Assets, Experience, Expertise: From Origin to Consumption

Change is the constant denominator in the fuel distribution business. From the introduction of ultra-low-sulfur diesel to demand growth and from industry consolidation to product proliferation-it's a lot for any one company to rein in. That's why biodiesel producers and consumers alike are searching for seamless integration through companies such as TransMontaigne.
By Dave Nilles | May 01, 2006
So many people think that by building a plant, they're in the fuel industry," says Mack Findley, biodiesel sales manager for Peter Cremer North America LP. "They're not. We're in the manufacturing industry."

That statement sums up a crucial axiom in the biodiesel industry. Just because one can produce quality biodiesel doesn't mean it's going to get sold. There is often a wide gulf between the producer and the potential consumer.

Enter TransMontaigne. With a growing infrastructure and an emphasis on quality, the Colorado-based company is bridging that gulf through its trademarked biodiesel supply chain platform, Navitus. While the program has taken time and effort to build, it's beginning to pay off. For TransMontaigne, it couldn't have come at a better time, coinciding with the explosive growth of the biodiesel industry.

"We believed it was the birth of a new segment of the supply chain, and that segment has critical needs for it to integrate with the refined product slate," says Rick Eaton, TransMontaigne's executive vice president of supply chain services. "Providing that integration, for a company like TransMontaigne, was a very logical choice."

Eaton says the company entered the biodiesel market because it presented an opportunity to be proactive and join an industry still in its infancy-or perhaps its youth. The company also felt biodiesel was compatible with its core competencies. The challenge is integrating that into the refined petroleum market. "You're really integrating the feedstock supply chain, biodiesel supply chain and a refined products supply chain," he says.

It's certainly easier said than done. "Initially, the real challenges were the concentration of biodiesel production capacity," Eaton says, explaining that the lack of infrastructure to get biodiesel out of its traditional agricultural stronghold and into larger fuel markets presented a daunting task.

"One of the things the biodiesel industry is facing in its development is the infrastructure piece of the business," says Gary Haer, soy products sales manager for West Central. "[Companies like TransMontaigne provide] the critical link between biodiesel production and the diesel consumer."

From Refinery Gate to Point of Consumption
Operating physical assets primarily east of the Mississippi River, TransMontaigne has prime access to the East Coast and Gulf Coast petroleum refinery infrastructure. Coupled with supply chain services spread nationwide, the company is a perfect gateway for biodiesel expansion.

Boiled down, TransMontaigne is a refined petroleum products marketing, distribution and supply chain management company. It manages the acquisition, distribution, transportation, price risk and administration of numerous refined petroleum products throughout the supply chain. TransMontaigne also owns, operates, builds and manages specific pipeline and terminal assets.

With all its petroleum industry experience, TransMontaigne was in a prime position to enter the biodiesel industry, or more appropriately, to oversee the biodiesel industry's entrance into the petroleum supply chain.

We were on a big learning curve," Eaton says. "That was part of the design. We wanted to get in and learn the functional requirements of the supply chain regarding the economics around the procurement market and distribution, blending, heating, handling and coproducts."

They've also needed to gain knowledge on the physical handling aspects of biodiesel, such as those concerning splash blending and line blending. The education should pay off with the introduction of ultra-low-sulfur diesel (ULSD). "Remember, all these changes in the supply chain, if it impacts distillates, it impacts biodiesel," Eaton says. "It is somewhat of a domino effect. The complexity of the refined product supply chain and its impact on tankage, storage and distribution has made the integration of biodiesel a more difficult task."

Quality Throughout the Supply Chain
BQ-9000 is a program well-suited to TransMontaigne's supply chain activities. The company holds high standards for any biodiesel entering its control. That's why it tends to work with BQ-9000 accredited biodiesel producers, such as West Central and Peter Cremer.

Findley and Haer see the relationship as mutually beneficial. "They see biodiesel as providing added value to their customer base, by bringing in a renewable, cleaner-burning fuel and making it available to their customers," Haer says. "It's a very exciting relationship we have with them."

Haer tells Biodiesel Magazine that West Central has been working with TransMontaigne for approximately 18 months. "It's a matter of taking production of biodiesel and tapping it into a developed infrastructure," he says. "That's not just the tanks, but a whole platform that provides value to that diesel fuel customer. That has been the real exciting part; our capability of taking production and having access to that." Eaton says the initial work with Peter Cremer and West Central allowed TransMontaigne to obtain quality product that allowed for consistent supply and benchmarking.

The next step is TransMontaigne's BQ-9000 Certified Marketer application, which is currently being reviewed by the National Biodiesel Accreditation Commission. It opens the door for the first vertically integrated BQ-9000 program.

"What it means for the supply chain in general, is sort of a vertically complete supply chain where the integrity of production can be documented through the supply chain," Eaton says. "It will accurately reflect what was contracted."

Eaton continues, "The BQ-9000 program is really a catalyst for biodiesel and its seamless integration. It's providing transparency to the quality of the supply chain for the consumer."

Mapping the Industry:
From Feedstock to Fuel Tank
TransMontaigne is not only interested in vertical integration from biodiesel production to consumer, but going a step above that. The company is also interested in integrating into the feedstock end of the equation. "As time goes on-maybe not so much today-a good core competency in feedstocks will play well longer-term," Eaton says. "We want a strong management capability with feedstocks so that we can manage the economic impact of feedstocks with producers."

For example, consumers may demand imported palm-oil-based biodiesel instead of railing in soy-based biodiesel from the Midwest. There is as much variation with production as with product quality when looking at specific feedstocks. It's something TransMontaigne is trying to stay on top of.

Eaton expects market segmentation based on feedstock sources to occur, to the point where it may be difficult to consider biodiesel a commodity. "We may see economic segmentation associated with feedstock product attributable to production and distribution channels," Eaton says. "That's why you have to be competent on the feedstock side."
Eaton believes the BQ-9000 documentation will help ensure that biodiesel produced from specific feedstocks will end up where it's supposed to. And while the biodiesel production supply chain can be chaotic at times, the supply chain biodiesel needs to integrate into is just as complex. "Obviously, consistent availability and consistent quality are going to be very key ingredients in that," Eaton says.

TransMontaigne conducted testing and underwent changes to manage the distribution of everything from pricing and inventory, to building and distribution components at the bulk and retail environment. Through this process, the company determined market development issues, how different demand profiles reacted and the nuances of profiling demand.
Technology constraints were also addressed, as were logistical distribution and physical assets. Once all of these components were combined, the Navitus program was born.
TransMontaigne worked on all these components so that whether it was dealing with a 10-gallon transaction or a barge load, the supply chain process was addressed "In a way, we were really trying to get an education in order to develop the process that would be in place as the industry ramped up and as the different quality of products emerged," Eaton says.

Finding a Path into Florida
An example of the payoff occurred when TransMontaigne turned on the south Florida valve for biodiesel by integrating biodiesel blends into one of its terminals in the Sunshine State. The company integrated B100 supplied by Peter Cremer into its 2,200-acre Port Everglades Coastal Fuels terminal in February 2005. The terminal has rack-blending capabilities, allowing TransMontaigne to offer blends ranging from B1 to B100.

"We were sort of at the forefront of that port facility," Eaton says. "We were able to test the physical assets, but also find out what the marketplace requirements and expectations for biodiesel were."

Water Taxi Inc. was one of the first users of that biodiesel. President Bob Beckhoff, whose company transports 365,000 people annually on the waterways surrounding Fort Lauderdale, says he encountered no problems using biodiesel.

"I think Florida will be a very good market," Eaton says. "Part of the premise of going down there is, we're optimistic about the potential in the marine industry."
However, Eaton warns, long-term success in the state and elsewhere will depend on a more diversified supply of biodiesel. Supply has been feast or famine in the state, which is limiting the amount of growth, he explains.

In Sync with Sysco

As the nation's largest foodservice company and owner of the country's largest private truck fleet, Sysco Corp. can't afford to take a chance on an unreliable fuel. That is why it requires BQ-9000 accredited biodiesel, which TransMontaigne has been more than happy to supply. Eaton says his company has been working with Sysco to develop a biodiesel usage program. TransMontaigne is already managing Sysco's fuel supply chain throughout the country. "We're mapping the incorporation of biodiesel into its supply chain in Florida and Minnesota," Eaton says.

According to Terry Taylor, Sysco's senior director of national purchasing, Sysco has been using B5 at four locations in approximately 400 vehicles. Taylor tells Biodiesel Magazine the company had no problems in Minnesota this past winter, where it has been using B5 for nine months.

Taylor says Sysco began using biodiesel for lubricity reasons in anticipation of ULSD, and to reduce the amount of imported fuel into the United States.

TransMontaigne helped test biodiesel and evaluate the long-term operability of the fuel in Sysco's fuel chain. Taylor said several of his company's other locations would like to move to biodiesel. It's just a matter of finding a consistent quality supply.

"We manage their distillate supply chain from product origination to distribution into their facilities on a nationwide basis-whether bulk tank facility, mobile refueling or retail-we provide the management of that process," Eaton says. "We manage their inventories and distribution requirements. It really is an accumulation of functionality, so they can focus on their core business."

TransMontaigne continues to partner with companies to get biodiesel into the marketplace. In late February New Jersey-based Able Energy Inc. signed an agreement with TransMontaigne, allowing Able to optimize its fuel supply chain, accelerating distribution of biodiesel and bioheat.

Able Energy and its five subsidiaries serve 30,000 customers in four East Coast states with home heating oil, diesel fuel and kerosene.

Eaton considers Able Energy a snapshot of the business TransMontaigne works with. "We were involved with them on the distillates side of the supply chain, so it was very easy to incorporate biodiesel into that," Eaton says. "They were interested in learning from their customer base."

A Merger in the Works
In late March, TransMontaigne announced it had entered into a merger agreement with Oklahoma-based SemGroup LP, a midstream service company providing diversified services for end-users and consumers of North America's crude oil, natural gas, natural gas liquids, refined products and asphalt. The deal was still being developed at press time. Upon completion of the merger, TransMontaigne will become a privately held company. SemGroup already ranks No. 9 on Forbes magazine's list of America's largest private companies.
Eaton says SemGroup's broad energy footprint will be an asset to TransMontaigne. "Overall, it brings us a strong energy footprint, broad energy structure and commitment, which will help facility supply chain growth," Eaton says.

Dave Nilles is a Biodiesel Magazine staff writer. Reach him at [email protected] or (701) 373-0636.
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