natural gas – The OM Blog by Heizer, Render, & Munson

OM in the News: Fuel Alternative Trucks Aid Sustainability at UPS

UPS is boosting its fleet of compressed natural-gas vehicles by about 19%

United Parcel Service Inc. is growing its fleet of alternative-fuel trucks as the delivery giant pushes to reduce fuel costs and vehicle emissions. The parcel carrier is spending $130 million to buy 730 compressed natural-gas vehicles, boosting its current CNG fleet by about 19%, and to add five CNG fueling stations to its existing network of more than 50 stations. The UPS investment is part of a broader effort to trim the company’s greenhouse-gas emissions from its ground operations by 12% by 2025, reports The Wall Street Journal (June 20, 2018).

Fuel is historically the biggest expense for transportation companies. While diesel prices dipped in 2015 and 2016, the cost has been climbing again. Companies are exploring alternatives. In recent months, trucking operator U.S. Xpress and beer-maker Anheuser-Busch, have reserved hundreds of hydrogen-electric trucks from Nikola Motor. Companies are also lining up to test out Tesla Inc.’s all-electric Semi big rig, Still, alternative-fuel vehicles account for a slim portion of the overall truck market. New models provide significantly better fuel economy than a decade ago.

In UPS’s case, by 2020 the company aims to have one in four new vehicles purchased be an alternative fuel or advanced technology vehicle, such as a hybrid truck or one incorporating lightweight materials that improve fuel efficiency. It also wants to swap out 40% of all fuel for its ground operations with sources other than conventional gasoline and diesel. Between 2008 and 2018 UPS will have invested more than $1 billion in alternative-fuel and advanced-technology vehicles and fueling stations. The volume of goods moved by truck continues to grow in the U.S.

Classroom discussion questions:

What model in Supplement 5 of the text can trucking companies employ in decisions such as these?
Why is UPS spending so heavily on its fleet?

OM in the News: Sustainability and Natural-Gas Truck Sales

A factor limiting natural-gas-powered truck sales is the arrival of new, more fuel efficient diesel engines

“In the midst of the strongest market for commercial trucks in 8 years, sales of natural-gas-powered haulers are just crawling along,” writes The Wall Street Journal (Aug.26, 2014). Higher purchase prices compared with diesel trucks, improved diesel fuel economy and continued scarcity of fueling stations are damping natural-gas-powered truck demand. Forecasters had expected sales to about double to 16,000 vehicles this year amid the trucking industry’s enthusiasm for natural gas a year ago, but only a 20% increase took place.

What happened? A big roadblock remains the premium for a heavy-duty gas truck—$50,000 more than the about $150,000 for a new diesel-powered truck. In theory, the payback for that higher price is recovered from fuel savings of $1.60-$1.70 for the gas equivalent of a gallon of diesel. Paybacks can average 4 years considering the average truck travels 125,000 miles a year. But fleet operators typically replace their vehicles every 3-4 years, leaving little time for them to benefit from the lower fuel costs of natural-gas-powered trucks. And the limited number of natural-gas refueling stations limits the switch to gas. Only about 750 natural-gas fueling stations are available in the U.S., and not all of these can accommodate large trucks.

The good news: UPS this year has ordered about 300 gas-powered heavy-duty trucks and bought 700 gas tractors last year. The trucks operate mostly in corridors in the West and South that have plenty of natural-gas stations, some of which UPS helped to finance. By the end of the year, about 2% of UPS’s 100,000 vehicles world-wide will be powered by natural gas. In addition, Wal-Mart, Office Depot, Lowe’s and P&G are among the companies requesting their trucking suppliers use natural-gas vehicles to comply with corporate policies to reduce carbon dioxide emissions and pollution caused by burning diesel fuel.

This article nicely complements our treatment of Life Cycle Ownership and Break-Even Analysis on p.195 in Supplement 5.

Classroom discussion questions:

1. What are the advantages and disadvantages of natural -gas-powered trucks?

2. Why have sales stalled?

OM in the News: Sustainabilty in Trucking Logistics

Here is a great article that ties into our new chapter, “Sustainability in the Supply Chain” and its Example S2 (see p. 195) dealing with life cycle ownership/break-even analysis. The Wall Street Journal (Oct.30, 2013) writes: “Operators of some of the largest U.S. truck fleets, including Lowe’s , P&G, and UPS are accelerating a shift to natural gas fueled trucks, betting on new engine technology that promises to drop the cost of shifting from diesel fuel.” Lowe’s wants its delivery company to shift all of its several hundred trucks to natural gas by 2017. P&G already has 7% of its trucks on gas and could reach as much as 20% within two years. UPS says it plans to buy 1,000 natural gas trucks by the end of next year. FedEx plans to shift 30% of its long-distance trucks to natural gas over the next decade.

The nation’s supply of relatively cheap natural gas is helping spur this shift. So are new natural gas engines that can power heavy-duty trucks that weigh up to 80,000 pounds. About 5% of all heavy-duty trucks sold next year will run on natural gas, up from 1% this year. Barriers to wider use are coming down, driven by the relatively low-cost of compressed natural gas, or CNG, which sells for about $1.50 less a gallon than its equivalent in diesel fuel, which averages about $3.87. Natural gas also produces less carbon dioxide, carbon monoxide and sulfur-based pollution than diesel or gasoline per mile driven. Diesel-engine trucks get 5-7 mpg and average 100,000 miles a year.

Waste Management, Inc. has converted 15% of its 22,000 truck fleet to natural gas, and 90% of its future purchases will be natural gas fueled, helping it save $15,000-$20,000 a year per truck, a 2-year payoff. The cost of the natural gas vehicles is still an issue. CNG trucks cost $40,000-$50,000 more than a diesel truck, which costs about $120,000. In large fleets, that premium could add millions of dollars to equipment cost.

Classroom discussion questions:

1. Why is the switch to CNG trucks an OM issue?

2. What factors are driving the change?

OM in the News: Fill ‘Er Up…With Natural Gas

LNG pump at Blu filling station in Salt Lake City

If you drive down I-15 in Beaver, Utah, you’ll see a 30-foot-tall silo with white letters that spell out “Blu.” Next to it is a truck stop. It is no ordinary truck stop. The silo contains liquefied natural gas (LNG) chilled to -200° F and ready to fuel specially outfitted 18-wheelers. The facility is owned by Blu Transfuels, which expects to build 50 natural-gas filling stations nationwide this year, according to Fortune (May 20, 2013).

Drawn to the vast potential of America’s fracking boom, Blu plans to convert natural gas into a liquefied form and use it to power the country’s fleet of 8 million heavy and medium-weight trucks, which account for 15% of U.S. oil consumption. The company’s partner, ENN, already operates 238 natural-gas stations in 59 cities in China. Blu’s VP of sales says, “LNG will allow our transportation fleet to save money and at the same time reduce its carbon footprint by 25%.”

Blu is not alone. Clean Energy, a company backed by T. Boone Pickens, says that it will have about 150 natural-gas stations in 33 states by year-end. Shell’s first LNG station opened in April in western Canada. Shell’s president says, “LNG has the potential to transform the transportation sector in a big way.”

The new LNG trucks should cost only $30,000 to $40,000 more than diesels. Given that a typical 18-wheeler travels 100,000 miles a year at 5 mpg and that LNG is about $1 to $1.50 a gallon cheaper than diesel, a driver can save as much as $30,000 a year in fuel — a one-year payback. Many trucking companies lock in their fuel costs for five years, which would provide a total savings of $120,000 over the life of the contract.

Discussion questions:

1. Why is LNG a supply chain topic in operations?

2. What major US shippers have announced plans to convert to LNG-powered fleets?