Would you like to engage in a Pilot Program?

Each year in February, Wheels Magazine honours a motor vehicle with arguably Australia’s most prestigious Motoring award, Wheels Car of the Year. The 2015 February front cover proclaimed; “The Winner will shock you”. The Editor said in his opening letter “Our electric driving future is no longer ‘in the future’; It’s here now”.

In fact electric vehicles came 1st and 2nd this year, with the BMW i3 getting ‘the gong’ and Tesla’s Model S, the runner up. Following the read, I grabbed my 26 year old son, Mechanical Engineering Masters Student (Masters Thesis is on Sustainability), jumped in my SSV Redline 6 speed, 6 litre Commodore and headed to Sydney to drive the winner and the runner up. We went to BMW 1st, and it is amazing – a totally different driving experience (read February Wheels for details). Next, off to the Tesla dealer to try out the runner up. An incredible vehicle, other worldly to all the senses, not least of all the acceleration and braking. I have not felt such forces on my body since doing a lap of Calder Raceway with Peter Brock in Craig Lowndes V8 Supercar. Getting back into my 15 month old Commodore felt slow, fat, lethargic and as rough as an old tractor. The contrast was like turning up to work tomorrow and being greeted by a Commodore 64 sitting on your desk. Today the world’s most prestigious automotive companies Flagship models utilise technology previously reserved for the Toyota Prius. The world’s most advanced ‘Supercars’ no longer have V12 engines but now run Hybrid set ups; Maclaren P1, Porsche 918, and Le Ferrari being the stand outs (all >$1mil, all capable of <5 litres / 100kms and 0-200 km/h is <10 seconds). While BMW’s i8 along with an Audi R8 now sitting the mid-Supercar class (~$300,000 range). At the lower end there is the BMW i3 and in Europe, VW has launched a Golf GTE, basically an electric GTI. In 2014 Formula 1 went Hybrid. The outcome has been faster cars than 2013’s V10 engines while using 30% less fuel. All major Japanese and European brands have electric or Hybrid options today. This technology will continue to migrate to Korean and Chinese cars and is predicted to become mainstream in the car sector within 5 years. It is no longer marketing or R&D, but part of the automotive sectors broad offering. 

So what has this got to do with Australian Transport Industry and your businesses freight requirements? Well in short, the technology introduced above is quickly moving into commercial vehicles as well. While it will be some time till we start moving HML B-Doubles across the country using electric motors and batteries, small to medium rigid vehicles operating in urban environments up to ~300km a day is possible now.

There are several small to medium sized, fully electric and Hybrid commercial vehicles available today. In the right situation they can be significantly more efficient and cost effective for performing metropolitan route delivery work. Prological has been working on concept development and local optimisation of European equipment to work within an Australian context. Indicative costs suggest the full retail purchase price will be about 20% higher than a diesel equivalent. However a full electric or a Hybrid truck will have an ongoing fuel consumption cost of between 30-60% lower than the equivalent sized diesel.

Using data from a 2013 research study Dr. Dong-Yeon Lee of Georgia Tech School of Civil and Environmental Engineering (USA) found that “electric urban delivery trucks use about 30 percent less total energy and emit about 40 percent less greenhouse gases than diesel trucks, for about the same total cost, taking into account both the purchase price and the operating costs … however, costs and emissions depend on how and where the truck will be used” (see article).

Greenhouse gas emissions will also be reduced by roughly 50% assuming the electricity is from a Coal Fired Power Station, better from a Gas Power Station and better still in the USA and Europe where Nuclear Power is prevalent. Should the operator of a small fleet introduce ‘Green Energy’ systems in combination with the use of renewably generated electricity then an emissions drop of close to zero is possible.

In an urban environment, where fuel might cost $60 per day for a medium sized truck travelling 150 kms, the same electric truck will use ~$30 in electricity. So where is the difference?

 All energy can be measured in watts or kilowatts. Then how much energy is consumed is the number of watts or kilowatts over a period of time like an hour. A standard measure of energy consumption is kW/h.

diesel v electric cost 1

The difference is in the cost per kW/h for power that actually gets to the road. Diesel is very cost effective in terms of kW/h’s per litre. Diesel produces ~11kW/h’s per litre for say $1.50 (14c per kW/h), whereas electricity will cost about 22c per kW/h; 50% more expensive per kW/h. However an internal combustion engine uses 70-75% of its energy creating heat and noise, and a further 5-7% of its energy is lost sending the output power through complex transmission systems. Electric Motors operate at 90-95% efficiency with very little heat or noise created. In an electric vehicle, there is no need for gear boxes or differentials either. Therefore in an electric vehicle, 90-95% of the available energy is used to move the vehicle verses only 20-25% in a conventionally powered vehicle.

With fuel contributing approximately 20% to total metropolitan delivery costs, an electric vehicle will present a 10-20% reduction in total operating costs in this environment. Therefore if your business spends $1mil on national metropolitan deliveries, there is the potential to reduce that by $100,000-$200,000. If you are spending $5mil, then $1mil could be on the table. Of course there are many assumptions ranging from fuel prices, interest rates, terrain, loads, drop density, electricity prices in the modelling. These assumptions need to be reviewed for each potential requirement. As Dr. Lee goes on to suggest in his paper, electric vehicles are not right for every application, however it does seem they are becoming economically right in more and more applications. Here is an example of total operating costs for a 6T truck doing a daily average of 150kms of metropolitan deliveries per 9 hour day.

diesel v electric cost 2

This example is based on a number of assumptions including cost of finance, lease periods, outsourced operator overheads etc., however the relativity of costs are indicative of what could be expected. A Hybrid vehicle option will sit in between these two models, depending on the type of work it is doing.

The company Prological have been conducting this preliminary research and evaluation with are interested in developing a pilot program with an appropriate partner including investment. The profile needs to consist of low to medium density freight, with multiple deliveries within small geographic areas (say 1/6th of Sydney or 1/5th of Melbourne as a run with 5-6 vehicles per day covering the city). If you are interested in discussing such a pilot program, please contact Prological. If you have multi-vehicle metropolitan runs in any of our capital cities, then your business could be a good candidate for early transition to Electric/Hybrid vehicles.

Reflecting on the above might seem very futuristic. By contrast though, the pace of development being led by the car industry is producing this future right now. With this development already moving into the small to medium truck sector, in just a few years, the above will seem ‘old school’.

To commence the transition to Hybrid and/or fully electric distribution vehicles has numerous advantages now. Included among the benefits are: a point of differentiation; lower operating costs; an ability to leverage partner investment in infrastructure development through pilot programs; numerous marketing opportunities and brand positioning as ‘Green’.

It is not often the greener solution is also the more economical solution. For forward thinking businesses who want to position themselves as innovative, environmentally active and commercially astute, now is the time to start thinking about the transition of some delivery tasks over the same technology as used in the worlds most advanced automotive arena, Formula 1. Electric vehicles are not the future, they are now.

What are the implications of falling oil / pump prices on your freight costs?

This is a vexed question and for many reasons complicated to answer. Further, the answer is far less scientific than we would all like, although an understanding of the ‘science’ is very helpful.

Fuel surcharges have been part of freight costs for some 10 – 12 years, both domestically (Fuel Surcharge) and internationally (Bunker Adjustment Fee – BAF). Initially these were brought into place without a lot of analysis and while this has improved over the years, there is still an element of ‘art’ within the complexity of assessment.

At a very general level, same metropolitan rates (courier/taxi truck work) fuel surcharges have hovered between 5% and 10% for the last decade. Road Express (intra and interstate) has been in the low to high teens (12-13% up to 17-18%) and Linehaul has been highest, in some instances into the low 30% region. These variations are justified through a complex formula which should assume a base fuel price, fuel being removed for the annual rate reviews, and knowledge of fuel as a % of cost for a transport task.

Example 1: take a Courier task involving 25kms and 1 hour work. (1) The labour will be ~$20 for this task; (2) fuel at $1.50/L will be ~$4.50 for the 25kms, and (3) other costs might come to $5.50. So the whole job is about $30 of which fuel makes up just 15%. Therefore a 10% move in fuel will have a 1.5% impact on the whole job cost.

Example 2: a Linehaul vehicle going from Sydney to Melbourne will have (1) a labor cost of say $400 and (2) a fuel cost at $1.50/L of approx. $600, (3) let’s say $300 for everything else. In this example the total task has a cost of $1300 of which fuel is 45%. Therefore a 10% increase in fuel costs has a 4.5% impact ($60 in this example) on the job cost which is ~6% of the total cost.

In summary, using these simple examples, fuel impacts on the costs of a job are 4-fold for linehaul compared with a courier task, hence the variation in costs across different transport modes.

Note: The actual price of the fuel bought by the transport provider as it applies to surcharges is also complex. Some/most transport providers receive Fuel Tax Credits at a variable rate assessed by government twice annually. For eligible consumption the credit is ~12c/L, however it is up to ~38c/L in other instances. As at 15th February 2015 it will be 12.76c/L for vehicles over 4.5T used on public roads by a company registered for GST.

  • Click here to establish a view of your transport providers eligibility
  • Click here to see what credit values may apply

In recent times, fuel prices have plummeted by more than 50% from their peaks in 2009 (GFC impact) and again in 2013 to early 2014 (Libyan Civil War). Many transport companies have ‘base-lined’ their fuel surcharges above the current costs and therefore in some instances, users could be receiving a fuel credit (e.g.: your rates include fuel up to $1.20/L, above $1.20/L is covered by your surcharge). With fuel now at say $1.00/L in this example, there should be no surcharge and a credit per invoice period based on the over allocation of fuel costs in your base freight charges. No one anticipated fuel would ever drop this low, however it has, and this places unexpected pressure on transport companies in working out how to re-align rates and surcharges to this unexpected situation.

Click here for an article on what is happening to world oil prices and some commentary on where it is going. While there has been many articles published on this recently, this article is very comprehensive, covers the demand/supply and geo-political aspects as well as touching on the outcomes of global changes in environmental policies. It is a 10 minute read so grab a coffee in a spare moment and enjoy the insights and analysis.

So what should you be doing?

Understand how your current fuel surcharges are calculated including:

  • What is the base fuel charge in your rates and when was that ‘pegged’. Then check what you are told using a 3rd party fuel price reference site (Trans-Eco or any of the major fuel company sites)
  • Know fuel as a % of the total costs of the tasks you have performed. This should be part of your rates submission from your carrier.
  • Using the formula your transport partner has provided (should have provided) do the analysis at the current prices to determine where your fuel surcharge/credit should be today.
  • Once understood, have the discussion with your transport partners to ensure your surcharges/credit reflect current fuel prices.

I trust this information, while complex is at least interesting and possibly of some assistance.