New ultra-low-sulfur diesel is adding more pressure to the already spiraling cost of fuel, but the big hit will come after January, as fleets replace old trucks with new low-emissions models. The good news: cleaner air for all.

Diesel fuel is on the minds of a lot of trucking company executives these days and not only because of the spiraling cost of oil. On June 1, new EPA requirements went into effect mandating that 80 percent of all diesel fuel in the U.S. market be practically sulfur free (15 parts per million). This ultra-low-sulfur diesel (ULSD) is expected to deliver a double whammy to carriers-higher refining and distribution costs that will be passed on as price increases and a 1 percent to 2 percent drop in fuel efficiency. There also is a likelihood of spot shortages around the country as the new fuel makes its way into the distribution channel.

With fuel costs already at historical highs and showing no signs of moderation, this is a bitter pill for trucking companies. This year the industry is on pace to spend more than $93bn on diesel, an increase of $5.5bn from 2005, which was then a record high. For a typical trucking company today, fuel expenditures represent 20 percent to 25 percent of total operating costs.

Ultimately, these costs are passed on to shippers and consumers. "To the extent that fuel changes increase a trucking company's operating costs, users can expect that those costs, over time, will largely be passed on," says Rich Moskowitz, assistant general counsel and regulatory counsel at The American Trucking Associations. "How soon and the degree to which that will happen is up to the market."

While these changes may be hard to swallow in the short term, few argue with the clean air goals that are behind them. "It's really incredible the progress that this industry has made," says Moskowitz. "It has gone from uncontrolled emissions 20 years ago to 2007 trucks that will be nearly emissions free. But clean air comes at a price."

	"It's really incredible progress that this industry has made. But clean air comes at a price." - Rich Moskowitz of The American Trucking Associations

EPA estimates that the higher cost of making ULSD will add about a nickel per gallon at the pump. However, says Moskowitz, "we know that investments made by pipelines and terminals to prepare for the changeover have exceeded EPA estimates, so that figure might be slightly higher." In addition, he says, EPA did not contemplate the use of dedicated tank trucks or tank compartments to deliver the ULSD fuel, but this might be a necessary step to avoid fuel contamination. To meet the 15ppm requirement, he explains, ULSD fuel must leave the refinery at about 8ppm. There will inevitably be some contamination in pipelines, which will continue to carry higher sulfur fuels, as well as at terminals. These parties will test the fuel to make sure it falls within the mandate. "The first entity in the supply chain that will not find it economically feasible to test every batch of fuel is the last-mile carrier," he says. "The only sure-fire way that these tank truck carriers can avoid liability for contamination is by using dedicated equipment." Another option would be to clean the tank after hauling fuel having higher sulfur content, but that also is expensive and reduces truck productivity. In some cases, he says, these carriers may be able to resolve the issue by taking steps to ensure that every tank compartment is completely emptied before re-filling. "At the very least, tank truck carriers will have to make some changes in operating procedures," says Moskowitz.

Step 2: New Engines
The switch to ULSD is only the first step in a two-step clean-air initiative. Just as unleaded gasoline was introduced prior to the catalytic converter on cars, ULSD is preparing the market for low-emission truck engines that will start coming off the assembly line early in 2007. The particulate-trapping technology on these new engines will add $5,000 to $8,000 to the cost of a new truck and will require higher maintenance costs as well. Fortunately, no further degradation in fuel economy is expected with the new engines, though that cannot really be known until the trucks are in widespread use. To date, only a handful of vehicles have been delivered to a few fleets for testing purposes.

"Based on what we have seen thus far, the new engines are working as well as can be expected," says Dennis Beal, vice president of physical assets at FedEx Freight. "There are always issues with new technologies that have to be worked through. There are things we won't know until a year, two years, even three years from now."

This uncertainty, plus the coming price increase, has prompted many fleets to buy before the '07 model year, driving Class 8 sales to record highs in 2005 and through the first half of this year. "We expect that 2006 will be a barn-burner year, with sales limited only by the OEMs' capacity to produce," says Gerald C. Turnauer, chairman of the American Truck Dealers (ATD) association.

"Looking ahead to '07 we have tried to hedge our bets in a number of ways," says Bill Fowler, director of maintenance for Con-way Freight. "We have tried to bring on some equipment a little earlier." In particular, he says, the company will buy a number of trucks early in 2007 that will be equipped with engines made before the Dec. 31 shutdown of '06 production lines.

Other companies say they are not changing their purchasing cycle. "YRC Worldwide's business model always has been to purchase a large number of tractors in the fourth quarter for placement in service during the first quarter," says Bill Pratt, vice president of equipment services, YRC Worldwide. "Consequently, we do have a big order in place for the fourth quarter of this year, but that is nothing unusual for us.

Beal says FedEx Freight also has not engaged in forward buying. "Our cycle is structured to give us a great deal of continuity and consistency as we go forward," he says. "Plus, we see those savings as being artificial since we would just have to turn around at some point and buy more trucks off cycle, at which point we would be paying a higher price."

SmartWay
As fuel and engine costs rise, trucking companies are continuing to aggressively work to improve fuel efficiency. Most sizeable fleets participate in the EPA's voluntary SmartWay Transport Partnership that is designed to increase energy efficiency while significantly reducing greenhouse gases and air pollution. Trucking participants in the program are assessed by EPA and given a "green" ranking.

Fowler notes that Con-way's ranking places it in the top 2 percent of "green" fleets nationwide. With a fleet that drives more than 500 million miles a year and consumes over 90 million gallons of diesel fuel, "we are in a great position to help the environment by way of operating improvements," he says.

The biggest return comes from changing driver behavior, Fowler says. Con-way has tackled that issue through a combination of driver training and a mandatory engine shutdown policy. "We don't just encourage drivers to reduce idling, but we control engines electronically so they shut down automatically after five minutes," he says. Other efforts are aimed at keeping engines operating at peak efficiency. "Each engine has its own performance curve, and through the gearing and operating profiles we specify, we design our equipment to give the maximum driveability at the most fuel efficient operation," says Fowler.

"One good result that we see at YRC is in holding our trucks to 62 mph as a corporate speed limit," says Pratt. "Just by doing that, we find that fuel economy issues don't impact us to the same proportion that it would in a fleet running 70 mph or 75 mph."

FedEx Freight, a founding SmartWay member, also cites its policy of automatic engine shutdowns, in its case after three minutes of idling. "Idling engines produce zero miles per gallon, so they are putting emissions in the air with no return," says Beal. "An automatic shutdown policy minimizes emissions as well as increases our mpg."

FedEx is very open to new ideas for improving operations in this area. "We have an R&D department under my group and we will test basically any device that promises to improve emissions or improve mpg or help us operate in a more efficient or safer way. I have hundreds of tests going on now on various devices or additives. We see ourselves as an industry leader and a good corporate citizen. We care about the environment so we really try to stay on the cutting edge."

Trucking Demonstrates Economic Muscle

The U.S. trucking industry continued to flex its economic muscle in 2005, increasing its share of the nation's freight pool to 68.9 percent. This equates to an all-time high volume of 10.7 billion tons and represents $623bn in revenue or 84.3 percent of the nation's freight bill. "These numbers show clearly that trucking is the driving force behind our great economy and a vital transportation link for domestic and international products," says ATA President and CEO Bill Graves. "Nearly every good consumed in the United States is put on a truck at some point," he says. American Trucking Trends, an annual state of the industry report published by The American Trucking Associations, reports that more than 26 million trucks of all classes played a part in reaching the volume and revenue milestones. Of this number, 2.7 million were typical Class 8 tractor-trailer combinations operated by 565,000 interstate motor carriers. Class 8 trucks drove 117.8 billion miles of the total 388 billion miles of all weight classes used for business purposes in 2004. The nation's truck fleet consumed 51.4 billion gallons of fuel, both diesel and gasoline. The trucking industry is on pace to spend nearly $100bn on diesel fuel alone this year, up from $87.7bn in 2005. Commercial trucks paid $32.8bn in federal and state highway-user taxes in 2004. The trucking industry continues as a major employer in the United States, with more than 8.6 million people employed in trucking-related jobs in 2004. Of these, 3.28 million are professional truck drivers. Trucking also played an important role in trade exchanged between the United States and our largest trading partners, Canada and Mexico. Trucks transported 81.9 percent of the value of trade between the United States and Mexico in 2004 and 65.7 percent of the value of trade between the United States and Canada. American Trucking Trends 2005-2006, provides information on U.S. truck tonnage, employment, freight revenues, shipment value, engine sales, modal share and international trucking. Topics explored also include safety statistics, cost-per-mile analysis, top trailer manufacturers, highway-user taxes, U.S. motor carrier size and distribution, trucking employment by state, international trucking, fuel consumption and emissions data.