Addressing inflation and saving Americans money
Trucking is essential to the U.S. economy, ensuring the smooth flow of goods across states to consumers. Possibilities are the device or paper you’re reading this on, the chair you’re sitting on, and the food you ate today that you spent time on a truck with. Trucking dominates the freight movement industry in the United States. Projections indicate that approximately $15 billion of all goods by value are transported on a truck. Therefore, changes in the trucking industry could have a profound impact on all Americans. That’s why truck electrification can help fight inflation and keep money in consumers’ pockets.
Switching from a diesel truck to an electric truck has compelling benefits, both for the environment and for the companies or individuals making the switch. Electric trucks produce zero tailpipe emissions, reducing carbon pollution and improving air quality by eliminating pollutants such as nitrogen oxides and particulate matter. These trucks are also significantly quieter, which contributes to reducing noise pollution in urban areas. Economically, electric trucks offer lower operating costs with cheaper electricity as a fuel source and lower maintenance requirements due to their simpler engines.
Right now, the trucking industry relies on diesel fuel – and diesel is expensive and polluting. High diesel fuel prices contribute to higher consumer costs, while money spent on fuel often flows out of the country. Electric trucks represent a compelling solution to these challenges. Recent analyzes show that the total cost of ownership of electric vehicles is lower than that of a diesel vehicle. For example, a new electric delivery truck can be 30 percent cheaper than a diesel truck over its lifetime, according to a study by Roush Industries. By lowering operating costs and stabilizing energy expenses, electric trucks have the ability to combat inflation and keep money where it matters most – within our communities. Embracing this shift is not just a sensible economic choice; It’s an environmental necessity that benefits us all.
The trucking industry will remain critical: by 2050, trucks will carry $26 billion worth of U.S. commerce. For many common household goods trucks, trucks are more important. For example, more than 90% of food and furniture is transported by truck.
Trucking industry cost structure
Given the importance of trucking to the American economy, it is helpful to understand the cost structure of this industry. According to analyzes conducted by the American Transportation Research Institute (ATRI), the marginal operating costs per mile for transportation companies can be divided into two categories: vehicle-based costs and driver-based costs. Since 2010, carriers’ marginal operating costs per mile have increased by about 45 percent, however, the split between vehicle-based and driver-based costs has remained relatively stable at 60 percent and 40 percent, respectively. As the larger of the two, carrier vehicle-based costs are mostly based on fuel and maintenance costs, which account for approximately 40% of marginal operating costs per mile in 2022.
As ATRI explains, “Fuel was again the biggest driver of rising costs (in 2022), jumping 53.7 percent to 64.1 cents per mile.” Most importantly, fuel and maintenance costs are felt most acutely by small carriers – fleets of 10 or fewer vehicles – which make up more than 95% of all registered motor carriers. This is due to the inability of small carriers to hedge fuel markets or secure wholesale prices, which increases their exposure to diesel price fluctuations.
Transport companies use two types of agreements to transport goods:
- Contract prices These are long-term rates that are pre-negotiated between the shipping company and the carrier for a specific route.
- Spot rates It is the price of transporting one shipment on a specific route at a specific time.
Fuel prices are included in both agreements to help carriers pass on costs:
- Contract prices Includes a baseline fuel cost and may include a fuel surcharge if diesel prices rise significantly.
- Spot rates It is calculated using current diesel prices.
In this way, diesel prices feed into the cost of trucking goods.
In contrast, companies that rent trucks to transport products such as fruits and vegetables, iPhones or sofas may raise prices to cover additional transportation expenses. These price increases can directly impact consumers when purchasing merchandise from retail stores. Higher operating costs due to the cost of diesel fuel can quickly translate into higher prices for consumer goods.
Consumer Price Index (CPI)
Various tools measure inflation – the change in prices of goods and services over time. The continuing increase in the cost of living erodes the purchasing power of individuals and families, affecting their daily lives. One of the main measures collected by the US Bureau of Labor Statistics is the Consumer Price Index, which is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” Over the past 12 months, the overall CPI has risen 3.7%, with some products seeing larger increases.
Many of today’s most popular consumer goods are transported on trucks, which are very sensitive to diesel fuel costs and pass-through. By switching to electric trucks, we can break this cycle. As we will examine in the next section, the lower energy costs and stability that electricity provides can help reduce inflationary pressures from the trucking industry. As trucking becomes more cost effective, consumers benefit from lower prices, effectively putting more money back into their pockets.
Diesel fuel costs versus electricity
One of the main reasons truck electrification is fighting inflation is the stark contrast in fuel costs between diesel and electric. In general, electric trucks are two to five times more efficient than diesel trucks, reducing overall energy consumption. In addition, electricity prices are significantly less expensive: depending on charging behavior and vehicle use, refueling with electricity instead of diesel can reduce fuel costs by 40% to 60%. Furthermore, diesel fuel is subject to price fluctuations affected by global oil markets and geopolitical tensions. When diesel prices rise, these higher operating costs are passed on to consumers in the form of increased commodity prices.
On the other hand, electricity offers a more stable and predictable pricing structure. As an energy source, electricity is generated from various domestic sources, including renewable energy, which can protect trucking operations from global fossil fuel price fluctuations. For example, the following chart shows historical diesel gallon prices compared to electrifying a Class 5 van:
Switching to electric trucks is a promising step for fleets, offering a multi-faceted solution to reduce operating costs and eliminate air pollution and the local climate. As electric trucks become more widespread, the long-term savings through reduced fuel and maintenance costs will have a ripple effect. Ultimately, lowering the prices of goods and services, benefiting industry and consumers alike. By switching to electric trucks, fleets can play a pivotal role in promoting economic efficiency and environmental responsibility.