Low-cost, cleaner-burning natural gas is poised to change the transport calculus. But experts warn that excitement over its potential needs to be balanced by thorough research and an understanding of the risks.
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.
By 2015, consumer products giant Procter & Gamble Co. (P&G) will use for-hire trucks running on compressed natural gas (CNG) over as much as 20 percent of its nationwide network, which currently stands at about 8,000 lanes. Earlier this year, P&G awarded contracts to 11 carriers to move the company's products on natural gas across 25 states.
Home improvement powerhouse Lowe's Companies Inc. plans to transition its dedicated fleet serving all of its regional distribution centers to natural gas from diesel by the end of 2017.
Industrial titan Owens Corning Corp., which has been one of the leaders in natural gas conversion for transport, forecasts using the energy source to run half its network miles by 2020.
Food behemoth General Mills Inc. plans to reduce its diesel fuel use by 35 percent over the next five years. General Mills is in the midst of a pilot program with trucker Dart Transit to use CNG-powered trucks on 63 of the shipper's 7,500 U.S. lanes. Doug Watne, General Mills' director of North American transportation, declined comment on how much diesel the company consumes annually other than to say, "too much."
The four companies are at the vanguard of one of those rare transformative moments in transportation. Given that energy accounts for between 25 and 45 percent of a shipper's overall product distribution costs, the growing abundance of low-cost, cleaner-burning natural gas is poised to change the transport calculus in a way not seen since deregulation in the early 1980s.
Shippers are taking serious looks at where natural gas works, where it does not, and how to forge relationships with their carriers to create the oft-sought yet elusive scenario: a win-win. Out of these efforts will come models driven by "new levels of collaboration between multiple shippers and multiple carriers," predicts Patti M. Murdock, president of Clean Logistics Consulting, which is based in Cincinnati. Murdock created and ran P&G's natural gas transportation strategy before retiring last January.
Because the natural gas fueling infrastructure, unlike diesel, is not well established, shippers have a unique opportunity to determine how their route systems will evolve, according to Douglas Mueller, president of Breakthrough Fuel, a Green Bay, Wis.-based transport energy advisory firm. As natural gas use becomes mainstream, "the shipper can become the anchor of a whole new infrastructure," Mueller says.
NO EASY FEAT
But it will be easier said than done, experts said. Despite well-publicized efforts by energy baron T. Boone Pickens to eventually convert the nation's entire truck fleet to natural gas, few expect that to happen. The future of a shipper's energy world will likely resemble a composite of diesel and natural gas, with some biofuels thrown in. For those accustomed to working only with diesel, the addition of other sources will introduce a new level of complexity into the equation, experts say. There will be many lanes that, given their shipment characteristics, will still be best supported by diesel use.
A heavy-duty natural gas truck costs about $55,000 more than a comparable diesel vehicle due to the significant expense of the fuel tanks. Natural gas vehicles take longer to fill up than diesel trucks. In addition, the heavy tanks aboard a CNG-powered vehicle result in a reduction in payload of between 600 and 3,000 pounds; shippers of high-cube, lighter-weighted goods will be less affected by this issue than will shippers moving heavier consignments, according to Murdock.
CNG has become by far the dominant natural gas newbuild, with about 96 percent of new order market share, according to truck manufacturers. CNG, which is used by truckers for short distances of up to 300 miles, is cheaper and easier to manage than liquefied natural gas, or LNG, which must be transported to refueling locations. CNG needs pipelines to act as the delivery mechanism; CNG advocates said there is no shortage of nationwide pipeline capacity.
Though many fleets are testing the viability of natural gas vehicles, there remains considerable reluctance to take the plunge. Truckers already confronting compressed margins due to higher operating expenses and stubbornly subpar freight demand are concerned that tank and engine technology is not sufficiently proven to justify the costs. They also worry about whether the expensive equipment will retain its value.
It all boils down to the time required for a return on the investment, said Donald Broughton, transport analyst and chief market strategist for Avondale Partners, an investment firm. "If it pays for itself in 18 months, [fleets] will buy without testing," he said. "If it doesn't, they will continue to test, and test, and test."
Shippers relying on natural gas fleets will need to be "surgical," in Murdock's words, about how they segment their freight and lanes. Dedicated moves, where a shipper commits to a specific number of round-trip miles in return for committed capacity, will have to reach specific mileage thresholds for carriers to justify deploying a natural gas vehicle. Private fleets, which operate round-trips on closed-loop routes, may have an easier time of it than companies like P&G, which will use a for-hire network operating over irregular, one-way routes and could have difficulty coping with a still-underdeveloped refueling infrastructure.
For its part, P&G is using the same "key performance indicators" (KPIs) to measure the performance of its natural gas operators as it does with its diesel-powered partners, according to Nancy Getter, who today heads the company's natural gas program. Getter spoke at the Council of Supply Chain Management Professionals' annual meeting in October but was unavailable to elaborate on P&G's strategy.
Fuel-usage decisions will be based on the level of volume density and miles driven, the type of truck move (whether it be for-hire, private fleet, or dedicated), and how a shipper-carrier contract is constructed to align a shipper's objectives with a carrier's need to achieve a suitable return on its equipment investment. Most experts say longer-term contracts will become the norm as carriers demand incentives, in the form of committed traffic flows, to justify the investment; another option is for a shipper to pay a higher base rate to offset a carrier's equipment costs, while agreeing to share in the fuel surcharge savings. No one projects a scenario where shippers subsidize a carrier's equipment purchases.
LOOK BEFORE YOU LEAP
Experts caution shippers not to jump blindly into the natural gas pool with the belief that it is the panacea for all their energy-related challenges. Mueller of Breakthrough Fuel said shippers need a good dose of education on all aspects of natural gas transport and should begin with a pilot in order to gain real-world experience. Mueller says he's seen projects start with little forethought and no transparency between the parties over cost structure, with predictably bad results.
Above all, it takes a commitment to natural gas from both sides, even if it means the chance of parting ways with core carriers not willing to make the leap. "You have to align with partners that have the passion for it and a long-term plan," said Getter of P&G. Watne of General Mills added that "you don't want to force carriers" to migrate to natural gas services if it is not something they want to do.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.