Nancy Getter, the Associate Director of Global Logistics at Procter & Gamble (P&G); Doug Watne, Director of North American Transportation at General Mills, Erik Neandross, a clean energy consultant for Frito-Lay, and Dave Warren, the President of Dart Transit Company, all spoke on a panel at CSCMP a few weeks ago about using natural gas trucks for a larger portion of their shipments.
P&G has 800,000 annual shipments over 8,000 lanes in North America. They have a small dedicated fleet; mostly they work with carriers. Their goal is to have 20 percent of their shipments provided by compressed natural gas (CNG) equipment by June of 2013. They work with 80 carriers in North America, 11 of those carriers run some part of the fleet with natural gas trucks. They are signing one to two year contracts for one way deliveries (no back hauls) with carriers that have natural gas equipment.
While P&G does want to be seen as a company engaged in sustainable practices, and natural gas trucks produce 25 percent less carbon dioxide per mile, this decision was driven by the savings they could generate. While natural gas trucks are significantly more expensive, the price of fuel is substantially less than that of diesel. Further, P&G feels the price of this domestically generated fuel going forward will be much less volatile crude market based fuels as oil and gas products are sourced from some very unstable regions of the world.
Currently, natural gas trucks are carrying goods to destination in 25 states across all business units and there are “clear savings.”
General Mills network is very similar to P&Gs. They have 850,000 shipments per year across 7,500 lanes in North America. 25 carriers account for 95 percent of the moves. General Mills is running a 63 lane CNG equipment pilot with the Dart Transit Company. These lanes currently account for over one million miles annually. This move to natural gas equipment is driven partially by a corporate initiative to use 35 percent less diesel in five years. This initiative makes them a better corporate citizen as domestic supplies are abundant and purchasing natural gas creates US jobs. But General Mills also believes there are good savings and lower risks in relying on natural gas than on diesel.
Frito-Lay, a division of PepsiCo, has plans to buy about 150 natural gas trucks, also CNG, a year. The problem they faced is that while there is an established network of CNG refueling stations in Texas and California, the CNG fueling station network is not sufficiently built out in the Midwest. Their goal was to get CNG fueling stations built near key Frito-Lay Distribution Centers (DCs) in underserved portions of the US, but not have to use company capital to accomplish this.
Frito-Lay accomplished this by making a commitment to potential fuel station partners that they would buy fuel for five to seven years at the new fueling station. They were able to simultaneously lock in fixed fuel prices of well less than $2 per gallon for the same time period. They have awarded contracts for the first seven sites, which are in construction, and are analyzing bids for seven additional sites.
One of General Mills’ carriers – Dart – was also on the panel. It was interesting to hear the perspective of the carrier. Dart is aggressively buying natural gas trucks to align with customer’s desire for a low cost, green solutions. But natural gas trucks are not a panacea. The larger fuel tank adds 3,000 pounds, which means these trucks can weigh out quicker than diesel trucks do. The range of the most popular natural gas trucks is about 600 miles. Because the equipment is expensive, they seek to run the equipment all day long, which means trucks get routed through relay stations and the first driver turns the truck over to a second driver.
In short, shippers cannot economically turn over all shipments to CNG equipped trucks. Picking the right lanes involves careful network modeling that looks at the fuel station infrastructure and maps those stations to lanes that are dense enough – generate enough miles – to justify using the higher priced equipment. Shippers that have a high proportion of 53,000 pound loads on given legs may also find network limitations to using CNG trucks.
CNG equipment is a newer technology; these engines are not yet as rock solid as diesel technology. There are fewer dealers that can service these types of trucks, which can affect the maintenance turn-around time. Further, there can be fueling problems in very cold weather.
The other type of natural gas truck is based on liquefied natural gas (LNG). All participants felt that currently the ROI around CNG was better. Although, as the LNG infrastructure builds out, it is even less developed than for CNG, there will be lanes where LNG will also make sense.
Finally, the shippers warned that as they looked at carrier partners, many carriers are just not that passionate about natural gas equipment. Clearly, Dart did not fall into this category. Unenthusiastic carriers are not the partners a shipper should work with as they pilot working with natural gas equipment.