Get ready for higher prices for anything from California

Well, CARB (the California Air Resources Board) has gone and done it — a positively draconian set of diesel truck regulations. Everybody in the trucking industry is talking about the engine regulations ( http://www.arb.ca.gov/regact/2008/truckbus08/appa.pdf). What seems to have largely escaped notice are the new greenhouse gas regulations. (http://www.arb.ca.gov/regact/2008/ghghdv08/ghgappa.pdf). These are going to require retrofitting trailers (and eventually tractors) with approved tires and aerodynamic devices to improve fuel efficiency. Not a bad idea, but coming on top of the new engine regulations, the net effect is going to be the destruction of California’s trucking industry.

Don’t get me wrong — I’m all for reducing air pollution. If you’ve ever driven through L.A., you’d be for it too. The trouble is the accelerated implementation of these regulations. It would have made much more sense to phase them in gradually, allowing older trucks to be replaced in their normal turnover cycle.

Old trucks have now, with the stroke of a pen, become nearly worthless. I’ll bet most of them end up getting exported south of the border. For peanuts.

The “mom-and-pop” trucking companies (less than 30 trucks) provide a large portion of our national capacity for moving freight. Trucks that aren’t too old, can be retrofitted, at a cost of $20,000 to $40,000 per truck. Considering that many of these small companies buy used trucks to begin with, the cost of the required retrofit may well exceed the price they paid for the truck in the first place.

With new truck prices exceeding $100,000 (and that’s for a stripped down fleet model — fully spec’d can exceed $200,000), credit being tight, and trucking revenues being down, that’s going to spell disaster for a lot of these companies – and a lot of them aren’t based in California, either.

I don’t think you’ll be seeing shortages on the shelves of your local store though. With that much truck capacity being removed from the marketplace, there will be a strong upward pressure on freight rates — and the big national carriers will step in to pick up the slack. Don’t look for them to retrofit their fleets though.

Most large carriers turn over a percentage of their fleet every year — usually somewhere in the 10-20% range. What’s going to happen, is the large fleets will then move their compliant trucks into California, and swap tractors near the state line on loads moving in and out of California. Yuma, Quartzite, and Kingman, AZ; Las Vegas and Reno, NV; and Ashland, OR and areas nearby are suddenly going to sprout truck yards – and maybe some intermodal railyards as well.

The mom and pops will probably simply quit going to California at all, since they won’t be able to afford to invest in the required infrastructure. For a while, there will be an oversupply of capacity elsewhere in the country, as those companies pushed out of California try to find freight, and that’ll drive freight rates down elsewhere — probably to levels that will make it tough(er) to stay in business.

Personally, I’m going to join those who’ll quit going there. Never mind the cost of retrofits — the regulations are complex to the point where it can be difficult to be sure you’re in compliance with all of them.

The one possible light at the end of the tunnel would be a lawsuit to get the regulations tossed out, or at least slowed down. A while back, a court tossed out the Low NOx engine software upgrade requirement, although it still has to be done when engines are overhauled, so such an action is at least within the realm of possibility.

Comments welcome.

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