Thank you.
Thank you very much for the opportunity to participate in this study on the fluctuation of gas prices. As mentioned, my name is Tricia Anderson and I'm president and CEO of CIPMA, the Canadian Independent Petroleum Marketers Association.
I'm joined today by two CIPMA board members. Allan MacEwen is our CIPMA board chairman. He is president of MacEwen Petroleum, a Canadian-owned and operated business for over 30 years, and one of the first marketers to provide ethanol-enhanced gasoline in Ontario. I'm also joined by Dave Collins, who is vice-president of Wilsons Fuel Company Limited based on Halifax. Wilsons Fuels has a long history in the fuel business, and has a retail gasoline network in all four provinces of Atlantic Canada.
High prices and dramatic fluctuations in the price of gasoline are issues of great concern to Canadians and to our members, who are essentially the largest customers of gasoline in Canada. CIPMA represents independent fuel marketers. These are independent business owners who buy their fuel mainly from Canadian refiners at wholesale prices, and then market their product and service offerings to Canadians at retail service stations. Independents are generally family-owned, multi-generational, small and medium-sized enterprises. They have built their representations by being solid local businesses that reinvest profits in their local communities and local economy.
CIPMA members account for approximately 22% of Canadian retail gasoline sales on an annual basis. Some brands you might recognize include Mr. Gas, UFA in the western provinces, Canadian Tire, Parkland Fuel, Pioneer, Can-Op, and McDougall Fuels.
Our members play a key role in the Canadian fuel marketplace. Independent fuel marketers bring healthy competition into what would otherwise be a one-dimensional retail gasoline market. Historically, independent marketers, through efficient operations, responsive tactics, and innovative product offerings, have moderated the price that Canadians pay at the pumps.
Our members do not manufacture or refine the products they sell. CIPMA members purchase gasoline from the limited number of gasoline refiners in Canada. Some of our larger members are purchasing petroleum products numerous times a day from locations across the province, or in some cases across the country.
While we recognize that the committee's focus is on the fluctuation of gas prices, it's important at this time to also consider the impact of the higher prices we have been experiencing over the last several months. They have had a deleterious impact on our members and their businesses.
It may be helpful to use an example. I've developed a chart that I'd be happy to distribute later. It looks at the various elements that go into the price of a litre of gasoline. For purposes of today's discussion I've used the Toronto market and June month-to-date pricing.
The month-to-date pricing based on Kent Marketing Services data is $1.28 a litre. Crude accounts for about 63.8¢ of that, and refining margins for 17.9¢, for a total of 81.7¢, or 64% of the total price going to the producer refinery. These elements of the retail price are completely out of the control of the independent marketer.
Federal excise taxes, GST/HST that includes a tax on a tax, and provincial taxes account for an additional 39.4¢ per litre, or 31% of the overall price. These elements, of course, increase as prices go up. These elements are also beyond the control of the independent marketer.
So far we've accounted for 95% of the $1.28 a litre. The final 7.1¢ per litre, which is around 5% of the total price, is the operating envelope for the independent marketer. Note that this number, which is known as the retail margin, has been around 7¢ per litre in the Toronto market for all of 2011. It has ranged between 4.5¢ and 7.4¢ per litre on average across Canada over the last six years. There has been very little movement on that front.
It's important to note that is a gross-margin number. From the 7¢ per litre, independent retailers need to finance the purchase of the land; build the site; pay property taxes; pay transportation costs for delivery of the fuel; pay for hiring, firing, compensating, and training of site-level and support staff; pay utilities; pay costs related to collecting AND remitting federal EXCISE and provincial road taxes; and pay for all other operating costs, including credit card fees.
Credit card fees are an area of particular concern for our members. Approximately 40% of our members' customers opt to pay by credit card. Credit card processing fees, which are in the area of 2%, rise with every increase in retail gas prices. High credit card costs, currently around 2.5¢ per litre--about 30% of the overall gross margin that our members are dealing with--significantly erode operating margin and profits for our independents during times of higher prices.
Other operating costs increase with higher fuel prices as well, such as fuel surcharges, which increase delivery costs. Convenience store sales, which are often an important contributor to the bottom line of independent petroleum marketers, also drop off as consumers feel their disposable incomes pinched.
Returning to the issue of gas price fluctuations, it is important to note that dramatic price swings significantly impact independent petroleum marketers. As mentioned earlier, our members are essentially the largest customers for gasoline in Canada. They are notified by their suppliers each day between 3 o'clock and 3:30 p.m. of the price for various fuels for the next day at the rack. This is known as “rack pricing”, which refers to the price at the loading rack.
Our members generally have supply contracts with a major refiner as a way to ensure reliable supply of product to meet their business needs. Upon receiving notice of gas prices for the next day, independent marketers determine their purchasing tactics.
Given storage and transportation limitations, our members do not have the flexibility to buy and store fuel when prices are low. That said, larger members will use some specific tactics to mitigate the impact of large price increases, incurring extra labour and transportation costs to secure product before a price increase, or running inventory levels extremely low and keeping drivers on standby to take advantage of announced rack price decreases.
The impact of significant price swings can dramatically affect the viability of our members' businesses, so they commit a tremendous amount of time and resources to deal with big price swings, which come with very short notice.
Dramatic price swings also impact our customer relationships. Although we are price-takers and only control the last 5% of the price, and we're responding to price levels that can change dramatically from day to day, customers take out their frustrations on our members and their staff on the front line. Our members experience an increase in hostile encounters with customers, reductions in important store sales, and an increase in fuel thefts, or gas-and-dash incidents.
We encourage the committee to carefully consider the challenging position of the independent petroleum marketer during this review. As stated earlier, CIPMA members play a key role in ensuring a competitive market for retail gas in Canada.
Our members believe in an open and competitive marketplace. We believe that a closer review of the wholesale marketplace, a review of tax policy related to gasoline, regulation of the credit card and interchange fees, and more public education on fuel prices can contribute to a healthier marketplace for consumers and for our members, the independent small and medium-sized Canadian fuel marketers who are key contributors to Canada and their local communities.
Thank you.