DC Velocity - December 2015

BY MARK B. SOLOMON, EXECUTIVE EDITOR – NEWS

MOTOR FREIGHT

IN SEPTEMBER 2012, DC VELOCITY SPENT A DAY WITH Saddle Creek Logistics Services, an asset-based third-party logistics service provider (3PL) that had made one of the biggest commitments of any for-hire trucker to compressed natural gas (CNG) trucks. At the time, diesel fuel prices hovered around $4 a gallon, well above CNG prices. Michael J. DelBovo, president of the Lakeland, Fla.-based company’s transport division, predicted that level would be the long-term price floor for diesel.

Three years later, the floor has given way. As of Nov. 30, the average national price of a gallon of on-highway diesel stood at $2.42, according to weekly data published by the Department of Energy’s Energy Information Administration (EIA). On the Gulf Coast, which generally reports the lowest diesel prices of the nine regions tracked by EIA, the average price stood at $2.25 a gallon. Through mid-year, the drop in diesel lagged behind the sharp declines in the prices of the two types of oil traded on world markets: West Texas Intermediate (WTI) and Brent North Sea crude. In recent months, however, diesel has caught up—or down—in a big way.

In an interview a couple months back, DelBovo said he
anticipated the oil-price volatility but underestimated the
duration of its decline. He’s not alone; a near-universal
misread of the longevity of the downward move led to the
coinage of the term “lower for longer.”
Faced with a sudden and dramatic change in the macro
environment, DelBovo tweaked the company’s operating
model. He eliminated a “fast fill” approach to fueling its

200 natural gas trucks in favor of a “time fill” method,
under which gas is slowly dispensed from on-site compres-
sors into the trucks. The “time fill” method fills an engine
more completely because the gas has time to adjust to its
surroundings inside the tank. The company then estab-
lished filling “zones,” where trucks were time-filled in rota-
tion rather than all at once. This optimized tractor utiliza-
tion by keeping more of the rigs on the road while others
were being refueled, according to the company. Through
these steps, Saddle Creek Transportation boosted its CNG
utilization by about 10 percent, DelBovo said.

The company will take delivery of 50 new tractors by year’s end. But they will run on a mix of 70 percent CNG and 30 percent diesel, and will cost less than tractors that run exclusively on CNG. At least 20 of the tractors will be financed in part through incentives from states like Florida, Georgia, and Texas to encourage investment in natural gas vehicles, DelBovo said. “We are taking advantage of every incentive out there to buy new trucks,” he said.

Even with the steep drop in oil prices, the gap at the pump between diesel and CNG persists, thanks to natural gas’s own price plunge. As of Dec. 2, natural gas was priced at $2.17 per million British thermal units (BTUs), down nearly $1.71 per million BTUs from the same time in 2014. The natural-gas price downdraft has kept a tight lid on CNG pump prices. Current prices at public fueling stations nationwide, and at company-owned stations in Lakeland and Fort Worth, Texas, range between $2.00 and $2.10 a gallon, according to Saddle Creek Transportation’s estimates. They are lower at its own locations.

DelBovo said he remains confident in the unit’s strategy. “This project is going to be successful even at the current prices for diesel and CNG,” he said in the recent interview. Still, the initial projections of a four-year time frame for the gap between diesel and natural gas prices to overcome the upfront expense of CNG-powered vehicles have been pushed out to six years, he said.

SLAM-DUNK NO LONGER

The conversion from diesel fuel to natural gas, which
seemed a no-brainer earlier in the decade,
now requires some thought. A CNG-
powered vehicle still costs tens of
thousands of dollars more than
a comparable new diesel truck,
transportationreport