Natural Gas Usage in Trucking Sector on the Rise

Stephen DeAngelis

July 26, 2012

In previous posts, I have discussed the fact that trucking rates are likely to rise due to a number of factors, including rising fuel costs, driver shortages, and limited capacity. Bob Ferrari notes that there is likely to be added pressure on limited trailer capacity as shippers switch from air freight to ground shipments. “FedEx is confirming,” he writes, “that the airport-to-airport transport model is in decline, that suppliers, manufacturers and retailers are opting for less costly methods of transportation for movement of components and finished goods.” [“FedEx’s Industry Shift Prediction: Be Aware and Plan Accordingly,” Supply Chain Matters, 22 June 2012] Ferrari continues:

“What is clear is that other forms of less costly transportation are on the rise.  The FedEx Ground business experienced an average daily package volume increase of 3 percent, driven by more consumers ordering goods online. FedEx Freight segment reported a 4 percent quarterly increase in daily LTL (less-than-truckload) shipment volume. Readers might recall that LTL was not so long ago described as a declining business. Broader transportation industry data also reinforces a shift toward ground, rail and ocean container transportation options.”

As I noted in a post entitled The State of U.S. Logistics, intermodal transportation looks to have bright future in the U.S. This is highlighted by the fact that trucking companies have been acquiring intermodal chassis and trailers in rising numbers.

 

Dan Gilmore, Editor-in-Chief of Supply Chain Digest, adds another factor affecting the cost of trucking rates — the rising cost of Class 8 trucks. [“State of the Logistics Union 2012,” 14 June 2012] He writes:

“Rising new Class 8 truck prices are impacting how carriers think about their fleets, and contributing to asset discipline. New trucks today are 30% or more above the costs of just a few years ago, meaning more existing vehicles need to be sold relative to new buys. Even though new truck sales have been relatively strong, even more are being sold off, mostly to foreign markets, keeping the nation’s overall fleet status flat or lower.”

Among the factors increasing trucking rates, perhaps none has been given more attention than rising fuel prices. That has resulted in more companies looking at natural gas as an alternative to diesel fuel. “Over the next five years, writes Sandeep Kar, global director of commercial vehicle research for Frost & Sullivan’s Automotive & Transportation business, “the natural gas heavy duty commercial vehicle market is set to experience rapid growth in North America.” [“What’s going on with the natural gas truck market?Vehicle Service Pros, 13 June 2012] Kar continues:

“As diesel fuel prices remain above the $3.50 per gallon range due to tight supplies, increasing global demand and political unrest, considerable interest has grown surrounding the potential for the use of natural gas as a vehicle fuel source. The development of natural gas engines for commercial vehicles has been occurring in small progressive steps over the past two decades and has finally reached a level of quality whereby they are comparatively reliable options. Given the low cost of natural gas in America, it offers a very high competitive price advantage over diesel fuel. Frost & Sullivan’s recently released study titled Strategic Analysis of the North American Class 6-8 Natural Gas Truck Market reveals that by 2017, approximately 8 percent of new North American Class 6 through 8 commercial vehicles will be natural gas-powered, approaching annual sales of approximately 35,000 units.”

Kar’s data underscores the fact that natural gas-powered trucks are still relatively rare and will remain relatively rare in five years. Nevertheless, the number of natural gas-powered commercial vehicles is growing despite the increased cost of such vehicles. “Often,” writes Jeffrey Ball, “buyers of these natural-gas trucks have received government subsidies that have helped defray the higher purchase price.” [“Natural-Gas Trucks Face Long Haul,” Wall Street Journal, 17 May 2011] Such subsidies are not likely to continue in today’s fiscal environment. That means that a business case must be made for switching to natural gas. Kar believes such a case will be made. He continues:

“The market for natural gas trucks was initially targeted to applications at port facilities, as well as select refuse fleets. Part of the attraction for refuse fleets moving to natural gas is the prospect of fueling from landfill gas stations built on landfills that they deliver to. This not only ensured a significant fuel price savings, but also the ability to refuel on-site as part of the daily duty cycle. Frost & Sullivan projects that natural gas refuse trucks could approach a 50 percent share of new refuse vehicle sales by 2017. Many of the port facility vehicle purchases were made possible through government subsidies and grants which helped OEMs and engine makers run trials on this new technology. As a result of the support provided by these two industries, the technology has now been proven robust enough to be adapted and put into service on regional over-the-road delivery trucks. These vehicles are the segment that will derive the greatest growth over the coming years.”

Kar reports that “all major North American OEMs are likely to offer their own in-house engine platforms” in the years ahead. He goes on to note that “Frost & Sullivan believes that [Paccar’s] early mover advantage, along with the variety of vehicle platforms offered, will see Paccar continue as the market leader throughout the forecast period.” Among other things, “Paccar has taken the early market lead in natural gas trucks, offering numerous Peterbilt and Kenworth trucks with the Cummins Westport ISL-G 8.9L engine. As well, Paccar stands alone as the only OEM to integrate the Westport HD 15L engine into its truck line-up.” He continues:

“Daimler Trucks North America has also been successful in integrating the Cummins Westport ISL-G into its Freightliner product line and is expanding the range of options. Cummins Westport is in the trials phase of the ISX-G 11.9L engine which is likely to garner large sales, and Freightliner will leverage the engine heavily to increase sales in this market. Navistar recently announced availability of Cummins Westport ISL-G engines in its vehicle platforms, such as WorkStar and TranStar. Navistar is also expected to introduce natural gas-powered versions of key models, such as ProStar and WorkStar, based on MaxxForce 13L engine platform. Mack Trucks have been available with the Cummins Westport ISL-G for a few years, mainly for refuse and other select vocational applications. Recently, Volvo Trucks began offering VN series day cabs with the ISL-G engine. Both Volvo and Mack are likely to rapidly integrate the Cummins Westport ISX-G.”

Kar reports that Volvo has also developed “a dual-fuel compression ignition engine option which uses a diesel and natural gas mixture of approximately 30 percent and 70 percent respectively.” Kar next turns his attention to a topic that is critical to increasing natural gas usage — infrastructure. He writes:

“Clean Energy Fuels is rapidly emerging as the market leader in fueling station infrastructure. It recently formed a partnership with Pilot/Flying J for fueling station expansion targeted at the long-haul sector. Moreover, Clean Energy has launched a co-financing program with Navistar to help fleets purchase natural gas vehicles, and this is expected to benefit both companies. Ultimately, the success of natural gas-powered vehicles will depend on the rate of the expansion of the fueling network upon which these vehicles depend. At present, the majority of fueling stations are ‘return-to-depot’ models which are not open to the public.”

The editorial staff at The Green Supply Chain reports that Shell has “announced plans to develop natural gas filling stations at some 100 Travel Centers of America truck stops.” [“Announcements Last Week Show Momentum Behind Natural Gas Powered Trucks is Building,” 19 June 2012] The article continues:

“Travel Centers, based near Cleveland, announced that it had entered into an agreement with Shell to build and operate a network of at least 200 liquified natural gas (LNG) fueling stations at 100 or more Travel Centers locations on U.S. interstate highways. Thereafter, expansion will be based upon customer demand for the fuel, Travel Centers said. Travel Centers said it also will train ‘a significant number’ of its approximately 3,000 repair technicians to work on LNG vehicles. ‘The locations will be jointly selected by TA and Shell with the intention of creating the infrastructure required to allow natural gas powered trucks to travel across the United States,’ a press release from the company said. Travel Centers has 238 locations, almost all along major interstates across the country. They are especially concentrated in the Midwest and eastern half of the United States, which also is where CNG fueling has lagged compared to some areas in the western and southern United States.”

The article notes that the Shell/Travel Centers announcement will provide “some competition to Clean Energy Fuels, the company started by legendary energy investor T. Boone Pickens.” The GSC staff claims Shell’s effort is “a move to goose the transition to natural gas trucks, which right now have a strong ROI given the current low prices for natural gas and declining premiums for engines that run on the fuel versus diesel (currently about $30,000).” It concludes:

“When shippers, carriers or others consider moving to natural gas trucks, they need to be able to ‘fill up’ where and when needed. That is a fairly easy problem for some types of companies, such as sanitation or local delivery operations, where the fleet is never far from a home base where companies such as Clean Energy and others can install private nat gas filling stations. But for many common carriers and shippers with private fleets, there is a bit of a ‘chicken and egg’ situation, with those companies interested in natural gas trucks but only if the on the road filling infrastructure is there to support it; meanwhile, the filling operations need to demand to build the infrastructure. But with the Shell commitment now added to what Clean Fuels is doing, the filling infrastructure at least along interstate highways should be substantial at the end of the next couple of years.”

Kar agrees that “interest in natural gas trucks will grow in lockstep with the supporting infrastructure.” With the implementation of infrastructure announced by Clean Fuels and Shell, one obstacle to converting fleets to natural gas will have been removed. Kar concludes:

“Over the coming years, the heavy duty natural gas truck market is set to see extremely rapid growth which will help many haulers reduce their total overall costs of operation, thus helping them drive towards a more stable and successful future. This implies that fleet managers of both private and for-hire fleets must now start preparing for effectively and efficiently servicing and maintaining these green trucks that will run on a green fuel that is in abundance in U.S. and can help reduce the carbon footprint and fuel cost associated with them. These trucks will feature new technologies and systems. Reducing the lifecycle cost and maximizing their vehicle uptime is now officially the duty of the fleet maintenance managers.”

Once the infrastructure is in place it probably won’t take too long for automobile companies to jump into the game and start offering natural gas-powered private vehicles. That prospect probably sends chills of thrills up and down T. Boone Pickens’ spine.