November 2022
We have all seen the bumper stickers – “Without trucks, America stops”- and it’s true. According to American Trucking Associations, 72.2% of the nation’s freight is moved by trucks. The data available relative to this critical industry is incredible, as is the contribution trucks make to the nation’s economy. At the same time, as the industry and the nation consider strategies to reduce carbon emissions from the transportation sector, these vehicles must be a focus of our efforts as they account for 24% of U.S. transportation greenhouse gas emissions. In doing so, we also must recognize the complexity and unique characteristics of medium and heavy-duty vehicles (MHDV) in order to find solutions that balance environmental progress with economic activity. This will require significant effort, but the opportunities for progress in this sector are plentiful.
What is at stake?
Some may think the slogan above is an exaggeration, but if you drive down any major interstate corridor the magnitude of what this industry achieves is tangible. Of course, none of us likes to be surrounded by big rigs while driving, but when we get to our destinations, we are grateful to find the store shelves full of options. But to really understand the market, it is important to put it into context. The following data points again come from ATA:
- Gross freight revenues from trucking were valued at $875.5 billion in 2021, 80.8% of nation’s total freight bill – this is equal to 4% of the U.S. gross domestic product.
- Commercial trucks paid $48.46 billion in federal and state highway-user taxes in 2020 (a pandemic year) – this accounts for 24% of all government spending on roadways.
- There were 38.9 million trucks registered and used for business purposes in 2020.
- Registered trucks drove 302.14 billion miles in 2020 (again, a pandemic year) and consumed 44.8 billion gallons of fuel.
- 95.7% of for-hire carrier companies on file with the Federal Motor Carrier Safety Administration operate 10 or fewer trucks.
- 7.99 million people were employed in jobs related to trucking in 2021, excluding those who were self-employed.
In other words, there are a lot of components associated with this segment of the market and a lot of people directly and indirectly affected. In fact, if you really think about it, there is no person in the United States that is not at least indirectly affected by the trucking industry – that is why we must pay careful attention to the manner in which we seek to improve the emissions profile of this segment.
Because this sector is extremely diverse, reducing emissions will require a multi-faceted approach that applies customized solutions to different vehicle types and use applications. According to a Transportation Energy Institute report published in April, 94% of commercial vehicles sold are deployed in 17 different use case applications, each of which carries with it unique operating characteristics and energy requirements. These vehicles are produced in smaller unit volumes than are light duty vehicles, which are much more homogenous in structure and design and benefit from similar architectures. Commercial vehicles serve a wide variety of customer needs and are subject to significant customization to satisfy those needs. Consequently, effective decarbonization solutions also will be diverse and similarly subject to customization.
Market Share of Alternative MHDVs Is Limited
The demands of the commercial vehicle space are such that investment in alternative powertrains have been limited in the past. According to data provided by Statista, 99.5% of commercial vehicles in the U.S. in 2020 were powered by diesel or gasoline-fueled engines. And despite growing discussions about electrification of the MHDV market, forecasts for market penetration remains relatively anemic. Statista reports that by 2026, there will be about 324,000 electric-powered trucks on the roads globally. Comparing this to the fact that approximately 22 million commercial vehicles are sold globally in a given year confirms the market share is quite small. The primary reason for this slow rate of adoption is price. Statista reports that electric-powered medium duty trucks in 2025 will still cost twice that of a comparable diesel vehicle, and heavy-duty electric trucks will cost more than 2.5 times more.
Electric powertrains as a tool to address carbon emissions are gaining market share in the light duty vehicle market, but the slow rate of adoption among commercial vehicles globally indicates that additional strategies must be available for many vehicle applications. For some applications, such as parcel delivery vehicles that travel a consistent range and return to a base each night and school buses that have prolonged down time throughout the day, electrified powertrains are attractive for both emissions and economic reasons. Other segments of the MHDV market, however, do not present the same opportunities for electrification. These fleet owners need additional options to balance their environmental objectives with their business ones.
More Options Available for MHDV Market
The diversity of vehicle type and duty cycle within the MHDV market makes application of some decarbonization strategies more challenging than within the light duty market, but it also creates opportunities for more options that may not be viable with passenger vehicles. For example, incorporating more biodiesel and renewable diesel into the fuel supply can dramatically reduce the carbon intensity of the fuel these vehicles are burning. In fact, these fuels represent a 68% reduction in carbon intensity compared with straight diesel fuel and can be blended in higher concentrations (thereby improving the associated carbon benefits) than most light duty vehicles can accommodate with gasoline-ethanol blends.
MHDVs are also capable of running on a wide variety of gaseous fuels, like natural gas, which can lower carbon emissions. When renewable natural gas is used in these vehicles, the carbon intensity has the potential to be negative due to the nature of renewable gas. And there are a wide variety of research projects looking at alternative fuels and powertrain solutions that can be applied to the MHDV sector but would be incompatible with light duty vehicles.
Complex Market Composition
In addition to the wide variety of vehicle types and use applications, the MHDV market is also extremely diverse regarding vehicle ownership characteristics. As noted above, according to FMCSA, 95% of commercial vehicle carriers operate 10 or fewer trucks, which makes it more challenging to achieve economies of scale when investing in any new technology. Smaller fleet operators also may not have the capital available to purchase new vehicles and often rely on acquiring pre-owned vehicles for their companies. And considering that MHDVs operate in the market for much longer and travel much further than do typical light duty vehicles, developing lower carbon emissions strategies for current and new-to-market combustion engine vehicles will continue to deliver results long after the first owner moves on to a new vehicle.
How long a fleet owns and operates its vehicles is another critical consideration. Fleets which operate a vehicle for a short period of time may not have the opportunity to generate a return on their decarbonization investment. Likewise, who actually owns the vehicle a company operates is not a straight-forward question and this greatly affects who bears the burden of investment and benefits from emissions reductions. All of these unique considerations will influence the path to lower carbon commercial vehicles and have to be incorporated in plans for this market.
Ancillary Effects of Decarbonization Strategies
Because most MHDVs service the economy by transferring products or delivering services, any costs borne by an operator could in turn affect the cost of goods and services provided to the public. Consequently, if a strategy does not materially reduce the costs of operations (i.e., reduce energy consumption) to an extent that offsets the initial investment, the operator will be forced to recover its investment by increasing prices. Balancing the emissions benefits with the economic impact is critical to a commercial operator.
In addition, if a decarbonization strategy does not enable a vehicle to perform the same service as the one it replaces, the result could counter the benefits of the strategy. For example, an operator may be required to deploy more vehicles to do the same work thereby increasing congestion in the market and increasing overall energy consumption. Likewise, if a lower carbon vehicle is not able to travel the same range as the one it replaces, a driver will be required to travel additional miles to acquire energy to complete the original designated route. This not only adds to the number of vehicles on the road, but the additional miles traveled will consume energy that is not being dedicated to a revenue generating activity. This further complicates the return-on-investment calculation and could compromise the adoption or effectiveness of a decarbonization strategy. Finding solutions that are fit-for-purpose of a vehicle’s application will greatly accelerate the market’s ability to remove carbon from the system.
Conclusion
In an era where decarbonizing transportation has been identified as a key objective, addressing the MHDV sector is critical. However, to successfully reduce carbon emissions, it is essential to understand the complexities that exist within this market and the unique characteristics of the applications to which vehicles are dedicated. There are strategies that will fit certain use case applications but not others and recognition of this reality is important, especially when considering public policy initiatives. Fortunately, the diversity of the market yields significant opportunities for innovation and optionality. There are opportunities to apply certain strategies to specific use cases that will maximize their intended benefit and generate a positive economic return to the operator. But we must recognize that no single strategy will be able to achieve these mutual objectives – finding and applying the right solution to the right application will be essential and can be done.
To learn more about how our Transportation Energy Institute industry leaders are tackling real-time decarbonization issues, or to become more involved with our research, please contact the Transportation Energy Institute.
