trucking profitability insights

Trucking Profitability Insights

Green Fleets: Trucking Companies Explore Alternative Fuel Equipment Upgrades

Posted 12:26 PM by

 

Alternative Fuel Upgrades - Trucking Consultants

Alternative fueling is one of the hottest topics in the trucking industry today. Evidence could be seen at the sold out Natural Gas in Trucking Summit, hosted by the American Trucking Associations in the fall of 2012. And many state associations continued to demonstrate its growing popularity by including natural gas as a topic at their annual conventions throughout 2013. With diesel hovering around $4 per gallon, private and for-hire fleets are searching for all possible ways to improve fuel efficiency while also reducing truck emissions.

Alternative Fuel Equipment Upgrades

Natural gas, in either liquid (LNG) or compressed (CNG) form, is a popular option many companies are choosing. The price of natural gas has increased since reaching a record low in April 2012 and is currently 30 percent cheaper per gallon than diesel. However, the lower cost of fuel should not be the only deciding factor as these trucks can cost up to $50,000 more than a diesel truck. This is a substantial increase considering new individual tractors already cost more than $110,000.

Many companies are analyzing the impact the increased investment for alternative fuel tractors will have on their cost. For example:

Increased cost per one alternative fuel vehicle: $40,000
Price per gallon — diesel: $4.00
Price per gallon — natural gas: $2.80 ($4 x 0.7 or 30% less per gallon than diesel)
Average MPG (both diesel & natural gas unit): 6 mpg

Step 1: Determine the amount of fuel consumption, in gallons, needed to earn back the increased investment. In this equation, it would take approximately 33,000 gallons.

$4.00 — $2.80 = $1.20 lower price per gallon
$40,000 / $1.20 = 33,000 gallons consumed

Step 2: Determine the total number of miles needed.

33,000 (gallons) x 6 (mpg) = 200,000 total miles traveled to recoup initial investment

Based on these assumptions it would take one unit approximately 200,000 total miles to earn back the initial investment. However, this assumption does not factor in fuel surcharge programs implemented by most for-hire carriers to recoup the cost of diesel above a specified base price per gallon. There is currently no federal regulation covering fuel surcharges. A base price per gallon, near $1.25, is common industry practice.

Some companies are already moving forward and are adding natural gas units to their fleets. One private carrier is in the process of converting their entire fleet to CNG by 2015. Based on their analysis, the company is expecting to recoup their initial investment in only 2½ years. Another for-hire fleet worked with the U.S. Department of Energy to obtain government funding to convert several test units from diesel to CNG.

The assumptions above do not take into consideration any differences in maintenance costs or availability. Truck stops are recognizing the increased demand within the industry and are beginning to make alternative fuels available at more stations around the country. Maintenance costs, in general, may be more of a wild card since this is relatively new technology.

There are many factors to consider and companies should carefully analyze equipment options before determining the best solution.

Matt Gard is a manager in Katz, Sapper & Miller's Transportation Services Group. For more information, contact Matt at 317.428.1156 or mgard@ksmcpa.com.

 

SEPARATE FACT FROM OPINION

At KSMTA, we can help you separate the franchise lanes from the toxic lanes.

Let's Get Started >

 

Green Trucking | Alternative Fuel Upgrades | Trucking Consultant

link
Comments (0)
Post a Comment
Name:
Email: (Not Displayed)
Website: (optional)
Comment (HTML tags will be stripped):
Please type the alpha-numeric code above (case sensitive):
Error