Back to #405 How Rockefeller Worked.
Why Did It Cost More to Ship Oil Than to Refine It?
David Senra says it cost more to ship a barrel of oil than to refine it. Transportation was the largest expense in refining, so Rockefeller treated freight as the highest priority.
Refining had almost no barrier to entry. It cost about $1,000 to start a refinery and only a few people to run it. He put the refinery next to a railroad and on a river so he could ship by rail or by boat. Shipping by water was 50% cheaper than shipping by rail. When freight is the top cost, the time goes into that cost, not into the refining step.
The site was the edge. A new refinery could choose the cheaper route instead of paying the rail rate on every barrel.
