24 June 2014

Neste Oil's flexibility offers major benefits to customers


Customers consider flexibility to be one of Neste Oil's key properties. For example, Neste Oil is exceptionally flexible when customizing transport services – at both ends of the scale. Such agility does not come about by itself, and it can provide major savings to customers.

“Trade volumes in the global oil market are high, and the trade mostly culminates in logistics and capital commitment,” explains Sami Oja, Vice President at Neste Oil. Fuel is usually delivered by the shipload, and one shipload consists of several dozen tons of fuel. Plenty of capital is committed to each shipload: since one ton of fuel costs around $1,000, an entire shipload can easily cost tens of millions of euro.

The situation is made even more complicated by the fact that customers usually require several types of both gasoline and diesel. A customer may be forced to order each of the fuels they need as a separate shipload. Neste Oil aims to mitigate these challenges.

Flexible Just In Time deliveries

“We are able to customize our transports exceptionally flexibly at both ends of the scale,” Oja says. “We can deliver a small batch of 10,000 tons that includes varying volumes of three types of fuel. We can also deliver batches of only a few thousand tons if the transport distance is short.”

For customers, this means major savings in capital expenditure. They can order just the amounts of different gasoline and diesel types they need, which will all be delivered as a single JIT delivery. The customers need not reserve as much storage capacity for their fuel and the capital committed to their stock will be lower.

Oja says that such flexibility has become even more valuable since the beginning of the financial crisis now that funding is harder to come by and premiums in the loan market have increased.

Large deliveries are also possible

Customers have varying needs. Oja says that some customers want to order as large deliveries as possible. Neste Oil is able to serve these customers as well. “We are able to deliver 60,000 tons of gasoline to the UK or Continental Europe, for example. Our largest gasoline shipments to North America have been around 80,000 tons,” Oja says.

“Our scale is even larger in diesel fuels: our largest deliveries have been more than 100,000 tons.” Benefits from economies of scale also apply to such transports. The unit costs are lower.

Flexibility does not come about by itself

Sami Oja says that flexibility is not easy to achieve. “We have had to make changes and investments in our own product logistics to achieve the batch-specific customization of deliveries,” he says. Flexibility is even more challenging because of the large number of fuel types. “For example, in Finland we use three different seasonal diesel types: one for summer, one for winter and one for the times in between. In addition to these, there are the extreme types – arctic diesel and midsummer diesel.”

“Furthermore, the types of diesel used in the different markets vary: people in Sweden and the Baltic states do not use the same diesel types as people in Finland, and people in Central Europe use a different type altogether. In addition, vendors order special gasoline and diesel types to stand out among the competition. Flexible management of such diversity requires plenty of investments in logistics,” Oja explains. Furthermore, Neste Oil must always ensure that its deliveries are secure and the quality of its fuels is reliable.

Oja says that the investments have absolutely been worth it. Flexibility is among the top issues mentioned by customers in customer surveys time and time again. “People expect us to be flexible and value our flexibility,” Sami Oja says.