LNG – the road to stable truck rates?
Trucks fueled by liquid natural gas might offer shippers an escape from fuel price pain.
Tired of sweating higher diesel fuel prices? Then maybe it's time to find a trucking company that's running its delivery fleet on liquefied natural gas (LNG) instead of diesel.
LNG is the liquid form of natural gas, which is primarily methane. It's related to compressed natural gas (CNG), which, as the name suggests, is condensed under high pressure. Although truck engines can run on both LNG and CNG, it does not make sense to use CNG for longhaul trucking because compressed gas adds weight that must be carried along with the freight, according to experts.
"In general, if your operating range is over 400 miles, it's usually best to go with LNG," says Andy Douglas, Kenworth Truck Co.'s national sales manager for specialty markets.
Although natural gas is more economical than diesel, there is currently no national infrastructure that would make it easy for a driver to refuel a rig traveling from, say, Boston to Los Angeles. But that doesn't mean shippers should wait to transition to alternate fuels; they can act now. Here's why it might make sense.
The alternative fossil fuel
Although size estimates vary, there is no disputing that the United States has huge reserves of natural gas within its borders and that this abundance of supply plays a key role in keeping the cost lower than other energy sources.
As for how much lower, the weekly fuel price report by Clean Energy Fuels Corp., a major LNG supplier, provides some comparisons. For the week of Feb. 27, when diesel in the United States sold for $4.05 a gallon, the equivalent amount of LNG cost $2.82 and CNG just $2.32, according to the company.
Although trucks can be adapted to run on both LNG and CPG, the equipment carries a higher price tag. A typical Class 8 truck running on diesel costs anywhere from $100,000 to $125,000, according to Glen P. Kedzie, vice president at the American Trucking Associations (ATA). If a motor carrier were to use LNG-powered rigs, the price for the truck would climb at least another $50,000 per unit and maybe as much as $90,000, depending on the additional features.
Aside from a lower cost per gallon, LNG has another advantage. It's considered to be a "green" fuel in that it emits less carbon dioxide than oil fuels. It also produces fewer pollutants and particulate emissions than other hydrocarbon fuels.
The biggest hurdle has been the lack of a nationwide infrastructure of fueling stations. Kedzie says it's a classic "chicken and egg" situation. He notes that companies are reluctant to build out the infrastructure until enough truckers use LNG, and truckers aren't willing to commit to using LNG without a refueling network in place.
In an effort to spur creation of an LNG market, legislation has been introduced in both houses of Congress to provide tax credits for LNG-powered vehicles as well as the refueling infrastructure. Given the fact that the credits would cost the U.S. treasury $5 billion in lost revenue at a time of a looming federal deficit, the legislation faces an uncertain future.
According to the Energy Information Administration (EIA), there were, as of last year, 44 fueling stations for LNG trucks in the United States. Most of those stations were in California, according to EIA. Among the companies operating LNG trucks in that state is Wal-Mart Stores Inc., which is currently using LNG-fueled Peterbilt trucks to make delivery runs from its DC in Apple Valley to retail outlets in Southern California. Another is commercial and residential flooring manufacturer Mohawk Industries, which is leasing LNG-powered trucks from Ryder System Inc. for deliveries in the region. Mohawk is not the only shipper giving LNG a try. Ryder says that to date, it has leased 35 LNG-powered Class 8 day cabs (20 Peterbilts and 15 Freightliners) to customers for use in Southern California.
In 2011, UPS Inc. acquired 48 LNG-powered heavy-duty trucks, which it is running from Las Vegas to Ontario, Calif. UPS received a $3.9 million grant from a state environmental agency, SouthCoast Air Quality Management, to help defray the trucks' cost.
Charting the future
Although LNG's proponents have been pushing for the government to create a market for LNG-powered fleets, it's already there for shippers with fixed routes willing to sign a contract that incentivizes the carrier to deploy the vehicles. Dillon Transport Inc. of Burr Ridge, Ill., has begun offering just such a program in Texas and Ohio for Owens Corning, which generates enough steady business for Dillon to justify dedicated service.
Phil Crofts, director of marketing at Dillon, declined to provide specifics about the deal. However, he said Dillon was prepared to offer other shippers a fixed price to move goods on an LNG truck.
"We would feel comfortable offering a customer a guarantee that the fuel surcharge would not go up for a year," he said.
Other truckers may be willing to offer a similar arrangement to shippers. Such an arrangement would give the shipper the assurance of having a firm line item in his transportation budget for one year.
"Once shippers understand this, they will be requesting the major carriers to do this and get a break on the fuel charge," says Crofts.
In a volatile oil market with diesel fuel prices seemingly headed higher, there's clearly a business case to be made for moving freight on LNG trucks. But shippers need not wait for the government to dole out subsidies. They can reach out to willing motor carriers, commit shipments to an LNG carrier in exchange for a contract guaranteeing a fixed rate, and save freight dollars right now.
About the Author
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. Prior to becoming an analyst, he was the editor of CSCMP's Supply Chain Quarterly, a journal of thought leadership for the global supply chain management profession. He also spent 20 years as an editor at Reed Business Information, where he worked for such publications as Logistics Management, Warehousing Management, and Modern Materials Handling and served as the launch editor for Supply Chain Management Review. Wiley published his book on supply chain trends, Protean Supply Chains, in 2014.
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