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Where the Rubber Hits the Road: How New Fuel Efficiency and Environment Rules Are Impacting Trucking Operations for Pallet Companies
Fuel Efficiency Standards: A detailed look at how fuel efficiency standards are impact the pallet industry and would it could mean for your business. Firms from around the country share their insights with a particular emphasis on California regulations.
By Rick LeBlanc
Date Posted: 1/1/2015
Fuel Efficiency Standards
A detailed look at how fuel efficiency standards are impact the pallet industry and would it could mean for your business. Firms from around the country share their insights.
New fuel efficiency and emission standards come with lofty ideals aimed at transforming the nation’s trucking fleets. The goal is to combat global warming, improve air quality, reduce reliance on foreign oil dependence, and cut the costs of logistics through improved mileage efficiency.
Closer to home, those well-intentioned geopolitical and environmental initiatives trickle down to pallet and wood product companies and can have negative effects on their viability.
Lawmakers have targeted heavy-duty trucks and buses because they are a source of considerable pollutants and concern with regard to a company’s carbon footprint. In 2010 heavy-duty trucks generated 23% of all transportation-related greenhouse gases, while accounting for less than 5% of total vehicles on the road. With this in mind, the Obama administration issued its directive in August 2011 establishing a new fuel efficiency targets for heavy-duty trucks. This rule effect in January 2014 and extends through to the end of 2018.
“The Heavy-Duty National Program will reduce fuel use and GHG emissions from medium- and heavy-duty vehicles, from semi-trucks to the largest pickup trucks and vans, as well as all types and sizes of work trucks and buses in between,” stated a 2011 EPA announcement. “The program will enhance American competitiveness and job creation, improve energy security, benefit consumers and businesses by reducing costs for transporting goods, and spur growth in the clean energy sector.”
In a nutshell, the national program applies more rigorous standards for heavy-duty vehicles beginning with 2014. The compliance costs, according to EPA, will add around $6,200 to the price of a new vehicle. According to the agency, with its increased fuel economy, the truck should generate net savings of $73,000 over its useful life.
Such increases are deterring some small operators from purchasing new trucks, which already have already increased some $21,000 resulting from EPA mandates during the 2004 to 2010 period, according to the American Trucking Associations.
Some trucker advocates argue that such policy is deterring many operators from buying more efficient new trucks and as a result is contributing to environmental degradation rather than helping. In reality though overall truck sales as of October 2014 was running 20% higher than 2013 year-to-date numbers, which suggests that an improved economy and improved mileage are winning converts. Now, the EPA and National Highway Traffic Safety Administration (NHTSA) are looking to extend this program to the years beyond 2018.
California Hit Hard at the State Level
While the national policy addresses requirements for new trucks, California’s truck and bus regulation goes a step further by requiring the retirement of old trucks and retrofitting of existing trucks in order to comply. In the face of such requirements, opposition from truckers has been most vocal in that state, especially from smaller operations and independent operators.
“Being forced to get rid of perfectly good trucks (which can’t be sold by the way) and purchase used trucks at $80,000 to $90,000 each has prevented us from doing things that actually improve productivity,” commented Wayne Randall, president of Modesto, California-based United Pallet Services.
Explaining how the California regulation has impacted his company, Randall said, “This burden is tough enough, but combine it with the increase in freight on lumber prices due to the fact that no truck is allowed to enter California that is not in compliance with AB32 (state emissions Assembly Bill), and it’s a twofold hit on our cash flow.”
Wayne continued, “AB32 is causing many freight companies to refuse to come to this state which represents about a $40 per thousand board feet increase on lumber we purchase from out of state, which has been hard to pass on to our customers.”
Elsewhere around the country, federal standards have deterred companies from purchasing new trucks. In addition to higher cost, technologies aimed at improving the environmental performance of engines have resulted in reliability issues.
Decreased reliability was said to be an issue for model years 2007 to 2009, according to Dale Lemmons, president of Interstate Wood Products, Inc., a Kelso, Washington-based wood hauling company that operates across Washington and Oregon.
Dale is currently shopping for four new trucks at approximately $135,000 each, as compared to around $50,000 each for five year old units. While his trucking business does not enter California and is not subject to California regulations, a bus company that Dale also runs does travel into California and has been impacted, where it must run 2008 or newer buses into that state.
Truck Mileage Differences Between Recyclers and New Pallet Operations May Play a Role
In the Eastern United States, emission and fuel economy have had limited impact on pallet recyclers, according to new research undertaken by First Alliance Logistics Management (FALM), which it shared with Pallet Enterprise. FALM of Charlotte, North Carolina works with local recyclers across the country to help them offer a national service presence for their local accounts, as well as other collaboration opportunities, explained Glenn Merritt, FALM president and CEO.
In a survey of new and recycled pallet operations in the Eastern United States, the company concluded that recyclers, who generally operate in more local service areas and run fewer miles on their tractors, tend to favor older equipment.
One New England recycler stated in the FALM survey that they own all of their trucks, which are model year 2003 or older. They are aware of regulations but do not have to comply because of owning older equipment, and noted that they are also concerned about aftermarket devices and fuel additives, as well as associated “glitches” which are expensive to fix. The company understands, however, that these problems now seem to be resolved, or at least improved a great deal, according to acquaintances that must comply.
The New England pallet recycler noted that pallet recyclers typically operate with older model tractors and trailers. Because they are considered to be the “trash haulers” of the industry, their customers don’t require new tractors. On the other hand, the recycler noted, new pallet manufacturers have more expensive pallets made from new lumber. Many customers have higher standards for new pallet operations demanding clean, new equipment. In addition, they also run more miles than recyclers as there are fewer new pallet manufacturers than used pallet dealers. If the fuel economy for each truck in the fleet increases due to the new regulations, new pallet manufacturers should expect savings in fuel costs due to the higher amount of miles traveled per year.
Another East Coast pallet recycler is aware of new fuel economy and emission regulations, and this is a reason why it purchases older equipment. From this company’s experience, it is much cheaper to buy and rebuild an engine that will run for 600,000 to 800,000 miles. Their small fleet runs 80,000-100,000 miles per year. From time to time this company has leased new model tractors while a truck was in the shop for repair, and it notes that the new models ended up breaking down on multiple occasions, with malfunctioning sensors being the source of the problem. In summary, this recycler feels that pallet companies do not need to own the new tractors since they stay fairly local and run very few miles.
A North Carolina recycling company interviewed by FALM runs older equipment and also is not required to comply with the EPA standard for 2014 or newer trucks. In the case of this recycler, most of the tractors were purchased just before the regulations came into play, and the company has not needed to buy anything newer, as it only puts about 25,000 miles per year on each tractor. Management of the company feels that pallet recyclers do not necessarily need to purchase new tractors due to the nature of the business and because used or rebuilt tractors will last several years.
The case of new pallet manufacturers, the study notes, may be different due to the extra miles typically logged by new pallet operations. And as stated earlier customer requirements for new pallets to be delivered in clean, new transport equipment make be a factor.
A new pallet manufacturer included in the survey is more open to the concept of buying compliant new trucks. The company plans to switch from manual transmission to automatic transmission new tractors. The new trucks will average seven miles per gallon (MPG) versus six MPG in existing manual transmission trucks. Given that the company’s fleet runs roughly 1,000,000 miles per year, it will see its annual fuel spend drop from $625,000 to $535,000, based on a $3.75 gallon. Net of a modest increase in truck costs, the new pallet manufacturer would save roughly $80,000 per tractor based on its registered fleet of nine trucks.
The First Alliance survey concludes that there is a strong relationship between mileage requirements of any company and its interest in new, more fuel efficient equipment.
Alternative Fuels and the Road Ahead
While the future looks promising in terms of increased fuel economy of new trucks, there may be additional pressures for operators of older equipment to upgrade. Dale Lemons of Interstate Wood Products, for example, notes that Washington, Oregon and California have been in discussion with respect to joint initiatives such as introducing a carbon cap-and-trade into the Northwest states, or the introduction of a carbon tax that could range somewhere between $0.05 and $1.07 per gallon.
Given that trucks equipped with the latest engines can achieve as much as nine MPG versus today’s typical average of 5.8 MPG, carbon taxes or other pressures may provide additional incentives for companies to upgrade to new equipment.
Biodiesel has already made significant inroads into the fuel market. The state of Washington, Oregon, Pennsylvania, Massachusetts, New Mexico and Louisiana already having passed biodiesel mandates requiring 2-5% biodiesel content, according to Crimson Renewal Energy, LP. Meanwhile, New York, Illinois, Iowa and Tennessee offer excise tax waivers or credits for biodiesel usage, while California’s low carbon fuel standard will also drive demand for biodiesel. New trucks can run up to 20% biodiesel without modification.
Another option being exercised by some is compressed natural gas (CNG). For example, Progressive Waste Solutions, a trash hauler, announced its intention in 2013 to convert more of its fleet to CNG, and has subsequently purchased about 250 new CNG vehicles since that time for its U.S. and Canadian operations, giving it a total of roughly 400 CNG vehicles, or 10% of its fleet. The company plans to be 18 – 20% CNG vehicles by 2019. While the CNG vehicles cost 15% more than conventional diesel, Progressive Waste Solutions feel that they are a good investment in that natural gas has historically been 25-50% cheaper than diesel, while reducing carbon footprint more than 20% versus older diesel trucks.
Driver Shortage Still the Number One Problem
And while fuel economy and emission standards continue to change the playing field, Dale Lemmons stresses that the number one challenge for his company remains driver retention. For the trucking industry overall, pay levels have been inadequate to hold onto drivers in this demanding profession, which puts a constraint on industry capacity and the ability to service customers, including wood products industries. There are recent signals, however, that driver pay may be inching upward, which should remove some of the pressure. As fuel costs continue to drop, some carriers are using this as an opportunity to raise their rates at a time when it is offset by reduced fuel surcharges to customers.
Longer term, technology leaders continue to chase lofty goals. For example, the SuperTruck program, partially funded by the U.S. Department of Energy with participation of major truck manufacturers, was launched to develop the next generation of tractor-trailers. A demonstration vehicle is achieving 10 MPG in real world conditions. And even further down the road, driverless vehicles are being looked at as an option.
A recent paper by logistics giant DHL points out that driverless vehicles have long been used within warehouses and factories, and increasingly are used in outdoor vehicles, such as trucks working at mines. The company says that it continues to monitor developments closely, and wishes to hold a “pole position” on the technology as it becomes available for truck transport.
For now, however, aside from California, recyclers continue to be largely reliant on older equipment. New pallet companies that tend to log more mileage will be quicker to embrace new trucks. How the introduction of carbon taxes and other initiatives change the equation remains to be seen.
In spite of challenges associated with environmental requirements, Dale reiterates that the largest challenge for his company is driver retention. His key message to pallet companies is to partner with their carriers. “The cheapest guy might not be there in a month or two,” he cautioned, as ever stricter regulations are implemented. “They may not have the dollars to upgrade.”