COVID-19 Pushes Fuel Retail Sector through Supply-Demand CrisisBy Pedro Alcalá | Mon, 09/28/2020 - 09:43
Q: What role have you played as an association in organizing the industry’s response to the pandemic?
A: We determined the effects of COVID-19 on service stations by evaluating all of our members’ facilities and consulting local authorities to provide us with the appropriate measures and protocols. We also contacted the authorities in Latin American countries that were days or weeks ahead of Mexico in their response to pandemic emergency measures. This allowed us to get our collaborators up to speed on the relevant procedures and also to make PPE available to them before March 30th. We had to make sure that our members could offer a safe service, given that our activity was going to be designated as essential. Without our services the country loses its mobility and it could not afford that. We played an important role because we implemented the necessary protocols in a timely manner and contributed to making the industry’s customers feel safe while interacting with us.
We also developed new skills and competencies among our current and potential members in the sector, so that international best practices could be enforced by all of them. To this end, we organized a series of training webinars that were so successful that we have now expanded the platform to provide these to a broader number of participants, including businesspeople and service station managers. We have had to double the number of webinars to two a week to accomplish the goal of making sure that key decision-makers in our sector have the competencies and tools they need. Our communication and coordination with both the public and private sectors have helped us achieve these goals and also provided the necessary support for service stations. In Mexico, approximately 70 percent of service stations are owned or managed by SMEs that are going through a complex situation due to COVID-19, so our support as an association is very important to them.
Q: How has the crisis impacted business volumes among your member companies?
A: We had a chance to evaluate how service stations in other countries have been reacting to the pandemic. As a result, we were able to project a 60 percent contraction in our sales volumes. This meant that we needed to take a close look at our budgets and expenses to see which fixed costs we could turn into variable costs. We now know what the overall effects of the pandemic have been, particularly the deepening of the oil surplus crisis and the resulting decrease in the price of fuels and other oil-derived commodities. We also now have a clear view of the overstock in terms of global storage amid lower demand. We will see a 62 percent decrease in our business volumes at a national level in Mexico. By “volume” I mean commodity volumes; in terms of actual revenue, that decrease ended up totaling 70 percent due lower prices. As a consequence, over 30 percent of Mexico’s service stations have been operating under restricted cash flow. This means they operated at a loss and their profitability was at risk. We managed to evade major layoffs in our sector.
Q: What support have you received from entities in the public and financial sectors?
A: Service stations approached financial institutions to reprogram relevant payment calendars over three months. This was achieved thanks to a joint effort with other industry associations and chambers in the banking sector. We also approached fintech companies to temporarily renegotiate the conditions of their agreements with the retail fuel sector. These institutions reduced or suspended their commission charges to clients in the retail fuel sector throughout the duration of the pandemic. We also worked with SE, PROFECO and NOM to establish feasible deadlines for the implementation of the necessary changes in retail spaces to comply with sanitary measures. We negotiated those deadlines so that the investments they represent could be made by our members in a sustainable manner that does not stress their relationships with their suppliers.
Q: How are you addressing the industry’s development needs in terms of storage, supply and availability?
A: During 2H20, we will be implementing new storage policies that will contribute significantly to Mexico’s energy stability, along with creating a series of incentives for the development of new efficiencies. These new policies will require that all companies involved in the commercialization of fuels are able to have access to five days of strategic storage capacity in addition to its operational storage capacity. Each company will calculate what the five-day total will be based on its average sales volumes from November 2019 to May 2020. This requirement will generate an interesting new dynamic in the storage and distribution sector, in addition to its impact on sellers. It will maintain and heighten the need for infrastructural development. It will accelerate the development of existing projects in this segment and further incentivize the organization of new ones. In this sense, we also have to recognize that CRE has kept up with permitting demands so far, thanks to our channels of communication with them and other regulators.
Organización Nacional de Expendedores de Petróleo (ONEXPO) is the largest Mexican association of fuel companies, responsible for representing the industry in its interactions with the government.