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.
If you're a trucker or private fleet manager looking for a predictably priced alternative source of fuel, truck maker Navistar International Corp. and natural gas advocate Clean Energy Fuels Corp. think they have a deal for you.
Ironically, how good that deal turns out to be will depend on doing one's best to predict the unpredictable.
In early February, Lisle, Ill.-based Navistar and Seal Beach, Calif.-based Clean Energy, cofounded by energy baron T. Boone Pickens, unveiled a joint program to provide incentives to truck owners, renters, and lessors to purchase new and more expensive vehicles powered by liquefied natural gas (LNG) or compressed natural gas (CNG), both of which are considered cheaper and more environmentally friendly than traditional diesel fuel.
Under the program, a user would agree to purchase a gas-powered vehicle manufactured by Navistar and then commit for five years to buying 1,000 gallons of natural gas per month. In return, Clean Energy would offer the user a $500 monthly rebate, which, over the five-year span, would offset the estimated $28,000 per-unit differential between buying a gas-powered truck and purchasing a new diesel-powered vehicle.
In addition, the user would pay for its natural gas fill-ups at a price 60 cents a gallon below the prevailing price of diesel fuel as calculated each week by the Department of Energy's Energy Information Administration (EIA). As of April 9, the national average price for a gallon of diesel fuel stood at $4.148, according to EIA data. Thus, a customer would pay $3.55 a gallon for the first 1,000 gallons consumed during the month.
Users who need to buy in quantities that exceed the 1,000-gallon threshold in any given month would be charged Clean Energy's "retail" rate, which currently stands a shade below $2.90 a gallon, the company said.
Big savings potential
Based on estimates that a typical solo long-haul driver logs 12,000 miles a month, the program could deliver monthly savings of $1,200 per month between the rebate and the savings at fill-up, according to the companies. LNG-powered vehicles can run about 400 miles on a full tank. Vehicles powered by heavier CNG wouldn't get the same range with a full trailerload. Such vehicles are better suited to shorter trips within urban areas where they return to the same depot each day.
For fleet owners and operators uninterested in participating in the program, the alternative would be to pay for the gas-powered vehicles out of pocket and fill up at the pump at prevailing prices for either LNG or CNG. Based on the stunningly wide differential between natural gas and crude oil prices, that option, at least for now, sounds like the better bang for the buck.
Natural gas futures contracts are today trading at $1.98 per million British thermal units (BTUs). Futures prices have fallen about 50 percent in the past 12 months due to a mild North American winter that depressed energy demand and an increase in domestic exploration and development that has led to an abundance of gas inventories. More than 80 percent of natural gas consumed in the United States is domestically produced. The balance is imported from Canada.
By contrast, West Texas Intermediate (WTI) oil futures prices, which are more influenced by global demand and by geopolitical factors, have hovered in the $103-a-barrel range for several months. Brené crude (a sweet, light crude oil), considered the world's benchmark, is trading at a 20 percent premium to WTI.
The current differential of "52 times" between market prices for natural gas and WTI oil is unprecedented; the ratio is historically between six and 12, according to Clean Energy. Many analysts believe the combination of factors that have already affected natural gas supply and demand could cause futures prices to fall even further in 2012 and beyond.
The market price for natural gas translates into a pump price of $2.50 a gallon for LNG and $2.25 for CNG.
Market uncertainties
James N. Harger, Clean Energy's chief marketing officer, said the company is marketing the service to companies skeptical that such a wide price gap between oil and natural gas will persist in the years ahead. From 1990 through 2012, natural gas futures prices averaged $4.01 per million BTU, reaching an all-time high of $15.35 in December 2005 in the wake of hurricanes Katrina and Rita that shut off natural gas supply flows along the Gulf Coast, and hitting a record low of $1.05 in January 1992.
Each $1 per million BTU increase in natural gas prices would equal a 14- to 15-cent per-gallon price hike at the pump, according to Clean Energy's estimates. Thus, a spike to levels midway between the historical high and low price ranges could significantly narrow the gap between oil and natural gas, and make the Navistar-Clean Energy initiative more attractive, Harger said.
Perhaps mindful of all the market uncertainties, Clean Energy said it would allow customers to opt out of the agreement at any time without penalties, Harger said.
Navistar spokesman Stephen C. Schrier said the company will in late summer unveil a gas-powered line of vehicles in the mid-sized category. It plans to roll out gas-powered trucks in the heavy-duty, or "Class 8," category sometime in 2013, he said.
The natural gas highway
The initiative is the latest effort by Pickens, who turns 84 next month, to wean the nation off of imported oil and to use more natural gas. Several years ago, Pickens proposed a plan to invest $1 trillion in wind farms that would eventually replace natural gas as a primary energy source. Natural gas supplies would then be freed up to power trucks and other heavy-duty equipment. The proposal has made little headway due to the logistical challenges in locating wind turbines in congested urban areas.
Clean Energy operates hundreds of natural gas fueling stations nationwide and has a strong presence among intra-city transit agencies and waste-hauling companies, both of which have vehicles that operate in local service and depart from and return to the same locations each day.
The company is building what it calls "America's Natural Gas Highway," a national network of truck refueling stations. Harger said the company expects to have 70 stations operational by year-end and another 80 built by the end of 2013. A high-density gas-refueling infrastructure is considered the key to a successful transition by truck fleets from petroleum to natural gas consumption.
At this point, no companies have signed up for the joint program. Jerry Moyes, CEO of Phoenix-based Swift Transportation Co., the nation's largest truckload carrier by sales, attended the Feb. 1 program launch event at Navistar's Lisle headquarters in Lisle. According to published reports, Moyes said Swift is testing 16 natural gas-powered trucks, and said the success of the program depends on the density of the refueling infrastructure.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."