Start Diesel Distribution Business in Nigeria (THE COMPLETE GUIDE)
Diesel oil or Automated Gas Oil is a heavy petroleum fraction used as fuel in internal-combustion engine in which heat produced by the compression of air in the cylinder is used to ignite the fuel. The diesel supply business involves the procurement, storage and distribution (supply) of diesel to entities (organization, complex, manufacturing companies, tank farms, educational institutions, hospitals etc.) that require a secure and sturdy supply of diesel.
Currently in Nigeria, the diesel supply business is broadly divide into two operations.
- Supply to end users: This deals with the supply of diesel to organization like mall, hospitals, manufacturing companies and other users that don’t tend to store for transfer or re-selling. It has a higher margin of return on investment than the other mode of These group of organization need a steady supply of diesel to run especially because of the sporadic power supply. They typically can’t make payment in advance so they register with organizations that supply diesel as a regular diesel deliveries. The supplier then procure from depot, up the price for a reasonable gain (5% to 20% of market price) and then supply to the clients.
- Supply to storage units: The storage units are companies that stores diesel for distribution or transfer e.g. tank Storage unit regularly require diesel in large quantity, so the operation is mostly done with tanker vessels. Because this deals with importing diesel to tank farms, the services of procurement officers, brokers and seller mandates are employed for the identification of the tank farms that needed to be supplied for a one time supplement or a regular supply for a contract period. The unit profit is very low compared to the first mode but since the volume of the supply is much more higher, the gain is relatively high.
A case for study: an end user supplier can supply say #100 million worth of diesel gaining 20% (#20 million ) in a period while a storage unit supplier can supply to tank farm 5 million liters at a profit of #5per liter thereby gaining #25 million during roughly same period.
Oil business is a capital intensive venture pulling millions of naira to start though with a very high gain and return on capital.
Diesel broker: This package comes with the benefit of a low capital for starting up. A diesel broker is an agent that sources the entities, businesses and organization are in need of diesel supply and associates them with diesel suppliers who will supply them, for a commission from the supplier. The commission ranges from 50kobo to 5 naira per liter depending on the parties involved. All that is required of a diesel broker to function is the ability to build valuable links between both the supplier and the client, following up every supply, you as a broker do not essentially need an office
The easiest way to find and know organization that have immediate need for diesel supply is to visit those organization and advertise to them, meeting with the procurement department or officer, and submitting your company profile to the officer. Another mode is the referral program whereby clients or friends refer you to others.
To find diesel suppliers in Nigeria that you can trade for, you could have a friend introduce you to a supplier, or find in adverts, diesel supply companies that needed agents or you locate the suppliers to advertise your brokerage service to know if they welcome the idea for their business.
It is to be noted that apart from the dealer who first gets a quote from the diesel supplier before laying out a final price to the buyer, there is a standard way the facilitator’s commission are calculated; it is widely used in the most countries. A broker could still get a quote from the diesel supplier to get additional gain without truncating the final regulated price.
Handling a tank farm supply, you would have the diesel seller and the diesel buyer to sign a sales and purchasing agreement (SPA) to protect your interest protection in diesel supply. This contract will have the banking coordinates of all parties involved and their transactional relationship so that when the buyer pats for the diesel supplied, all parties in the contract will be paid.
Basic steps to start supplying in Nigeria
- Find a diesel supplier, and get quote from the supplier
- Find a diesel buyer: organizations, tank farms that need the services of a diesel supplier
- Broker a deal: make deals to enable
Now as a broker, there is need for expansion, to do this you’ll need to acquire tankers to afford you the opportunity to fulfil most of the orders yourself and increase your gains.
Diesel Supply Company: one way is growing through diesel brokerage to supplier level, another is a stating big. Diesel supply company setup is capital intensive, which require deliberate planning, pooling cash, hard work and commitment.
Basic steps to start diesel supply:
- Research: It is critical to study thoroughly the venture, carry out researches, perform feasibility studies, location sampling, study of supplier, competitors, buyers and other parties in the same Study to see the areas to improve on, areas to avoid, and know the driving force in this venture. It is also appropriate to carry out a PEST analysis.
- Register: The organization must be registered to open a business account for transaction and to enjoy the benefit of obtaining license and permits for your supply
- Business plan: Make a business plan to make certain you follow the plan and check the progress of your The business plan takes into account the investment you pour in the business and the current state of the investment. It helps set and adjust goals, budgets, plans and helps to avoid or correct unforeseen circumstance.
- Capital: You would have invested in the purchase of the product (diesel) before you supply your clients, so you’ll need capital to do As stated before, it’s capital intensive and clients usually don’t pay up front. Thought if there is a struggle to come up with enough cash needed, oil and gas factoring is one of the easiest and fastest financial solution for your business to secure funds.
- Acquisition: you’ll need to acquire a supply tanker depending on the size of your It might be a truck tanker of any size (11,000 liters to 55,000liters (Nigeria), or a vessel tanker). It’s not possible to run a supply without at least one tanker. This allows you to supply client easier and faster as the number of clients increase. You should also own a storage unit so to improve your service, reduce delays and avoid disappointments. Acquire an office space so you can run administrative work and operate. Office space also improve your chances of big deals and helps your business to grow.
- Marketing: having the infrastructure and the products alone will not make money for you if you couldn’t make sales, so the need of Advertise your supply, get brokers and sell to clients.
Diesel supply is a profitable business in sense that the product diesel is the most economic product of petroleum. It is less volatile and easier to manage compared to petrol. We also know the quality of the power supply in Nigeria, so most reputable organization utilizes giant diesel generator to complement power supply. These generators consume diesel and thereby creating market for you.
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