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

August 29, 2014
A factor limiting natural-gas-powered truck sales is the arrival of new, more fuel efficient diesel engines

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?

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