TORONTO, Ont. — Ryder System has more than 500 natural gas trucks in its network and another 300 on order. It has installed fuelling stations, retrofit its shops to meet natural gas safety requirements and trained its technicians on how to service the vehicles.
To date, most of this effort has been undertaken in the US, but just this week the company announced its first natural gas leasing deal in Canada. C.A.T is taking delivery of 100 CNG trucks, which will be leased from Ryder and serviced in Ryder’s Montreal facility.
When attending the Natural Gas Commercial Vehicles Conference in Toronto this week, we caught up with Scott Perry, vice-president of supply management with Ryder, to discuss natural gas, its maintenance requirements and why leasing these vehicles makes sense for Canadian fleets.
TN: Scott, when you take the podium later, what’s your main message to attendees here today?
Perry: That we have been working very aggressively with a combination of stakeholders, whether it’s the OEMs manufacturing the chassis, the tank companies who are developing and configuring the fuel storage systems and absolutely the fleets, to educate them around the benefits and some of the operational trade-offs that come with natural gas.
TN: What does Ryder’s natural gas fleet look like today?
Perry: Much different than it did five years ago. We have expanded the portfolio quite a bit. We started out working almost exclusively with Freightliner. We now have products in our fleet manufactured by Peterbilt, Kenworth, Volvo, Mack, Greenkraft, Navistar and of course, Freightliner. We have expanded the brand presence and we have expanded the engine portfolio that is represented in our fleet.
We have the 15L Westport. Of course we have the new 11.9L Cummins engine. We have the 8.9L. We’re rapidly building on our experience and the number of vehicles we have in our fleet.
Fuelling infrastructure is also something we’ve developed, to a lesser degree than our maintenance, service and vehicle portfolio.
TN: How many vehicles, in the US and Canada?
Perry: We are tipping the scale in on the ground vehicles at just about 500. We have more than 300 on order, to be delivered in the next 90-100 days.
TN: We’ve seen a little bit of an easing of diesel prices of late. I’m getting the sense interest in natural gas is waning a bit as diesel prices come down. What’s your sense?
Perry: I think there’s interest. This is a big decision. Diesel very much is a global energy source. There are developing countries that are going to far surpass the US and Canada regarding the number of vehicles on the road consuming diesel. The demand for that is only going to continue to grow. It’s going to move and be as volatile as we’ve seen in the past.
If the past repeats itself, we would expect those prices to go back up. I think most fleets understand and appreciate that this softening of diesel prices is a short-term benefit. Long-term, they’re still looking at natural gas. Has it caused some folks to maybe back off a little bit? I think it allowed them some breathing room to say ‘Okay, let me wait for the fuelling infrastructure to develop. Let me wait for some manufacturers to do a little more work on integrating the technology. Let me address some of my driver recruiting and retention woes.’
They have a lot of distractions in front of them right now in just trying to support and maintain their core business.
TN: You’re still very optimistic about the future of natural gas, then?
Perry: Yeah, we are. We think that it’s going to be a piece of the commercial vehicle portfolio going forward. Our crystal ball is no clearer than anyone else’s as far as what that adoption rate is going to look like. There are way too many global variables that can impact on that, up or down.
We’re building the infrastructure to continue to support it. We’re answering the requests from customers to help them convert their fleets over and giving them information so they can make good decisions. That’s really the role that we’re playing.
TN: How concerned are you about some of the product pullback we’ve seen? The Volvo 13L, the Cummins 15L and the Westport 15L? The 12L is great for 80,000 lbs but here in Canada, a lot of fleets haul heavier payloads. Most of the early adopters here went with the 15L Westport engine. They run long combination vehicles with those. Do you think the 12L is good enough for the industry?
Perry: I think you have a couple dynamics occurring in parallel. There’s a dramatic shift in North America. I won’t speak specifically to Canada, because you’re right, with the heavier GVWs, the higher displacement, higher horsepower engines absolutely make a lot of sense.
Whenever you look at the non-heavy haul marketplace, we’re seeing a pretty meaningful transition away from the traditional 15L engine platforms to 12- and 13L diesel engine platforms that are becoming more efficient. They’re driving a lot of weight savings.
Many of the manufacturers are looking at that weight and their ability to generate more horsepower and torque out of a smaller displacement engine as part of their long-term design in meeting the regulatory requirements for greenhouse gas emissions reductions going forward.
I think you see this shift by fleets away from the traditional, heavy displacement high horsepower products, moving more toward the middle, which is where the 12L already resides. I think it’s finding a place in satisfying a really broad range of the need within the marketplace.
While there are some niche operations that are real heavy-haul, that are going to be really limited in being able to deploy natural gas at this point, I think that as the uptick continues in the development of the 12L products, and also as the infrastructure continues to build out, then those longer haul higher horsepower heavier displacement applications will see an engine come to market that will meet those needs.
TN: How is the 12L performing for Ryder?
Perry: Very well. We’ve had a lot of success with it. It’s a much different platform than what we experienced with the 8.9L. The 8.9L just really wasn’t suited to perform in the heavy-duty space, even though we stretched the rubber band a little further than it was intended to go.
We’ve learned a lesson from that on keeping it within the right application. That product performs fantastically in the lighter gross weight applications. The refuse, the transit, the beverage transport industry – we’re seeing very good performance from it in those applications.
Whenever you get up into the higher mileage, higher GVW applications, especially when you get into rolling terrain or over mountainous areas, there’s jut not enough horsepower to perform.
Conversely, the 12L has satisfied that need fantastically. We’ve gotten really good feedback from drivers and operators. Uptime has been very good, reliability is good. The opportunity is still there to work on fuel economy but I know that Cummins and Westport are focused on that as well.
TN: Sticking with the 12L, because I think that’s primarily what we’re going to see here in Canada, what have you seen on the maintenance side? I know it needs a special oil. What else is required on the maintenance side?
Perry: There are a couple competing factors whenever you’re comparing operating expenses between diesel and natural gas. You’ve already called out one, a different specification of oil that’s required. While that’s a nuisance, it’s a small change in the overall variable. It is a cost driver.
The frequency of those oil drain intervals is something that we’re seeing being shorter than what we would find with traditional diesel products. That requires more touches of the vehicle, more planned service events, more time with the vehicle being out of service.
It definitely has to be taken into account. Spark plugs, of course, the spark-ignited combustion cycle is something that’s new and different.
The benefits are, it doesn’t have a very complicated aftertreatment system that you would see with a diesel product. We take the pros with the cons and really try to net that out. Net, we still see a little higher maintenance burden because of the variables I listed.
TN: Is it too early to say what your life expectancy is for this engine compared to a diesel?
Perry: It is. We rely heavily on the engineering design of the manufacturers. We look at B50 and B10 lifes when we’re trying to understand how long we’re running. Our business model is built around not running the engine until its death.
We run its first economic life then we sell it into the secondary market with a significant amount of life left in it. That’s how our lease portfolio remains balanced and how we support the flow of products into that used vehicle seller’s market.
We’re pretty confident from what we’re seeing from the design and reliability elements, from an engineering perspective, that it will operate very well in our portfolio out to 700,000 or 800,000 miles but there’s no doubt in my mind that it’s a million mile-plus engine.
TN: Does a secondary market for these trucks exist, or is this something you are hoping develops?
Perry: I think there will be a secondary market. The function of what the value of those vehicles will be from a residual perspective is really going to be driven by the incremental delta between diesel and natural gas at the time those vehicles are redeployed. I think the tank packages will hold up very well. It’s just a matter of the economic value the second buyer sees in that fuel savings over time.
We would anticipate that diesel would continue to rebound and begin to appreciate in price and natural gas to remain very, very stable. I think the opportunity for that secondary buyer to see savings and value and for there to be a market for those vehicles is pretty strong.
TN: I’ve heard conflicting reports on what’s required to retrofit a shop. Some say it’s very expensive, there’s a lot involved. I’ve heard others say you need a methane detector and a fan and not much more. What is involved in servicing the vehicles?
Perry: While the standards are a little gray and a little ambiguous and subject to a little interpretation, there’s not a lot of debate on how they should be interpreted in terms of things like the number of air exchanges per hour within a facility and how to calculate the amount of air based upon the volume of the facility and the rate at which it should be turned over.
A fan absolutely doesn’t give a facility – I’ve heard the same – but it doesn’t give the facility the infrastructure that’s required to really meet that standard. I think it’s five air exchanges per hour based on the US standard and the Canadian standard is the same.
The methane detection (system) is absolutely required. The conversion of the electrical and lighting systems is something under the electric code. We want to make sure we’re eliminating the potential for any type of ignition source.
I’ve stressed potential because you would have to have a release of natural gas vapors for them to accumulate at a mixture within the air that it even creates the potential for there to be an ignition and a fire. That’s what we’re trying to prevent through good maintenance procedures when we’re working on the vehicles to making sure we have the appropriate controls within the facility.
Our standard at Ryder has been that we want to build and upgrade our facilities to meet or exceed those standards. You don’t cut corners in this area. This is an area, whenever you look at the safety of your employees, the safety of your customers and the safety of the general public, the industry really can’t afford to have a setback because someone cut a corner.
TN: That said then, I’m thinking a full-service lease would be an attractive option for fleets that don’t want to take on that investment. Is that where you see Ryder playing a role?
Perry: Yes, we’re seeing that resonate on a number of fronts. We’ve already talked about residual value protection. We’re taking that exposure on the end of the life for that vehicle, based on our vast experience in redeploying or selling into the secondary market about 20,000 assets per years.
We’re really the biggest secondary sales arm of commercial vehicles in North America.
The uptime and reliability; this engine technology and the tank systems haven’t seen a full life-cycle. We don’t know how they’re going to perform at their full life.
When you look at a customer whose trying to service their customers and asks the question, ‘Will my fleet operate every day?’ We can’t guarantee that with the technology. We have a high degree of confidence but, in the event a vehicle has to be taken down, our lease model provides for a replacement vehicle so the customers can continue to deliver their product. In most cases, it won’t be a natural gas vehicle as a replacement, it’ll be a traditional diesel product.
Then, just the operating expenses from a maintenance perspective. There are still some unknowns, so that guaranteed maintenance cost through our full-service lease is extremely important and resonates with a number of our fleet partners.
We really see that, along with our ability to work with the OEMs and have, frankly, the lowest possible acquisition price based upon our relationship and our volumes. All those variables combined – the acquisition cost, the maintenance expense and insulation against any type of risk of catastrophic failure and downtime, mitigating that through our rental placement – all those combined are really pretty compelling for the marketplace.
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