Natural Gas Growth, Highway Bill Among 2012 Trucking Highlights

This story appears in the Dec. 24 & 31 print edition of Transport Topics.

While the attention of the nation was focused for much of the year on the costly and protracted presidential election campaign, trucking probably will look back on 2012 as a turning point for the adoption of natural gas as a viable alternative fuel for heavy-duty fleets.

The alternative fuel was the focus of the ATA Summit on Natural Gas in Trucking, a sold-out event organized by American Trucking Associations and held in Arlington, Va., in late November. Natural gas also dominated discussions between truck makers and fleet operators at the Mid-America Trucking Show in March.

“Given the rapid technological advancements in natural gas extraction methods and vehicle technologies, coupled with exceedingly attractive pricing, we are truly on the cusp of a potentially revolutionary change in the trucking industry,” ATA Chairman Michael Card said at the ATA summit on Nov. 29. Card also is chairman of Combined Transport Inc., Central Point, Ore.

Although the price of diesel was above $4 a gallon for much of the year, it dipped below that level in mid-November and again in mid-December.

But natural gas and fuel prices were just two of several issues that had a major effect on trucking this year.

Congress did pass a highway bill, but the measure — Moving Ahead for Progress in the 21st Century, or MAP-21 — provided funding for only two years and contained no new revenue to help fix deteriorating roads and bridges and to fund new infrastructure projects.

The unwillingness of elected officials to increase fuel taxes raised the prospect of more toll roads or, worse, a system that assesses taxes on every mile traveled, trucking industry officials said.

Trucking also voiced concerns about several aspects of the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability program — including a plan to delay the implementation of a program that would assess responsibility for accidents when considering penalties involving carriers’ Behavior Analysis and Safety Improvement Categories scores.

Armed with studies that showed CSA scores didn’t accurately predict crash risk, the industry convinced lawmakers on Capitol Hill that BASIC alterations were needed, and FMCSA made “modest” changes to the program.

Another four years of the Obama administration, in fact, presents challenges on several fronts, said Bill Graves, president of American Trucking Associations.

“President Obama’s re-election is very likely to result in continuation of an aggressive regulatory agenda in 2013 and beyond,” Graves said in a post-election analysis. “ATA expects prioritization of safety rulemakings to be driven by the administration’s overarching political agenda to champion labor issues and consumer protections.”

Graves said he expects a push to raise minimum insurance levels, industrywide adoption of electronic logging devices and more enforcement actions against carrier executives with a pattern of safety violations.

Driver pay and health and wellness issues, including problems such as sleep apnea, also could be the focus of more regulatory activity, he said.

In March, ATA filed a lawsuit challenging proposed changes in hours-of-service rules for truck drivers.

Specifically, ATA questioned a provision that limits the frequency with which a driver can restart his workweek and restrictions on what drivers can do during a mandatory 30-minute rest break from driving.

“The fundamental problem we have is twofold,” Graves said in a speech at the ATA Management Conference & Exhibition in Las Vegas in October. “First, the rule was working fine, and second, I have no doubt that the changes were the result of political pressure brought to bear from the White House, and not the result of FMCSA professionals believing that further change was necessary or could be justified.”

The complicated regulatory outlook relates to an economy that continued to expand at a very slow rate, dampening demand for freight hauling and forcing companies to be cautious about investing in new equipment and technology.

In October, U.S. truck tonnage declined 2.1% compared with the same month a year ago, the first year-over-year drop since 2009. Sales of heavy-duty trucks also slowed in September and October although total volume is expected to remain well above 2011 levels for the year.

Disruptions in the Northeast and Mid-Atlantic states by Hurricane Sandy contributed to the decline in freight volume, while the prospect of automatic tax hikes and spending cuts on Jan. 1 — the so-called “fiscal cliff” — raised the possibility that the economy could be pushed back into recession.

Growth in e-commerce sales, however, may have reached a tipping point in 2012, forcing retailers and manufacturers to adopt new distribution strategies and companies, such as Amazon.com and Wal-Mart, to offer same-day delivery for goods purchased online.

Discussions about natural gas, however, seemed to indicate that the fuel may present significant — and welcomed — changes for the trucking industry.

With new drilling techniques unlocking vast stores of oil and natural gas deep underground, energy experts said the United States is poised to become a major fuel producer — and perhaps once again a center of global manufacturing — as cheap and plentiful supplies of natural gas lower the cost of production for energy-dependent industries, such as steel, aluminum and glass manufacturing, chemicals and fertilizer.

“North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world,” said Maria van der Hoeven, executive director of the International Energy Agency, which projects the United States will be a net exporter of natural gas by 2020 — and almost self-sufficient in energy, in net terms, by 2035.

Oil industry investor T. Boone Pickens, who was a speaker at the ATA summit, said it was in trucking’s best interest to embrace natural gas because it would reduce dependence on foreign oil.

Oil and gas exploration, and hydraulic fracturing in particular, generated significant demand for trucking services this year, with much of the growth occurring in rural

areas of such states as North Dakota, Ohio, Pennsylvania and Texas.

The boom in energy production is expected to create 1.3 million new jobs and add $416 billion to the economy by 2020, according to a report IHS Global Insight issued in October.

Construction of new natural-gas fueling stations kicked into high gear to rectify the biggest obstacle to natural gas use, a lack of facilities to dispense liquefied and compressed natural gas.

Clean Energy Fuels Corp., Seal Beach, Calif., is building 150 LNG fueling stations along major interstate highway corridors, with more than 70 stations expected to open in 33 states by the end of 2012 — and the rest operating by the end of 2013.

Andrew Littlefair, president of Clean Energy Fuels, touted the cost difference between a gallon of diesel and the natural gas equivalent at the ATA summit, which he said was then $1.50.

He also said that market acceptance of natural gas could be about five years away, adding that trucking is “the last market [for natural gas] to crack.”

However, the price of new trucks that run on natural gas remains a barrier for some fleets.

“There’s no reason for these trucks to be as expensive as they are,” Jerry Moyes, chairman and CEO of Swift Transportation Co. Inc., said at the ATA summit. “We’ve got to get the costs down for these trucks.”

Moyes, who said he turned his carrier into a “guinea pig” to test natural gas, added that another concern about the alternative-fuel trucks is that the resale value of the vehicles is “a big unknown.”

And U.S. Rep. Lee Terry (R-Neb.) told summit attendees that trucking should not count on federal government incentives for buying the vehicles to be available in the near future.

Truck manufacturers, however, told summit attendees that the cost of natural-gas vehicles (NGVs) should decline as total sales increase.

As for the engines required for the conversion to natural gas, Cummins Westport Inc., a joint venture owned by engine maker Cummins Inc. and fuel systems manufacturer Westport Innovations Inc., has produced several engines — including a dual-fuel engine — that currently are available.

At the ATA summit, Freightliner Trucks’ T.J. Reed called the Cummins Westport ISX 12G natural-gas engine “a game-changer.” The engine will be used by all the other truck manufacturers: Kenworth Truck Co. and Peterbilt Motors Co., owned by Paccar Inc.; and Volvo Trucks and Mack Trucks of Volvo Group. And Volvo plans to have its own natural-gas engine, developed with Westport, by 2014 or 2015.

WheelTime Network, a truck maintenance chain, also announced at the summit that it agreed to install dual-fuel conversion kits made by American Power Group across the country.

Attendees at the summit also were told that the cost to convert their maintenance shops would run between $300,000 and $500,000.

Convenience store operator Kwik-Trip Inc. launched a program to sell not only LNG and CNG but propane, biodiesel and E-85 along with diesel, premium diesel and off-road diesel, gasoline and diesel exhaust fluid in Wisconsin, Minnesota and Iowa.

Taking advantage of state government incentives, Ryder System Inc. set up the first large fleet of trucks to be powered by natural gas, with more than 300 leased vehicles operating in California.

“It’s been a really good test bed,” said Scott Perry, vice president of supply management for Ryder’s Fleet Management Solutions in Miami. “Now we are moving into other markets.”

But another controversy involving the use of natural gas could produce unwanted consequences: Natural gas is not taxed at the same rate as diesel — which means revenue for state and federal highway and infrastructure projects could be reduced.

(For more news about the ATA Summit on Natural Gas in Trucking, see the Dec. 3 and Dec. 10, 2012, issues of Transport Topics.)