What Impact Will the Growth in Biofuels Have on the Trucking Industry?
Posted by World Trade Distribution
Filed Under: Container Freight
Fuel is obviously a huge component of any trucking company’s total costs. Indeed, as of 2015, the U.S. trucking industry consumed 54.3 billion gallons of diesel fuel and gasoline each year, accounting for approximately 20 percent of the industry’s total operating costs. That’s why any shift in the source of fuel available has the potential to disrupt the entire trucking industry–and as the use of biofuels across the United States continues to grow, companies throughout the industry stand to feel the impact.
What are Biofuels?
Simply put, biofuels are those fuels produced from plants and other living renewable resources (as opposed to fossil fuels such as petroleum or coal). There are a number of types of biofuels, but one in particular is important for the trucking industry: biodiesel. Biodiesel is produced by mixing alcohol with either animal fat or vegetable oil (including recycled cooking oil). While most diesel engines can run directly on biodiesel, its current typical use is as an additive to petroleum-based diesel fuel that can help reduce the vehicle’s overall emissions.
The Benefits of Biofuels….
Proponents of increased biofuel usage in the trucking industry typically point to the external benefits its use confers. Harmful vehicle emissions are certainly lower with biofuels as compared to fossil fuels, and use of biodiesel in a standard diesel engine can result in significantly lower amounts of carbon monoxide and unburned hydrocarbons released into the atmosphere.
From a broader business perspective, the growth in the biofuel industry also has a number of positives for the U.S. economy. Biodiesel can be easily manufactured domestically, helping to reduce U.S. dependence on foreign-produced fossil fuels. The National Biodiesel Board (NBB) also estimates that every 100 million gallons of biodiesel produced generates an additional 16,455 jobs within the United States.
….and the Disadvantages
Of course, the benefits of increased biofuel usage come at a cost–and specifically one that can be measured in dollars and that hits the trucking industry disproportionately. Current biofuel production costs are significantly higher than those for petroleum diesel fuel, and these increased production costs are reflected in the per-gallon price of biodiesel. The most common biodiesel blend, consisting of 20 percent biodiesel and 80 percent petroleum diesel and known as B20, cost about 20 cents more per gallon than petroleum diesel; pure biodiesel can be as much as 85 cents per gallon more. Multiply that by the almost 40 billion gallons of diesel fuel used by the trucking industry each year and the higher costs of biodiesel can be significant.
With the increased cost of biodiesel, some container trucking companies are trading in their heavy trucks and rigs for much lighter, more fuel efficient ‘featherweight trucks’. Not only are these trucks lighter than an average rig, they can legally make up that weight in cargo. This leads to less trips to transport goods, saving on fuel and ‘wear & tear’.
The Projected Growth in Biofuels Within the Trucking Industry:
Biodiesel consumption within the U.S. has increased significantly over the past several decades, from just 10 million gallons a year in 2001 to approximately 2.1 billion gallons two years ago. Much of this growth is due to one particular EPA regulation. Known as the Renewable Fuel Standard, this governmental program requires fuel refiners to blend biofuels into traditional petroleum-based fuels. While President Trump had suggested that he would suspend the program, it was ultimately renewed at the end of November with approximately the same requirements: refiners will need to blend 19.29 billion gallons of biofuel this year, up a million gallon from last year.
Ultimately, at the current price levels, any increased regulation requiring the further use of biofuels stands to cost the trucking industry significantly–and there’s no sign that the cost of biofuel production will experience a meaningful reduction in the near term.