Supply Chain
How Brands Can Act Now to Benefit from New Efficiency Standards for Trucking

Earlier this month, the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Transportation proposed new fuel-efficiency and greenhouse gas standards for medium- and heavy-duty trucks.

I spoke with Jason Mathers of the Environmental Defense Fund to find out how these new regulations affect U.S. brands. Jason leads EDF’s Green Freight initiative, which works with consumer product companies and large fleets to reduce the environmental impact of product distribution in the U.S.

Can you bring us up to speed on what’s happening with new heavy-duty fuel-efficiency standards?

The standards proposed by EPA and DOT cover a range of trucks from work vans up to the large tractor-trailers that move roughly 70 percent of the freight shipped in the U.S. According to the EPA, the new standards would cut fuel consumption by 1.8 billion barrels of oil, reduce climate pollution by one billion metric tons, and save truckers $170 billion in fuel costs over the life of the program from 2021 to 2029.

Now we are soon to enter a 60-day comment period for companies and individuals to give feedback to the agencies before the rules are finalized next spring.

Why should brands be interested in giving feedback on the standards?

Nearly every company in America relies on trucks to move goods. Brands use trucks to get their products to their customers. Retailers use trucks to make sure their shelves are stocked. Even technology companies need trucks to deliver the hardware that powers their online services.

Fuel is the biggest cost associated with trucking (39 percent of operating costs for fleets). These costs are inherently volatile and passed on to brands through fuel-surcharges. Higher fuel consumption leads to lower margins or higher priced products.

Customers see these costs too. They pay an average of $1,100 per household to cover these costs, according to the Consumer Federation of America.

Increasing the efficiency of the heavy trucks that move freight offers companies a crucial route to minimizing not only costs, but also environmental impacts. In 2013, trucks on U.S. roads consumed 2.7 million barrels of oil per day and emitted 530 million metric tons of carbon pollution.

Increasingly, leading brands such as General Mills, Walmart and Anheuser-Busch are setting sustainability targets that include fuel consumed by trucking services and greenhouse gas emissions from global logistics operations.

What’s EDF’s perspective on the regulations?

EDF has called on the agencies to set new fuel efficiency and greenhouse gas standards for heavy trucks that cut fuel consumption by 40 percent in 2025 compared to 2010. To do this, tractor-trailers will have to increase average MPG to 10.7 in 2025, up from 5.8 in 2010.

The proposal released by the agencies is a good first step towards putting in place protective standards that will maximize cost-effective reductions in fuel consumptions and climate pollution. The proposal does, however, delay full implementation until 2027. We are encouraging the agencies to move up this timeframe as they finalize the proposal to encourage quicker adoption of cost-effective, fuel-efficiency technologies.

Advanced technologies emerging in the marketplace with payback periods of 18 months or less have the potential to double fuel economy to 11 to 12 miles per gallon in the 2025 to 2030 time frame.

In fact earlier this year, Daimler Trucks North America unveiled a SuperTruck prototype that road tested at 12.2 mpg. And in 2013, Cummins and Peterbilt developed a SuperTruck road tested at 10.7 MPG.

What will the financial impact of the new regulations be to the brands that rely on trucking?

Brands that use trucking services to get their goods to market but do not own trucks will see their freight rates go down.

EDF and Ceres teamed up with consulting firm MJ Bradley and Associates to assess how strong heavy truck fuel efficiency standards that met our 40 percent fuel reduction goal would affect businesses that rely on trucking. In an update of analysis originally produced last year, we found companies could see freight rates fall nearly 7 percent as owners of tractor-trailer units see their costs fall by $0.21/mile. These savings add up: A big consumer goods company, for example, could save over $10 million a year in 2030 by using trucking companies with newer trucks.

Given that tractor-trailer trucks logged nearly 170 billion miles last year, that $0.21 per mile savings, for example, equates to $34 billion dollars less in annual freight costs.

Brands that own or operate their own trucks could expect to see $30,000 in annual fuel savings from the improvements per new truck, translating to a short 13-month return on investment.

The thing is, when fuel prices rise, you can’t improve fuel efficiency quickly. It takes manufacturers time to scale up vehicle efficiency solutions. So the benefit of setting new strong standards (even though oil prices have gone down) is getting more efficient trucks on the road now that offer immediate savings and reduce climate impacts.

Moreover, standing against or keeping quiet about the importance of strong, federal standards is essentially committing to higher long-term costs, more greenhouse gas emissions, greater fuel use and exposure to fuel price volatility than would be the case under stronger efficiency standards.

The financial benefits of stronger regulation seem clear. What about the environmental benefits?

Trucking is a fast growing source of greenhouse gas emissions. While medium- and heavy-duty trucks only make up 7 percent of all vehicles on the road, they consume 25 percent of the fuel used by all vehicles. And freight-hauling tractor-trailers consume nearly 70 percent of the fuel used by all heavy-duty trucks.

U.S. trucks emitted 530 million metric tons of carbon pollution in 2013. Those emissions are projected to increase by another 120 million tons by 2040. A strong standard of 40 percent reduction in fuel consumption by 2025 would reduce emissions by 270 million metric tons when combined with the phase one regulations that went into effect in 2014.

There will also be significant air-quality benefits, as the rule stands to reduce the harmful NOx emissions that cause asthma attacks and other respiratory illnesses. The NOx reduction would be comparable to the recent EPA rule on smog emissions from gasoline-fueled cars. Estimates suggest that rule annually prevents 50,000 cases of respiratory illnesses in children and 1.4 million lost work and school days.

What brands are leading the way on this issue? What kinds of things are they doing?

Indra Nooyi, the chairman and CEO of Pepsico, which owns the largest private fleet in the U.S., voiced strong support for new regulations in an op-ed with EDF’s president, Fred Krupp, in the Wall Street Journa**l.

IKEA and Stonyfield, which are large users of trucking services, joined a group of companies that sent a letter to EPA Administrator Gina McCarthy in support of the standards.

Several truck equipment manufacturers, including Cummins and Eaton, and large fleets, including FedEx, Conway and Waste Management, issued statements of support for the proposed standards.

How can other brands become engaged in supporting strong fuel-efficiency standards?

A great place to start is by attending EDF’s webinar on July 21, 2015 at 12 p.m. EDT.

I’ll be explaining how the new standards are structured, what opportunities they offer companies in terms of meeting sustainability and carbon-reduction goals, and what actions companies can take to support and strengthen these protective and affordable standards.

The webinar will prepare companies to participate in EPA’s 60-day comment period on the proposed regulations. This is the critical opportunity for companies to weigh in supporting strong fuel efficiency standards for heavy trucks. Companies can comment at regulations.gov (Docket ID No. EPA-HQ-OAR-2014-0827) and attend upcoming hearings, which are expected to be announced shortly.

If companies have questions about commenting, or the hearings, they also can contact me directly at [email protected] or 617-406-1806.

This post is sponsored by Environmental Defense Fund.