Thursday, 16 August 2007
LPG all bottled up?
IT seems that the barriers to entry in the LPG bottled gas market are so high that smaller, new entrants have a tough row to hoe. One well-informed reader has commented thus:"...why on earth would an investor approve companies that they own shares in to buy items worth zero value to them only to hide them and not receive a return on such items? The problem with the "smaller new entry gas companies" is that they enter the market with a few thousand cylinders and expect to cover the entire market with them and get them back immediately. Little do they realise that they would need to invest in 100 000's of cylinders in order to sufficiently supply a small market let alone a large one like Gauteng, Natal or any major province in which they operate. All of the gas companies operate in the neighbouring states, so there would be no reason to pay tax at the border to move these cylinders....who is going to pay for these cylinders to be transported so far...the trucks cost a fortune...why waste time doing that...if these smaller companies want to compete on equal footing they need to invest...."He makes some good points. Any smaller new entry gas company have any different views?
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3 comments:
Actually Spigot, you are right on the button though you probably don't know how. The way it works is this: A large bottled gas supplier's distributor (it has to be a large one to do this) fills up a targeted competitor's gas bottles with its own gas -- say in Cape Town -- and ships the bottles out to Springbok, using the cheap transport of sheep trucks that have delivered their sheep to the Cape Town abattoirs and would otherwise head home empty. This effectively ties up the competitor's gas bottles. The resultant shortage of gas cylinders in Cape Town makes selling bottled gas that much more difficult. The larger competitor can usually cope with this, although with difficulty, but the smaller guy has a tougher time. End result, less competition. Clever. By using a distributor, the whole boondoggle cannot be traced to the large gas company. Mind you, rumour has it that three of the oil/gas majors are investigating a fourth for "migrating their cylinders."
Amazing to see all the industry insiders haning out the dirty linen. Spigot this is an achievement. Well done
I think that we have always known that the LPG industry is somewhere between a cartel and a monopoly and it that keeps prices and profits higher than nearly any where else in the world. It is interesting so see how they compete stealing each others bottles rather than on price and service.
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