Impact of New Engine
Emission Standards
Carrier Costing
Systems at Work
“With each threshold
where we have hit
lower emissions standards, there has been
a penalty in terms of
fuel efficiency,” says
Kilfin. He estimates
that following the
2007 standards, the
total loss of fuel efficiency was in the
range of 5 percent to 8
percent. Emission
reduction devices increased trucks’ weight and the overall technology added several thousand dollars to the price of new vehicles, he says.
With the final 2010 regulations, emissions will contain a maximum of 1 gram of nitrogen oxide or NOx and a particulate output
of .01. This compares with 5 grams of NOx and a 1.1 particulate
output in 2001.
Two paths have been selected by engine companies to meet
the 2010 standards, Kilfin explains. One is referred to as SCR or
selective catalytic reduction and has been embraced by the
majority of engine manufacturers. Navistar is taking a different
approach, employing an advanced exhaust gas recirculation
system.
Both systems appear to deliver substantial improvements in
fuel economy over 2007 engines, Kilfin says. “By the time this is
finished and has reached full development and maturity, I believe
we will have regained 8 percent to 10 percent in fuel economy,
which is significant.”
The benefit overall is that these vehicles produce cleaner air, he
says. “They also appear to offer benefits in terms of operational
reliability, noise reduction and driver friendliness.”
The clean air standards for heavy truck
engines that went into effect Jan. 1 of this
year culminate a three-tier process that began
with legislation passed in 2001. Don Kilfin, a
fleet sales manager for Nalley Motor Trucks
and retired Detroit Diesel executive, says the
challenges for engine manufacturers in meeting these standards have been substantial
and have come with a price.
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Whether purchased or
developed in-house,
McGinley says, these
systems generally
work the same way.
“You start with actual
costs and then write
mathematical formu-
las to turn those into
allocated costs,” he
says. The “tricky part,”
he says, is writing for-
mulas that drive costs
down to the freight-bill level as accurately as possible, so that each
freight bill reflects its contribution to overall corporate costs.
“Once all freight bills are costed, if you want to know what an indi-
vidual customer’s costs look like, just add up all the freight bills for
that account.”
These systems are a form of activity-based costing, so it is
important to identify the activities that drive costs, McGinley says.
In the less-than-truckload industry there are five primary cate-
gories of cost drivers. McGinley outlines these: pickup costs or the
costs of driving to an account and loading the freight; delivery
costs or the cost of moving the freight from the dock to the con-
signee and off-loading it; transfer costs or handling costs on the
dock; linehaul costs; and overhead costs.
Carriers use the results of such analysis to determine pricing,
but pricing decisions involve more than costs, McGinley says.
“In reality, many factors go into that decision – the competitive
nature of the business environment, current economic conditions, how well the customer pays, claims history and exposure,
and even the credibility of the sales representative and of the
customer.
Additionally, a company must attempt to look at how an
account will operate in the future under a new pricing program
and how that will impact the trucking company’s profitability or
operating ratio. “All these go into determining whether to go forward with a new price or not,” McGinley says.
Motor carriers increasingly have turned to
costing systems to help navigate the difficult
pricing environment brought on by the recession, says Bill McGinley, vice president of pricing and revenue management at Wilson
Trucking Co.
To view this video interview in its entirety,
visit www.SupplyChainBrain.com.
