent is significantly different
than it was just five years ago, and we are only seeing the beginning of the changes
that will be brought about by the exporting of US crude oil. Yet, as frustrating and
challenging as the management of the logistics can be, it is critical to do so because
of its large financial impact.
Thanks to a heavy reliance on trucking, Midcontinent logistics costs can be $5,
$10, or more per barrel. Vessels will only raise these costs further. With logistics costs
of $10 per barrel, even a 5% improvement could yield $0.50 or more per barrel of cost
savings. Even at very low export volumes, say 250,000 barrels a month, could save a
producer or marketer $1.5 million a year. (See Figure 3.)
A comprehensive and adaptable CTRM solution for tracking, evaluating, and
managing logistics is essential to handling crude oil exports. It is important to be able
to evaluate multiple origin/destination combinations using multiple movement legs
with multiple transportation methods. This capability is required to be able to effec-
tively track and manage the exporting of
crude oil from the Midcontinent. In fact,
these types of software solutions are nec-
essary to properly evaluate export op-
portunities and determine possible ex-
port logistics costs and the P&L impacts
of the export strategy.
Similarly, when exporting crude oil, it
is critical for the CTRM to be comprehensive and capable of considering international options. Capabilities such as
handling vessel expenses in multiple
currencies, calculating international taxes, and calculating the best hedge for the
volumes being transported become very
important in making such endeavors
Finally, the CTRM solution should be
flexible and adaptable. As the last decade
has shown, the crude oil business can
change significantly. The most adaptable
systems can implement new products
and functionality in a few days or weeks,
even when utilizing company resources
to do so, and can be tailored to precisely
meet one business model. Having such
a solution to facilitate logistics operations
can enable Midcontinent companies to
effectively capitalize on these new export
opportunities and realize higher margins
from more efficient logistics operations.
ABOUT THE AUTHOR
Richard Murphy is the product manager for crude oil
and refined products at Allegro Development Corp., a
provider of commodity trading and risk management
(CTRM) software. After four years as an
ICBM missile launch officer, he has spent
25 years helping companies solve strategic, tactical, and technological problems.
Some 17 of those years were spent solving
problems at 40 different energy companies. For the last eight years, his major
focus has been utilizing technology to
better manage crude oil logistics. Murphy
has a BSBA in finance and banking from
the University of Missouri and an MPA
from the University of Wyoming.