I just returned from the National Truck Equipment Associations’ Work Truck Show in Hotlanta, Ga. (The city failed to live up to that nickname during my stay, by the way – I even noticed a few snowflakes on Wednesday morning).

Hybrid trucks and alternative fuels dominated discussions at the event. OEMs were surprisingly candid about the costs of hybrid vehicles. Most agreed the up-charge is about US$40,000-$45,000 for Eaton’s hybrid system; tack on an extra US$15,000 if you require an electronic PTO.

With the Canadian and US dollars near par, you can count on the cost being about the same on this side of the border. The major difference, however, is that federal, state and even local tax credits and grants are available in the US, which in some cases can combine to cover nearly 100% of the cost increase.

Rachel Beckhardt, project analysis, corporate partners with Environmental Defense, spoke to the audience about such incentives. In some cases, she reported, there is more money available than there are companies looking to take advantage of them.

In New Hampshire, for instance, there sits a seven-figure pool of incentive money and yet not one trucking company from there has reached out its plate for a piece of the pie, Beckhardt pointed out. What an interesting conundrum.

I would bet that there are a lot of trucking companies here in Canada that would welcome the opportunity to offset some of the up-charge that hybrid vehicles currently carry. Instead, in the absence of incentives, most fleets north of the 49th are sitting on the sidelines and waiting for higher volume orders in the US to drive down production costs. Certainly, not all fleets are guilty of this. Canada has its early adopters as well, especially amongst the courier ranks.

But even with fuel savings of 30% or more and idle-time reductions of as much as 80% in some applications, it takes an awful long time to recover that $40,000 up-front investment. The government has been shelling out incentives for passenger vehicle hybrids, isn’t it time to consider extending these to include commercial vehicles?

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Just received the latest financial statistics on the nation’s motor carriers, and, frankly, they are worrisome.

The trend towards costs growing faster than revenues, which first appeared back in 2006, continues with a vengeance.

Operating revenues for the nation’s top carriers (the 97 Canadian-based trucking companies earning $25 million or more annually) in the third quarter of 2007 were up 5.8% but their operating expenses increased 6.7%, on a year over year basis.

It’s a pattern that’s becoming well worn. Consider the three quarters previous to the latest data:

Second quarter 2007: Revenues down by 1.3%. But expenses down only by 0.5%.
First quarter 2007: Revenues down 2.0%. But expenses down only 1.1%.
Fourth quarter 2006: Revenues up 2.3%.. But expenses up 2.9%.

And lest you see hope in the revenues being up in the third quarter, it’s important to note that average per-carrier revenues actually decreased 0.7% from the third quarter of 2006 to $26.2 million while average per-carrier expenses remained almost unchanged at $24.7 million.

Of course, this nasty business of costs growing faster than revenues has a direct impact on the bottom line. During the capacity crunch that started in late 2003 and ran into the first quarter of 2006 and allowed carriers to post some impressive rate gains, top carriers’ average operating ratio (operating expenses divided by operating revenue) reached an impressive 0.92. But the latest data shows it has climbed back up to 0.95.

Making five cents on the dollar is the borderline many consider as a healthy profit margin for trucking fleets. And that’s slicing it pretty thin when you consider Class 1 railways make upwards of 20 cents on the dollar.

As I’ve noted in previous blogs, this will bring pressure to bear on equipment purchasing strategies, particularly since , if we use 1993 as the base year, power unit costs were already up almost 18% before the impact of the 2007 engines and trailer costs are up 43%. And I don’t need to tell you what’s happened to fuel costs and driver costs over this time.

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While environmental groups laud B.C. for becoming the first North American jurisdiction to announce a full-fledged “carbon” tax, the trucking industry must feel like it will be shouldering an unfair share of the burden. If approved by the legislature, diesel prices will rise by 2.2 cents/litre by this summer and 8.27 cents/litre by 2012.

We all know how difficult it is for trucking companies to pass on the increased cost of fuel at the best of times. Now they must try to do so while competing companies from other jurisdictions can avoid filling up in B.C. altogether and pay substantially less for fuel. This will put B.C.-based carriers at a competitive disadvantage.

The province is promising the new tax will be “revenue-neutral,” with funds re-invested into individuals and businesses that reduce their reliance on fossil fuels. It’s being touted as a carrot-and-stick approach, but who can blame the trucking industry for wondering “Where’s our carrot?”

After all, there’s no recognition of the fact the trucking industry today is already operating remarkably clean equipment. The EPA07 engines are nearly smog-free. By 2010 they will be even cleaner. The trucking industry was “going green” even before the province of B.C. began debating the merits of a carbon tax.

The province’s carbon tax falls short of a cap-and-trade system, which would allow companies that reduce their emissions to then sell carbon credits to other companies that cannot reduce their pollution to agreed-upon levels. While the trucking industry has generally opposed a cap-and-trade system, at least it would provide the proverbial carrot for fleets that are able to demonstrate a marked reduction in fuel consumption. Most of the best-run truck fleets are doing this already. If a fleet operating only the latest environmentally-friendly equipment could turn around and sell credits to, let’s say, an oil and gas producer, it may actually benefit our industry.

There was mention in the province’s news release of funding biodiesel production facilities. One may speculate that fleets that adopt the use of biodiesel may be rewarded under the program. But the potential flaws of adopting alternative fuels have been well-documented. Biodiesel remains a viable option for fleets that are comfortable with its performance and benefits – but should the industry have alternative fuels forced down its throat? Particularly when there are some fairly sensible arguments out there that downplay their environmental benefits? We mustn’t forget that today’s diesel fuel at 15 PPM sulfur is not as dirty as it once was.

There’s also mention in the release of a $2,000 credit towards the purchase of fuel-efficient vehicles. No word on whether trucks will qualify, but they certainly should. The CTA has been pushing for incentives for early adopters of what it’s calling the enviroTruck – a EPA07 engine-equipped truck spec’d for optimum fuel economy. Hopefully this program is broad enough to include incentives toward the purchase of latest generation trucks and engines – even hybrids. Otherwise, it looks like the trucking industry will shell out millions in additional taxes without receiving a fair return. And if that’s the case, let’s just call a spade a spade and a fuel tax a fuel tax.

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The CTA is forging ahead with its attempt to have stability systems made standard on all new Class 8 trucks sold in Canada. Frankly, I think it's a policy that has a lot of merit.

But I hope the CTA isn't spending too much time and resources on this initiative - it probably won't have to. I was at the Heavy-Duty Aftermarket Week festivities in Las Vegas a couple weeks ago and NHTSA associate administrator for rule-making Stephen Kratzke hinted the organization is already well on its way to coming up with stability system requirements of its own.

Apparently, NHTSA administrator Nicole Nason is a huge fan of stability systems. She helped usher in the American requirement for the technology on light-duty vehicles, and then asked her underlings 'What about trucks?' Right away, testing began on anti-rollover technology for heavy-duty vehicles and that testing is still under way today. It's almost certain NHTSA will adopt a requirement for anti-rollover systems on heavy-duty vehicles and it will likely be in place within a few years.

Fleets and owner/operators really shouldn't fear this technology. The bottom line is, it works very well and it has the potential to save lives and reduce accident-related costs. Most of the concerns I hear from drivers center around two issues, and I'd like to address both of them here:

First is the added complexity these systems add to the vehicle. I think many owner/operators and drivers fear the word "sensor", and really, who can blame them? More sensors means a higher probability of failure, no? Well, I've posed this question to the manufacturers. As you likely know, there are two types of stability systems out there (excluding trailer stability systems). You have roll-stability, which is effective at mitigating most rollover situations. Roll-stability systems use the existing ABS wheel sensors - there are very few additional components. Meritor WABCO’s Mark Melletat, says the company’s roll stability system “doesn’t involve a lot of extra components. You take your ABS ECU and you build upon it.” He adds there’s very little in the way of additional componentry and that existing ABS sensor failures are rare.

Then you have electronic stability systems, which are much more advanced and are better at coping with factors such as slippery road conditions and jack-knife scenarios. Electronic stability systems are more complex - they require additional sensors that measure such things as yaw and steer-angle. It's worth noting, Kratzke said that so far NHTSA testing seems to indicate roll stability systems alone may well be enough to meet the agency's requirements.

At any rate, sensor failure is likely not a valid reason to shy away from roll-stability systems. Melletat points out his company has more than 50,000 units on the road, and ABS sensor failures are basically a non-issue.

Now for the second myth I often hear about stability systems; that drivers will be more careless knowing the system is there to bail them out. I dismiss this argument out of hand. No professional driver is going to take a corner just a little bit faster than normal because he's got a fandangling new anti-rollover system on his truck. Not even a bad driver is going to take that risk. It's counter-intuitive.

What it does do, is provide a little extra room for error for the good driver who makes a mistake or suffers a lapse in judgement. We've all done it at one time or another - taken a corner a little too fast or misjudged an angle. Some of us do it more than others. You may never require an intervention from the system, but if you do, you'll be glad it was there. Trucking can be an unforgiving profession. Here's an opportunity to increase your margin of error for those rare times you do make a mistake. Don't tell me drivers are going to take corners a little faster just because they can. I don't buy it.

Obviously, I'm a big fan of this technology. I'm a big fan of safety technology in general - provided it does what it says it will do and doesn’t create additional risks. I'm also cognizant that profit margins are thin in this business and increased costs are not easily passed on to customers. But in the grand scheme of things, this technology is not overly-expensive. Roll stability systems run about $700-$800. Full electronic stability systems are a little more than double that. Should they become standard, economies of scale will drive the price down further.

As Fred Andersky, electronics manager with Bendix recently told me, "It's like insurance. You hope you never need it but if you do, you're glad you have it." It's insurance at a pretty cheap price. If it gives you peace of mind, who can complain about that?

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Between them, they make buying decisions for more than 100,000 vehicles: Sid Gooch, FedEx Express; Kevin Tomlinson, South Shore Transport; Steve Duley, Schneider National; and Carl Lyth, Pepsi Americas. So it stands to reason, that any parts supplier or distributor would do well to learn a few things about what drives the buying decisions of each of those executives.

To think they make purchasing decisions based on price would be naïve. In fact, Schneider’s Duley said during a panel discussion at the recent Heavy-Duty Aftermarket Week that price ranked third in that company’s list of considerations, behind ‘Part meets criteria’ and ‘Service performance.’ “We never buy anything purely on price,” Duley said. Schneider alone accounts for US$45 million a year in parts purchases. Duley admitted it’s not easy to convince Schneider to switch suppliers – 90% of the parts the company buys are under contract and 60% of the parts are bought directly from the OEM.

FedEx Express’s Gooch said his company looks for the lowest cost of ownership, whether they can get the part on-time and at a competitive price. The company spends $84 million in parts each year, more than $100 million if you include tires and lubes. It tries to keep its parts inventory low, so timely and reliable delivery is crucial, said Gooch.

Lyth said “cost is the key to open the door” at Pepsi America, but it’s not the only factor when choosing where to source parts. “Quality and support are the final determining factors,” he said. “Not all suppliers do a good job serving our smaller locations.” Lyth said longevity is very important to his company, since their tractors undergo length life-cycles.

Representing the smaller fleet segment, Tomlinson said South Shore Transport demands parts within a day, since most of its trucks return home nightly. He admitted price is a factor, but quality is more important and price will be haggled over later.

The fleets were unanimous in voicing their preference for name brand parts versus will-fit or offshore alternatives. But that’s not to say they won’t approach new products with an open mind. When dealing with an unfamiliar supplier, Duley said Schneider does its due diligence, first qualifying the part itself, then taking a good look at who supplies that part and conducting interviews with suppliers and references. The company may also visit the production facilities of that supplier to determine its capabilities and ensure it can meet demand “Then if they meet our needs, we’ll talk price and if the quality is there, we’ll make the move,” he explained.

Lyth said his company will consider using products it’s not familiar with only if other reputable fleets are using it. “I nose around bigger fleets and I pay attention to what they’re doing,” he said. “I don’t like to lead the parade – you get hit by all the bugs.”

Gooch said FedEx uses only name brand parts for nearly everything, but will experiment with parts such as wiper blades, where safety will not be compromised. “The big thing for us is availability and how we order,” he said. “The vendor has to be able to keep up.”

As for the smaller fleet, Tomlinson said “We’re all brand stuff. I have nothing that is not a branded product.”

Panel moderator, Bruce Plaxton of BGP Marketing, said there are two types of parts purchases: Predictive (filters, coolant, lube, brake shoes, etc.) and Non-Predictive (seats, clutches, fenders, etc). “The more predictive it is, the more price-sensitive it is,” he explained. Typically, he said “The larger the fleet, the sharper the pencil…The larger the fleet, the greater likelihood there is that management understands to the penny, the cost of downtime.”

With non-predictive purchases, availability is often the key factor, Plaxton explained. “The firm with the part on the shelf will capture that business.”

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