All That's Trucking

Natural gas, fuel surcharges and carbon credits

January 3, 2013

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In our series on natural gas last fall, we included some information on determining payback. I got a letter from a reader telling me I left out a critical consideration: fuel surcharges.

UPS is one company that touts carbon-neutral shipping. Should you?
UPS is one company that touts carbon-neutral shipping. Should you?

Joe White, who heads up Cost Down consulting and Greenway Miles, says if you use compressed natural gas as an example, differences between pump price averages for diesel at the time of the article ($4.10) and compressed natural gas ($2.40) suggest a $1.70/gallon savings with CNG. 

However, he notes, most heavy-duty trucking companies have fuel surcharges in place that reimburse them for diesel costs above a base price of $1.20/gallon (base prices differ, but $1.20 is representative).

Shippers are the beneficiaries

"Often, fuel surcharges are structured to effectively make a carriers net cost for fuel equal to their base price - $1.20/gallon - regardless of pump price," White says. Therefore, it does not matter what the carrier pays at the pump, $4.10 (diesel) or $2.40 (CNG), their net cost after surcharge will be approximately $1.20/gallon.

"Therefore, most if not all of the fuel cost savings associated with CNG equipment will eventually go to the shippers in the form of lower surcharges."

"The only real, long-term fuel cost advantage of CNG trucks for carriers will be in unsubsidized fuel usage - empty miles traveled and idle time," he says. "Carriers with 75%+ laden mile percentages will be hard pressed to justify an additional $40,000 or more for CNG tractors using fuel cost savings alone."

The other advantage of CNG equipment is that it does emit less carbon, White notes -- about 25-30% less on average. There is definitely a value in reducing carbon emissions, he says, but it is hard to financially quantify.

Are carbon credits the answer?

White, of course, is not a totally independent bystander here. His company, Greenway Miles, offers an alternative -- carbon credits.

"Truckers receiving shipper pressure to add CNG equipment to their fleet for environmental reasons might want to consider another alternative offering shippers carbon neutral shipping. Based on current carbon offset pricing, many trucking companies could offer carbon neutral shipping for $0.01/mile or less."

White says that dividing $0.01/mile into $40,000 demonstrates that 4 million miles could be shipped carbon neutral for the incremental cost of just one CNG tractor. Additionally, the emissions from CNG equipment running 4 million miles is approximately 4,800 metric tons of carbon compared to 100% of emissions "neutralized" with carbon neutral shipping that invests in carbon offsetting projects.

"Finally, offering carbon neutral shipping on a cost per mile basis places the cost burden of sustainability where it should be, on the shippers generating the carbon by transporting their product to the marketplace."

So, those of you who are experimenting with natural gas trucks, I'd like to hear from you: Where do fuel surcharges fit in your calculations?

Comments

  1. 1. Don Smith [ February 25, 2013 @ 03:52PM ]

    I just read your article about diesel surcharges affecting the cost of LNC/CNG breakevens. I can confirm this line of thinking, as I recently had a conversation with a national trucking line that offered the same objection to conversion to LNG or CNG. He said their customers would want them to pass all of the savings on to them.

    I countered by saying that they can simply raise their rates to offset the surcharge, couldn’t they? He said, “Well, we should be able to, but it’s not how the industry works now.”

    I am a bit at a loss for how trucking companies could best deal with this. Your idea of the carbon offsets was novel. Did any of your readers respond with ideas of their own?

    We at Blue Bridge Energy are committed to bringing LNG to the market as a transportation fuel alternative to diesel, so we’re trying to figure out how best to break down those barriers. Obviously, having a viable network of fueling stations on all of the interstate corridors is critical, but the ROI component is a big factor as well.

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Author Bio

Deborah Lockridge

Editor in Chief

Truck journalist 21 years, joined us in 1998. Plans and coordinates editorial, specializes in maintenance, drivers and fleet operations.

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