After being introduced to North America in 2009, Diesel Exhaust Fluid (DEF) is the second most consumed fluid today on a truck after diesel fuel.
It’s common for consumers to assume production, handling, delivery, and pricing of DEF is similar to diesel fuel.
Although both products are consumed by diesel equipment, DEF and diesel fuel are significantly different products. They share few similarities when it comes to manufacturing, sales, transport, storage, and usage.
In this article you will learn:
From the beginning stages of production, you can see DEF and Diesel have little in common:
Diesel fuel is derived from crude oil through a process called refining. Oil refineries are located throughout North America concentrated near the coast, inland waterways, and crude oil production sites.
Diesel Exhaust Fluid (DEF) is derived from urea where urea is further derived from natural gas or coal feed stocks through a chemical process.
The production and wholesale distribution of refined fuel products is a mature industry evolving over the last 100+ years and involves several integrated oil companies who operate approximately 95,000 miles of pipelines.
From the refining process diesel fuel passes through pipelines, bulk barges and/or railcars, ending up across the country in large bulk storage terminals. Lastly, the product is pumped into tanker trucks which make deliveries to gas stations, distributors, and remote locations.
A typical urea producer sells DEF to a limited number of large customers. DEF distribution utilizes a two-tier distribution strategy which helps urea producers manage their capacity and improve working capital.
Tier 1 distributors and national travel centers are the largest DEF customers for urea producers. A Tier 1 distributor receives bulk product (via rail or tank truck) and operates bulk DEF terminal/blending facilities and packaging plants. Tier 1 markets DEF to Tier 2 distributors and high-volume end users (including regional fleets and travel centers) in full railcar loads, tanker truck loads, or packaged good truckload quantities.
Tier 2 distributors are essential in the distribution channel, servicing local markets and the ‘last mile’ of delivery to end customers utilizing smaller bulk storage facilities and warehousing of DEF packaged goods.
There are typically three types of DEF distributors:
Third-party distributors are commonly utilized to move DEF from the plant to the tank. Since DEF is a chemical, companies transporting bulk chemicals have also expanded into delivering DEF. Many large diesel suppliers do not participate in DEF delivery since it’s an entirely different business and requires significant capital. Due to this reason, a fuel transporter who would like to enter into the DEF market would need to invest in new equipment.
There are higher initial equipment costs for companies delivering Diesel Exhaust Fluid. Examples of costs include stainless steel trailers which cost more to manufacture, have lower product capacity than lightweight aluminum bulk fuel trailers, and require a longer lead time to be manufactured. A diesel fuel transporter who would like to enter into the DEF market would need to invest in new equipment requiring significant capital.
Diesel Exahust Fluid (DEF) - DEF requires stainless steel for all equipment including tank trucks, since it's slightly corrosive.
Diesel fuel - Aluminum tank trucks are suitable for diesel fuel.
Diesel Exahust Fluid (DEF) - Customers require a variety of solutions varying from 2.5 gallon jugs to 5,000 gallon bulk loads depending on the demand at each site. For this reason, DEF is delivered in pre-packaged quantities including 2.5 gallon jugs, 55 gallon drums, and 330 gallon totes AND is also available in bulk quantities.
Diesel fuel - Diesel fuel is typically only sold and delivered in bulk quantities.
Diesel Exahust Fluid (DEF) - DEF product flow has logistical variability and is commonly converted into final product at the terminal. For this reason, consideration of lead time needs to be taken when estimating delivery to the customer.
Diesel fuel - Product is pulled directly from the pipeline, so there isn't a heavy logistical variability compared to DEF.
Diesel Exahust Fluid (DEF) - DEF is heavy in weight, which creates additional logistic costs.
Diesel fuel - Diesel fuel is lighter compared to DEF around 2 pounds per gallon.
Diesel fuel is a commodity traded on the New York Mercantile in a set minimum bulk quantity with a U.S. Gulf Coast or New York Harbor delivery to the highest bidder. Crude oil has a similar pricing structure but is based on global market demand and is affected by currency fluctuations.
Diesel fuel pricing at terminals is set with a local ‘rack’ price. Rack price typically refers to the sale of product in truckload volumes (totaling roughly 7,600 gallons) at a specific terminal location, and includes refinery to terminal transport and terminal storage costs. Taxes and final transport costs are in addition to the rack price.
Plus, diesel fuel pricing fluctuates seasonally based on the high use of light heating oil (similar to diesel fuel) during the winter months.
The agriculture market consumes the majority of urea production which is a commodity traded on the fertilizer exchange (NOLA) in barge quantities, FOB the port of New Orleans.
The price of urea fluctuates seasonally based on the time of year crop planting season occurs (typically in spring) and agricultural supply & demand. Urea producers also base urea pricing on:
Pricing will fluctuate if there is a product supply shortage or surplus of product. These factors provide producers with pricing flexibility based on global market demand. Ultimately, the goal of urea producers is to sell out capacity each month to obtain the highest profit possible.
We have been providing DEF solutions to customers, distributors, and dealerships in the North American trucking market since 2009. Our DEF caters to four DEF markets including Automotive, Trucking, Agriculture, and Off Road Applications (Construction, Mining, Marine, and Stationary Generators).
