Another California clean up
LTL carriers get ready for statewide clean trucks plan
LTL carriers and shippers in California are bracing for a one-two regulatory punch that could raise shipping costs in the Golden State and have repercussions for the rest of the country.
State-sanctioned clean air regulations set to take effect within the next two years could cost trucking companies and shippers millions of dollars upfront, and not just in California.
The California Air Resources Board will meet Dec. 11 and 12 to discuss adopting the final plan outlined in the Global Warming Solutions Act, a law known as AB 32, that mandates cutting greenhouse gas emissions 30 percent by 2020. At the same meeting, the board will also discuss adopting a regulation requiring truck fleets to upgrade to cleaner burning diesel engines. The regulation would apply to all trucks operating in California regardless of where they’re registered.
Carrier and shipper executives fear the cost of complying with the new regulations could leave hundreds of LTL carriers —already reeling from higher fuel prices and withering freight demand — even weaker, or simply put them out of business.
“Many California companies are hurting badly from the sluggish economy and increasing costs for fuel, food and energy,” said Dorothy Rothrock, vice president of the California Manufacturers and Technology Association, in a comment filed with the ARB in October. “The potential cost increases from AB 32 could dramatically worsen these difficult times.”
“We’re struggling with whether or not we’ll be able to achieve these mandates,” said Julie Sauls, legislative director for the California Trucking Association. “Especially now, when companies are faced with the downturn in the economy and the turmoil in the financial markets and tighter credit. Carriers can't get the financing to deal with normal operations, much less these new regulations.”
West Coast truckers of all sorts are struggling in the economic downturn, which has wracked California’s economy.
Controlling operational costs has always been a particularly intense exercise for California LTL carriers. Because roughly 60 percent of the region’s freight moves out of Southern California, LTL carriers in that part of the state have always fought hard to find freight heading back south — or charge higher backhaul rates.
Although backhaul rates are slowly being replaced with interstate rates that make no difference in zones or destinations, lane imbalances remain, and rates continue to drop.
“Overall rates are depressed, and shippers are still in the drivers seat,” said Robert Ramorino, president of Hayward, Calif.-based RoadStar Trucking. “They’ve come in and bargained hard over the last year, with many pushing for two-year contacts with no rate increases. I think it’s short-sighted on the shippers’ part, because when capacity tightens, they’re going to see some rate increases.”
“What I see happening down the road, there’s going to be very few of these small carriers left,” said Tom Tunt, president of specialty trucker VinLux, Napa, Calif. “Shippers will continue to want preferred rates. The only ones that will stay in are the big guys that have freight running in both directions and can hold rates down. Everyone else will either have to pare back or go away.”
While AB 32 will increase energy costs for a wide range of businesses in the state, the truck fleet regulation proposed by CARB will directly effect for-hire and private trucking companies — particularly small fleet operators.
The regulation would require truck fleet owners to reduce particulate matter and nitrogen oxide emissions by upgrading their vehicles to meet specific performance standards, defined as best available control technology, or BACT. The BACT standard for PM is generally an engine equipped with a diesel particulate filter, and for NOx it’s an engine manufactured in 2010 or later.
If approved in December, the regulation will take effect in 2010 and require retrofits to certain vehicles depending on their model year. Beginning in 2012, fleets would need to begin replacing their vehicles with newer used or new vehicles that meet the most stringent 2010 model year engine emission standards. Between 2012 and 2022, remaining older vehicles would be replaced so that by 2023 all on-road diesel vehicles operating in California would have the cleanest engines available — that is, meeting 2010 model year emission standards, the state said.
While the economic benefits from fewer premature deaths, better health, and improved worker productivity are estimated to range from $48 billion to $68 billion, the costs will be significant as well. The CARB estimates the total cost at $5.5 billion, with $4.5 billion incurred by California based fleets and $1 billion by out-of-state fleet operators moving freight in and out of the state. Costs will be minimal for new fleets, CARB said, while older fleets needing upgrades face substantially higher costs.
Ramorino said the implications of the regulation for LTL carriers could be more jarring than for truckload carriers because truckload companies often upgrade fleets more frequently.
“Their equipment, because of the increased mileage they accumulate, generally has a three- or four-year replacement cycle and usually has emissions compliant vehicles,” he said. “It’s the fleets whose businesses are set up for vehicles to be kept longer that will bear much of the burden.”
Ramorino, whose fleet consists of 60 trailers and 30 power units, said the regulation is also a concern for medium-sized and smaller carriers. “Larger companies with big national fleets like UPS Freight, Con-way and FedEx Freight, they have options that smaller in-state carriers don’t, with the ability to move older equipment to other states and redirect their new purchases to California,” he said.
The cost increases that will result from the new environmental regulations will put added strain on middle and lower income consumers in an already weak economy, Ramorino said.
“We deliver low-priced shoes for retail. The significance of a freight rate increase on the cost of a $2,300 flat screen television won’t be noticed. But add $2 to $3 for a $12 pair of shoes, that can hurt the pocketbook.”
California LTL carriers and their customers shouldn’t be the only sector of the trucking industry concerned about the higher costs attached to the clean-air regulations. With a new administration coming to Washington that has the environment high on its priority list, transportation planners say it’s imperative that private industry gets involved in “green” discussions before regulations get drawn up. “If mayors and state governors see the federal government taking the lead on this they’ll be more willing to wait and see where they take it,” said Stephen D. Van Beek, president and chief executive of the Eno Transportation Foundation, a non-profit group that studies transportation policy.
“That could mean more costly ‘green’ policies. But it would also mean less chance of a patchwork of state and local policies and a more coordinated, national environmental policy affecting transportation companies. That’s good for business. It’s a tradeoff.”
