Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
In September 2012, DC Velocityspent a day with Saddle Creek Logistics Services, an asset-based third-party logistics service provider (3PL) that had made one of the biggest commitments of any for-hire trucker to compressed natural gas (CNG) trucks. At the time, diesel fuel prices hovered around $4 a gallon, well above CNG prices. Michael J. DelBovo, president of the Lakeland, Fla.-based company's transport division, predicted that level would be the long-term price floor for diesel.
Three years later, the floor has given way. As of Nov. 30, the average national price of a gallon of on-highway diesel stood at $2.42, according to weekly data published by the Department of Energy's Energy Information Administration (EIA). On the Gulf Coast, which generally reports the lowest diesel prices of the nine regions tracked by EIA, the average price stood at $2.25 a gallon. Through mid-year, the drop in diesel lagged behind the sharp declines in the prices of the two types of oil traded on world markets: West Texas Intermediate (WTI) and Brené North Sea crude. In recent months, however, diesel has caught up—or down—in a big way.
In an interview a couple months back, DelBovo said he anticipated the oil-price volatility but underestimated the duration of its decline. He's not alone; a near-universal misread of the longevity of the downward move led to the coinage of the term "lower for longer."
Faced with a sudden and dramatic change in the macro environment, DelBovo tweaked the company's operating model. He eliminated a "fast fill" approach to fueling its 200 natural gas trucks in favor of a "time fill" method, under which gas is slowly dispensed from on-site compressors into the trucks. The "time fill" method fills an engine more completely because the gas has time to adjust to its surroundings inside the tank. The company then established filling "zones," where trucks were time-filled in rotation rather than all at once. This optimized tractor utilization by keeping more of the rigs on the road while others were being refueled, according to the company. Through these steps, Saddle Creek Transportation boosted its CNG utilization by about 10 percent, DelBovo said.
The company will take delivery of 50 new tractors by year's end. But they will run on a mix of 70 percent CNG and 30 percent diesel, and will cost less than tractors that run exclusively on CNG. At least 20 of the tractors will be financed in part through incentives from states like Florida, Georgia, and Texas to encourage investment in natural gas vehicles, DelBovo said. "We are taking advantage of every incentive out there to buy new trucks," he said.
Even with the steep drop in oil prices, the gap at the pump between diesel and CNG persists, thanks to natural gas's own price plunge. As of Dec. 2, natural gas was priced at $2.17 per million British thermal units (BTUs), down nearly $1.71 per million BTUs from the same time in 2014. The natural-gas price downdraft has kept a tight lid on CNG pump prices. Current prices at public fueling stations nationwide, and at company-owned stations in Lakeland and Fort Worth, Texas, range between $2.00 and $2.10 a gallon, according to Saddle Creek Transportation's estimates. They are lower at its own locations.
DelBovo said he remains confident in the unit's strategy. "This project is going to be successful even at the current prices for diesel and CNG," he said in the recent interview. Still, the initial projections of a four-year time frame for the gap between diesel and natural gas prices to overcome the upfront expense of CNG-powered vehicles have been pushed out to six years, he said.
SLAM-DUNK NO LONGER
The conversion from diesel fuel to natural gas, which seemed a no-brainer earlier in the decade, now requires some thought. A CNG-powered vehicle still costs tens of thousands of dollars more than a comparable new diesel truck, although economies of scale in production have helped cut the differential to $47,000 today from $85,000 to $95,000 per truck in 2007, according to Peter Grace, senior vice president for Clean Energy Fuels Corp., a Newport Beach, Calif.-based company that builds and manages infrastructure for CNG and liquefied natural gas (LNG) fueling.
Private fleets, dedicated contract carriers, and for-hire carriers that have committed to large-scale investments plan to see them through, confident that an eventual return to higher oil prices will bear out the wisdom of their strategy. By contrast, firms on the fence two or three years ago are either still straddling or have pulled back. "They are taking a wait-and-see approach," said Patti M. Murdock, a former transport executive at Cincinnati-based Procter and Gamble Co. and head of Clean Logistics Consulting, which advises companies on alternative energy solutions for transportation and logistics services.
Bill Renz, general manager of U.S. Gain, an Appleton, Wis.-based provider of CNG fueling and infrastructure services, said the drop in oil prices has put many fleet conversion plans on hold. But those already running on CNG continue to grow their fleets, Renz added. "In general, we've seen a shift from smaller fleets moving to CNG to much larger corporations making the move, so our overall growth hasn't slowed down," Renz said in an e-mail.
Those who are pressing forward are couching their investment in terms of environmental, rather than economic, benefits. Belgian brewing giant Anheuser-Busch InBev said in August it was replacing its St. Louis tractor fleet of 97 diesel-powered rigs with CNG-powered rigs. Last year, the company switched out its entire Houston-based fleet of 66 diesel tractors for CNG. (Approximately 30 percent of Anheuser over-the-road tractors now run on natural gas.) In its statement announcing the changes in St. Louis, Anheuser emphasized the value of reducing greenhouse-gas emissions. There was no mention of cost savings.
Shippers that aggressively pushed their carrier partners to convert to natural gas when oil prices were higher have since backed off. Spending on the refueling infrastructure has slowed so far this year, though a huge project backlog from 2014 ensured that work would continue in earnest well into 2015. As a result, the one component long seen as the biggest impediment to the growth of the CNG heavy-duty truck market is in better shape now than it has ever been, Murdock said.
Sales of big CNG rigs during 2015 have been roughly on par with 2014 levels, but that's considered a victory of sorts considering how the sharp decline in oil prices could have deflated CNG's value proposition. Cummins Inc., one of the manufacturers of the 12-liter CNG engines used by heavy-duty fleets, will sell 3,000 to 3,500 engine units this year, about the same as last year, according to William Zobel, vice president, market development and strategy, for Trillium CNG, a Salt Lake City-based fueling-services and filling-station-design company. "The market is still maintaining momentum" despite unfavorable macro trends, Zobel said in a phone interview.
Those involved in the CNG space remain optimistic, believing natural gas's historical price stability (it has traded in a tight range for more than a decade, except for late 2005 after hurricanes Katrina and Rita shut down Gulf Coast supply lines, and mid-2008, when all energy prices spiked), its environmental benefits, and its abundant domestic production will remain appealing factors. Private fleets and dedicated carriers remain committed to CNG, they contend. "The feedback we're getting is that they're all in," said Grace of Clean Energy.
Then there is the price of oil itself: Most in the CNG field are biding their time, confident that oil and fuel prices will eventually rise, and, if there is a supply shock due to unrest anywhere in the oil-producing world, that the increase will be violent. Over the last eight years, which include the sharp fall in the past 16 months, diesel prices have averaged $3.44 a gallon, according to Grace.
Still, the best guess is that, barring unexpected events, oil prices will stay around current levels—or perhaps go lower—for the next year or two. That has led DelBovo of Saddle Creek Transportation to engage in unconventional thinking. "I'm probably the only person in America hoping for oil prices to rise," he mused.
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”