An analysis of insurance claims within the petroleum industry reveals that there was a sharp increase in the number of claims for damage arising from fuel delivery errors during 2015, resulting in an increased incidence of product crossovers – commonly referred to as ‘shandys’.
“This issue was a significant problem for our industry several years back and we had thought that it was resolved”, said ACAPMA CEO Mark McKenzie.
Unfortunately, there was a sharp increase in product crossover incidents reporting during 2015.
Principal Broker of Arthur J Gallagher, Grant Stillman, advised that claims received by the Company for fuel delivery errors during 2015 were 50% higher than occurred in 2014.
“In fact, we had three operators who were averaging 5 to 10 of these errors per month which is clearly unacceptable”, said Grant
“We are very concerned that, after several years of highlighting this issue and working cooperatively with the industry to bring this issue under control, we have now seen a return to the bad old days of significant numbers of product cross over incidents”, Grant said
Significant financial and commercial costs
Fuel crossover errors come at a substantial cost to both fuel distribution and fuel retail businesses.
“The average cost of these claims is around $50k per incident which excludes the cost of claims for damage caused to customer cars”, Grant explained.
But the costs to the businesses involved – and the wider industry – extend well beyond the mere financial costs to include risk of both reputational and commercial damage.
“We are aware of recent cases where repeated instances of product crossover have actually resulted in the termination of the haulier’s commercial contract, said Grant.
When considered from the perspective of the fuel retailer, these problems can result in loss of repeat business owing to the fact that affected customers will generally lose confidence in the ability of the retailer to provide ‘clean’ fuel in the future.
“Given the increased use of social media by consumers, the impact may not simply be limited to the affected customers but could easily result in the retail site being publicised in in social media – potentially causing the business to miss out on future sales”, said Grant.
“Perhaps most importantly, however, is the fact that any failure of our industry to quickly reverse the level of incidents observed in 2015 risks a loss of consumer trust in our ability to supply the fuels that that they believe they are buying when they pull up at the pump”, said Mark McKenzie.
So what has gone wrong?
Grant Stillman suggests that an analysis of the claims relating to fuel crossover incidents during 2015 has revealed that these incidents are primarily attributable to two principal issues, namely:
a) general lack of familiarity with the specifics of an individual fuel site, and,
b) failure of the driver to follow basic procedures during the delivery process.
“We have noticed that a large proportion of these incidents basically boil down to the driver not being familiar with the specific retail fuel site, owing to the fact that either the driver is new to the business or the business itself has only been newly contracted to supply fuel”, said Grant.
In the case of driver’s not following basic procedures, this failure occurs as a result of a lack of care being taken or a lack of training – or a combination of the two.
“A worrying element of some of the cases involving a lack of due care by the driver is that some of these incidents appears to relate to unnecessarily tight delivery schedules or unforeseen delays that may have been created by traffic snarls”, said Grant
A way forward
“The good news in all of this is that we believe that these issues can be largely resolved – albeit requiring a renewed focus on fuel delivery procedures”, said Mark
“In the past, companies like Caltex used placards mounted on the tanker above the discharge valves to prompt the driver to make one final check before opening the valves”, said Grant.
In addition, some retail chains have used colour coding of both the filler caps and the discharge valves to make it easier for drivers to match the correct discharge valves with the correct fill points.
Changes to the structure of our industry in recent years, coupled with the generational change of staff in many petroleum organisations, suggests that we may need to revisit these simple practices in the near future.
To that end, ACAPMA will partner with Arthur J Gallagher and Convenience World to host a forum to discuss what cost-effective strategies can be put in place to address this issue.
“In the meantime, we urge fuel distributors to consider what steps that they might reasonably put in place to protect their business, their customer’s business and the interests of their customer’s customers”, said Mark
Grant Stillman is the Principal Broker of Arthur J Gallaher. Arthur J Gallagher is the third largest Insurance Broker in the world and the Australian operation is the leading provider of comprehensive and cost-effective insurance solutions for all businesses operating in the Australian petroleum industry. Further information can be obtained by visiting www.ajg.com.au.