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Initial Investment Costs Can Be a Major Determinate in Alternative Fuel Equipment Upgrades

Posted 7:30 PM by

Equipment upgrades and trade-ins are typically an annual process for most transportation companies. However, with tight credit in recent years and continued spikes in fuel costs coupled with current driver retention issues, this is something that may be overlooked by many in the transportation industry. Aging fleets can quickly lead to dramatic increases in any company’s maintenance cost per mile, which can add up quickly. One solution companies are utilizing to combat the high price of diesel is alternative fuel powered equipment. 

Due to the declining price in recent months and government restrictions on new diesel engine emissions, natural gas (in either liquid (LNG) or compressed (CNG) form) is a popular option many companies are choosing. The price of natural gas is hovering near historic lows and is currently 40 percent cheaper per gallon than diesel. However, the lower cost of fuel should not be the only factor when making the decision as these trucks can each cost between $30,000 and $50,000 more than a regular diesel truck. This is a substantial increase to an individual new truck that already costs between $110,000 and $150,000. 

All other factors aside let’s see how long it would take to recoup the initial increased investment for these alternative fuel tractors. For the sake of easy analysis we’ll use the following assumptions:

Increased cost per one alternative fuel vehicle:  

$40,000

Price per gallon-diesel:

$4.00

Price per gallon-natural gas:

$2.40 ($4.00 x 0.6 or 40% less per gallon than diesel)

Average MPG (both diesel & natural gas unit):    

6 mpg

 

Step 1: Determine the amount of fuel consumption, in gallons, needed to earn back the increased investment. You can see it would take approximately 25,000 gallons.

$4.00 – $2.40 = $1.60                       

lower price per gallon

$40,000 / $1.60 = 25,000       

gallons consumed

 

Step 2: Determine the total number of miles needed.

25,000 (gallons) x 6 (mpg) = 150,000 total miles traveled to recoup initial investment

Based on these assumptions you can see that it would take one unit approximately 150,000 total miles to earn back the initial investment, but who buys one truck at a time?  We all know trucking companies typically purchase multiple trucks at once. For a small trucking company looking to upgrade 10 units, an increase of $400,000 at trade-in time can produce quite a sticker shock. 

The assumptions above also don’t take into consideration any potential differences in maintenance costs or availability. Truck stops are recognizing the increase in the industry and are beginning to make alternative fuels available at more stations, but maintenance costs may be more of the wild card since this is relatively new technology. 

There are many factors to consider and careful analysis should take place before determining if these equipment options are the best solution for your company.

About Us
Katz, Sapper & Miller’s Transportation Services Group is one of the largest and most experienced in the country. We work with more than 100 publicly and privately held carriers throughout North America to keep their business moving in the right direction. Learn more

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