October 31, 2005
The oil man cometh | Jamie Py of the Maine Oil Dealers Association on how high heating oil prices will affect the industry
By Miriam S. Powell
"So, what's going to happen with oil prices this winter?"
To Jamie Py's credit, he tolerates this oft-repeated question with patience and humor, despite the fact that everyone wants him to come up with a definitive forecast on what is a complicated issue. Py, 43, joined the Maine Oil Dealers Association as legal counsel in 1995 and was named president in 2003. In that role, he is frequently called upon by the media and the Legislature to predict pricing trends and the anticipated effect on the state's dealers. "Unfortunately, I think there are a lot of people out there who are going to have to make some tough choices," he says of consumers' options this winter. "Hopefully the federal government will respond with increased money for [the Low Income Home Energy Assistance Program], and folks are going to take conservation seriously."
In Maine ˆ where more than 476,000 households heat with oil ˆ consumers' worries quickly become problems for the oil dealers Py's Brunswick-based organization represents. He points out that local oil companies have been working since last spring to promote their programs ˆ pre-buying, budget payments or price-cap options ˆ so that consumers won't be caught short if the recent market volatility continues. While many programs required a lock-in earlier this year, Py says some dealers are still offering incentives even now.
Py's primary focus, he says, is how rising costs affect the more than 12,000 Mainers who make their living in this industry. "I think the problem for dealers this winter is going to be cash flow," he says. "As a dealer, you have to pay the supplier immediately, and then your customers are in trouble trying to pay their bills, also. So you could have a situation where more cash is going out upfront, and less cash is coming in ˆ it takes longer for people to pay, so you could have a problem of being strapped in between."
He points out that local dealers ˆ most of whom run small, family-owned businesses ˆ are now distributing a product that may cost twice as much as it did last year, but their credit limits have likely not increased correspondingly. MODA is encouraging its members to work with their suppliers to increase credit lines. Py also recommends that they speak with their financial institutions about the nature of this business and what may be necessary to get through the winter unscathed.
In addition, says Py, Sen. Olympia Snowe, chair of the Small Business Committee, has proposed an amendment to the Small Business Administration Act that would make small businesses that distribute less than 10 million gallons annually eligible for SBA loan assistance. "You don't want small companies going out of business because of the cash flow situation," he says.
Meanwhile, Py reiterates that higher prices don't mean higher profits for his members, who range from giants such as Bangor-based Webber Energy, which has operations throughout the state, down to companies like Portland's Nice Fuel, which has just half-a-dozen employees. "In fact," he says, "they usually make less. They make cents per gallon, not a percentage. They don't make any money on the price going up."
Last year, says Py, local oil dealers saw about a five percent decrease in sales ˆ presumably due to conservation, as the weather was typical ˆ and he expects the trend to continue this year.
To keep prices as low as possible, he says, dealers follow a very methodical process, working with hedgers to determine when to purchase and how to price their incentive programs. These days, customer service is becoming the determining factor for consumers, with tight competition keeping oil pricing comparable across the board. "There's always going to be some guy with a used truck who thinks he can make some money ˆ pick up some product and try to sell it ˆ but once you get into distribution," he says, "people want programs and service."
To Jamie Py's credit, he tolerates this oft-repeated question with patience and humor, despite the fact that everyone wants him to come up with a definitive forecast on what is a complicated issue. Py, 43, joined the Maine Oil Dealers Association as legal counsel in 1995 and was named president in 2003. In that role, he is frequently called upon by the media and the Legislature to predict pricing trends and the anticipated effect on the state's dealers. "Unfortunately, I think there are a lot of people out there who are going to have to make some tough choices," he says of consumers' options this winter. "Hopefully the federal government will respond with increased money for [the Low Income Home Energy Assistance Program], and folks are going to take conservation seriously."
In Maine ˆ where more than 476,000 households heat with oil ˆ consumers' worries quickly become problems for the oil dealers Py's Brunswick-based organization represents. He points out that local oil companies have been working since last spring to promote their programs ˆ pre-buying, budget payments or price-cap options ˆ so that consumers won't be caught short if the recent market volatility continues. While many programs required a lock-in earlier this year, Py says some dealers are still offering incentives even now.
Py's primary focus, he says, is how rising costs affect the more than 12,000 Mainers who make their living in this industry. "I think the problem for dealers this winter is going to be cash flow," he says. "As a dealer, you have to pay the supplier immediately, and then your customers are in trouble trying to pay their bills, also. So you could have a situation where more cash is going out upfront, and less cash is coming in ˆ it takes longer for people to pay, so you could have a problem of being strapped in between."
He points out that local dealers ˆ most of whom run small, family-owned businesses ˆ are now distributing a product that may cost twice as much as it did last year, but their credit limits have likely not increased correspondingly. MODA is encouraging its members to work with their suppliers to increase credit lines. Py also recommends that they speak with their financial institutions about the nature of this business and what may be necessary to get through the winter unscathed.
In addition, says Py, Sen. Olympia Snowe, chair of the Small Business Committee, has proposed an amendment to the Small Business Administration Act that would make small businesses that distribute less than 10 million gallons annually eligible for SBA loan assistance. "You don't want small companies going out of business because of the cash flow situation," he says.
Meanwhile, Py reiterates that higher prices don't mean higher profits for his members, who range from giants such as Bangor-based Webber Energy, which has operations throughout the state, down to companies like Portland's Nice Fuel, which has just half-a-dozen employees. "In fact," he says, "they usually make less. They make cents per gallon, not a percentage. They don't make any money on the price going up."
Last year, says Py, local oil dealers saw about a five percent decrease in sales ˆ presumably due to conservation, as the weather was typical ˆ and he expects the trend to continue this year.
To keep prices as low as possible, he says, dealers follow a very methodical process, working with hedgers to determine when to purchase and how to price their incentive programs. These days, customer service is becoming the determining factor for consumers, with tight competition keeping oil pricing comparable across the board. "There's always going to be some guy with a used truck who thinks he can make some money ˆ pick up some product and try to sell it ˆ but once you get into distribution," he says, "people want programs and service."
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