Logistics Sourcing: Exploring Fuel Strategies and Natural Gas

This post is based on material from the 2013 Spend Matters / Procurian research brief: Logistics Category Perspective: Strategies and Trends in Trucking and Intermodal (free, registration required). Contributors from Procurian include Ed Sands, Global Practice Lead-Logistics and Scott Youngs, Logistics Category Management Group Leader. Spend Matters contributors include Jason Busch, Executive Editor, and Pierre Mitchell, Chief Research Officer.

Alternative options exist for sourcing professionals, but they can be expensive. Natural gas is one option to consider. A natural gas vehicle today costs $35,000 to $45,000 more than the equivalent diesel truck, which can bring the total price tag close to $200,000. Our estimates show that break-even is not necessarily a certainty and that some organizations will be in a cost deficit situation if they make the conversion to natural gas vehicles in their private or dedicated fleets.

Although natural gas is relatively less expensive as a fuel compared to diesel, there are other considerations that distort market pricing. For example, per gallon taxes on diesel and compressed natural gas are usually the same. However, natural gas vehicles get slightly fewer miles per gallon than diesel-powered vehicles, which means that natural gas users are paying more in taxes per diesel gallon equivalent (DGE).

There are moves under way to tax these fuels on a BTU equivalent basis to neutralize the tax disadvantage of natural gas, but even with the current tax disadvantage, natural gas is a less expensive and cleaner fuel in direct comparison to diesel. Making the correct decision requires a TCO evaluation spanning fuel costs, taxes, the higher up-front capital costs, as well as other considerations like training, industry adoption, availability of fueling stations, and fuel storage.

Additionally, liquid natural gas is a very cold substance that must be kept at below negative 260 degrees Fahrenheit, requiring specialty equipment and training, both of which add costs.

In short, the total cost equation for natural gas vs. diesel is not yet fixed for all companies. A range of variables impact it, and procurement organizations must be willing to make the time to understand and run all the variables to present the right business case for investment in natural gas or, for now, sticking with diesel.

For further analysis of this topic, download the complete Spend Matters and Procurian research brief today: Logistics Category Perspective: Strategies and Trends in Trucking and Intermodal.

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