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Why the time is right to break the industry’s reliance on costly crude

Average fuel surcharges increased in 2011 by just shy of 40%, the second year in a row that surcharges increased after having fallen sharply in 2009. It should come as no surprise then that Canadian shippers, although the vast majority of them...


Average fuel surcharges increased in 2011 by just shy of 40%, the second year in a row that surcharges increased after having fallen sharply in 2009. It should come as no surprise then that Canadian shippers, although the vast majority of them continue to pay fuel surcharges, are starting to grumble about them.

The Shipper Pulse Survey, a joint project we undertook with the Canadian Industrial Transportation Association this January, uncovered some gripes that should be cause for alarm. For example, almost 30% of shippers no longer think fuel surcharges are necessary (even though fuel costs are on a steep rise.)  More than 60% see fuel surcharges as a source of profits for their carriers, rather than as a neutral cost pass through.  More than half of the group thinks carriers should move to market rates that include fuel surcharges.

Already about a quarter of shippers have taken the matter into their own hands and developed their own fuel surcharge index that they require their carriers to use.

While it’s natural to want to shout at the apparent unfairness of it all – after all trucking did lose a good quarter of its small carrier base a little over a decade ago when diesel prices spiked and carriers were caught without fuel surcharges in place – perhaps it’s best to take a different approach.

Perhaps it’s time to break the industry’s reliance on diesel and being victimized by all the politics that drive its pricing. Transport companies using a variety of fuels to power their fleets would  be less exposed to surging oil prices.

Of course, until now that was just talk; it wasn’t reality.

But that is starting to change and, in some instances, that change may pick up steam quickly.  As executive editor James Menzies, who was among the more the 750 transportation professionals attending the recent Green Truck Summit in the US, points out, the general sentiment is that alternative fuel vehicles have moved beyond the “science project” stage and are now delivering acceptable paybacks when placed into the appropriate applications.

Natural gas may be the best of several alternative energy examples.

Although there have been pioneering efforts to move to natural gas, which costs about $1.50 per equivalent gallon less than diesel,  two of the biggest barriers to transitioning the long-haul trucking industry to natural gas have been the cost of the equipment and availability of the fuel. But in the US those two obstacles are being addressed by an innovative arrangement between truck maker Navistar International and gas supplier Energy Fuels. The companies jointly announced a program that will allow a customer to purchase natural gas-powered trucks from Navistar at no more than the cost of a diesel equivalent and then pay for the technology through slightly inflated gas prices over a five-year period, while still enjoying fuel costs significantly lower than diesel. To participate in the program, customers will have to agree to purchase most of their fuel through Clean Energy’s rapidly growing US fueling network. Clean Energy has vowed to open 70 liquefied natural gas (LNG) fueling stations in the US by the end of 2012, with another 100 to follow in 2013. And for its part, Navistar has promised to develop a natural gas version of every one of its medium- and heavy-duty products.

In Canada, Shell’s Canadian Green Corridor, the company’s first large scale LNG project in North America, launches this Spring. Initially employing a mobile refueling unit to service the needs of fleets running the Edmonton to Calgary corridor, the company also has agreements in place with three Flying J stations in the corridor for them to supply LNG starting in the third quarter of this year. And, if there is sufficient interest, Shell is looking to expand far beyond the Edmonton-Calgary corridor. (For more info see our stories in the Green to Gold section.)

I’m willing to bet that if the industry moved aggressively to finally curb rising fuel costs, shipper concerns about fuel surcharges would melt away.

Let’s continue the conversation on transportation issues.  Join me at two special events coming this Spring.  The Supply Chain Canada conference, May 8-9, International Centre, Toronto. Go to www.supplychaincanada.com to register. And also the Carbon Economy Summit, June 6,  Metro Toronto Convention Centre. Go  to www.carboneconomysummit.ca. to register.


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