Oil Distribution (Heavy & Finished Oil)
Wholesale Distribution of Finished Oil and Heavy Oil Products
Oil Distribution
We wholesale a variety of oil products including gasoline, diesel, and heavy oil. Gasoline and diesel represent the majority of oil products consumed in China due to automobile and truck usage. Diesel is also used in agricultural farming machines and power generation. Heavy oil is for further refinery into finished oil products, and also broadly used as fuel for ship boilers, industrial furnaces and heating purposes. Wholesale distribution of finished oil and heavy oil products accounted for approximately 67.6% of our total sales in 2009, and approximately 66.3% of our total sales in 2008.
We purchased approximately 65.5% of our gasoline and diesel oil products from our top five suppliers in 2009. During 2009, we purchased approximately 30.8% of our gasoline and diesel oil products from Shaanxi Yanchang Group, the fourth largest oil company in China, with whom we have had a strong long-term relationship. While Shaanxi Yanchang Group supplies most of our gasoline and oil, we are actively seeking other sources as well.
Wholesale Oil Distribution Photo Gallery
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Oil Storage
We use four oil storage depots, which in the aggregate have the capacity to store approximately 59,000 m3 of oil products. Two of the state-owned depots are located on railways that provide us convenient access for distributing our products. We also have access to a 2.65-kilometer railway track connecting the oil storage depots located within our biodiesel production facility to the main railway in Tongchuan City, Shaanxi Province.
Oil Sales and Marketing
We have developed a stable sales network for our products in fourteen provinces and municipalities. We now employ thirty-six full-time salespersons, and as our business grows, we intend to further expand our network and develop more sales channels. For our wholesale distribution of finished and heavy oil, we will distribute to two additional provinces in the next eighteen months, adding additional salespersons and establishing more regional sales offices. We plan to increase our sales volume through enhancing our distribution footprint, and further penetrating our existing customer base and business territories.
Our Customers
We currently sell our finished oil and heavy oil products to regional distributors in China that supply to retail service stations, and directly to end users through our retail gas stations. We have adopted different terms for payment based upon the financial strength of the customer. For example, we have entered into agreements with PetroChina, SINOPEC, and other state-owned enterprises whereby we deliver products to agreed-upon locations, and these customers agree to pay us after delivery. However, we require partial pre-payment and cash on delivery from our customers that operate distributorships, or own and operate private gas stations, typically 10% to 15% of the total purchase price. We have not experienced any uncollectible accounts receivable or bad debt write-offs during the past three years.
In 2008 and 2009, our top five customers purchased approximately $49.3 million and $113.2 million of our products, representing approximately 22.8% and 39.1% of our sales during that period, respectively. China Petroleum and Chemical Corporation Chuanyu Trading Co., Ltd., our largest customer, accounted for approximately 26.6% of our sales in 2009.