Diesel Fuel Cost

In Nigeria, fuel for trucking rank way ahead of the other major uses either as a source of domestic energy supply for most homes or as the power behind the productive activities in many industrial establishments and corporate enterprises (this is directly traceable to the not so impressive condition of public power supply). The proportion of diesel cost as a percentage of total returns on haulage operations could be as low as 35% and as high as 55% (See Schedule below). As at today, Diesel fuel account for more than 40% of total operating cost in haulage business.

Fuel costs are ever increasing worry for transportation companies and it constitutes one of the most important factors influencing the profitability of truck operators. According to a survey conducted in the United Kingdom recently, the fuel costs account for 40% or more of the total costs of the road transportation with trucks. In India, diesel constitutes 38 per cent of all petroleum products consumed in India with 65 per cent going into transportation activities. It is therefore not surprising that fuel costs account for as much as 55 per cent of the total operating costs.

Truckers in the United States (where well over 11 million medium and heavy-trucks [those over 10,000 pounds GVWR, Class 3 through 8] ply its highways in 2008 with 684,000 new medium and heavy trucks absorbed into the market in the same year) recognise the fact that trucks are an important place to look for energy savings and climate change mitigation in the transportation sector. Trucking is energy-intensive and accounted for 69 percent of freight energy use, consuming 2.35 million barrels of oil per day in 2008 and generating 363 million metric tons of carbon dioxide (EIA, 2009).

The worth of a truck (or truck-trailer combination vehicle) is measured by the amount or value of work or deliveries that can be accomplished (which in some cases is measured in terms of freight revenue and the cost associated with completing the task). An ideal tractor would convert all fuel energy into useful work. However, due to a whole lot of issues associated with road haulage, not all fuel energy generated from diesel is converted into useful work or revenue earnings.

Diesel in freight operations

Diesel in haulage raises two fundamental concerns:

First is Concern for the Environment. A hugely significant portion of total diesel supply goes into haulage operations. This comes with extreme CO₂ emissions which portends serious implications for the environment. In the United States for instance, in 2006 medium and heavy-duty vehicles represent about 22 percent of the transportation emissions, up from 15 percent in 1990 (EPA 2009). This is more than half of the 40% GHG emissions traceable to transportation sources in the United States. It is therefore not a surprise that the overriding focus in this clime at both the regulatory and business sustainability level has been the continuous evaluation of advanced technologies and or search for alternative energy sources targeted at either drastically cutting down on the growing emissions or checkmating the continuous relevance of diesel fuel in haulage.

Second is Concern for long term Business Sustainability. There is little argument regarding the unsettling size of diesel fuel cost when viewed alongside the total operating cost of trucking. In Nigeria, the concern is even more compounded. The reasons for the unhealthy size of fuel expense in Nigeria haulage operations are not farfetched. The very steep price of diesel fuel compared to other petroleum products; the poor mileage regime making fuel efficiency a mirage and finally our poor maintenance culture are just few in a number of many factors. We elucidate on this further.

The retail price of diesel has passed through several phases over the years. At some point in time, it was regulated, deregulated, regulated and deregulated yet again. A litre sold for N0.35K in 1990, N29.00K in 2000, N35.00K in 2003 and now hovers in the neighbourhood of N145.00-N160.00 in the past 4-5years. However, for some years now, it perhaps remains the only petroleum derivative product that has been allowed to sway to the dictate of market forces. While the much expected drastic and consistent reduction in price remains perennially elusive till date, there has been a comparatively stable supply and availability of the product with many independent and major oil companies keying into the opportunities thrown up by the deregulation of the market.

Trucking Mileage on Nigerian Roads: Can it get better?

Improving the mileage of trucks in Nigeria is a complex issue. From various consultations made in the buildup to this publication, we discovered that new heavy duty trucks with a carrying capacity between 30 and 40tonnes give a mileage of 2.0 to 2.5km/litre and medium sized trucks with carrying capacity of 10-25tonnes give a mileage of 3.0-3.5km/litre. But with the age of most trucks on Nigerian roads between 5 and 15years, the mileage for trucks reduces further to 1.5 to 2.0 km/litre. Contrast this to countries like the UK and US where the mileage of most long haul trucks is estimated to be in the region of 3.5-4.0km/litre! Mileage is low in our clime due to various reasons, such as lack of good quality roads, slow speeds of vehicles, excessive stoppages at various legal and illegal road blocks and lack of training for drivers regarding proper usage and maintenance of trucks. Further, while in advanced economies, advancement in aerodynamic coupling for truck-trailer combination has greatly assisted the attainment of better mileage for haulage, in Nigeria as with most developing economies, lack of appropriate technology and manufacturing standards constitute a major setback. While truck heads and axles are all imported, a sizeable portion of trailers/tankers/flatbeds are built locally. Most operators in this sector are unorganized roadside vendors with a few properly structured, foreign-partner-driven trailer builders completing the list. It is therefore almost impossible to impose any standardization on the multitude of independent vendors that build truck bodies and by extension making it difficult to access the advantages that aerodynamics could unleash on the maximization of mileage.

Replacing Diesel fuel in Trucking: How feasible?

In view of the grave concerns discussed above with respect to the continued use of diesel in haulage and its poor contribution to cost minimization and environmental matters, one may wonder why there has not been an aggressive drive by truckers towards replacing diesel fuel as a major source of power.

Of a truth, embracing alternative energy source holds some lofty promises. For instance, switching to natural gas and other alternatives may prove cost-effective and environmentally friendly. In this context, switching from high-cost diesel to a low-carbon alternative fuel isn’t just the green thing to do; it holds the key to ensuring consumer products stay at affordable prices and business remains sustainable.

But in our environment (just like it probably obtains in some advanced economies too) there are a number of complexities related to the viability of a new fuel. Much of these complexities are directly related to the structure of our trucking industry.

The Nigerian trucking industry is deregulated and fragmented with more than 75 per cent of the industry belonging to the unorganized sector consisting of small operators with one to five vehicles. The organized sector, consisting of     large operators with fleets of more than 100 trucks, constitutes a small part of the industry. This poor structure provides a natural breeding ground for lack of depth and sophistication in most haulage operations; dearth of technical and management capacity as many operators are poorly educated; gross apathy on the part of government and relevant government agencies on the implications of carbon emissions on the environment and hence little involvement in the provision of soft landing for the very few number of companies willing and ready to make daring shift to alternative fuel.

Among the few sophisticated operators, the complexities range from concerns about the vehicle payback period to the need for huge investment in new infrastructure, overcoming maintenance issues, getting enough of an alternative fuel to test it and to fully adopt it if it works and the guarantee of steady availability if the alternative is eventually adopted. There are concerns that a company will make big investments in a fuel or technology that is eventually pushed out of the market. Suffice to also say that diesel is still the more widely-available fuel right now and that situation is unlikely to change for natural gas unless operators demand it. And they’re unlikely to demand natural gas trucks without stations to fuel them.

It is therefore safe to conclude that Diesel fuel has succeeded in putting on the toga of a highly strategic and necessary ‘evil’. Diesel for now (and will for quite sometime to come) rule the world of trucking. The best any performance-driven haulage firm can do for now is at best seek to understand diesel in all ramifications and establish standards of operation and business structures that elevates the positives of diesel usage while mitigating or abating those traits that makes it appear like an anathema to profitability and the environment.

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