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NewsSustainabilityTruckingTruckloadTruckload Carriers

Covenant sees ESG principles moving deeper into truckload segment’s strategy

Issue of truck electrification sparks many questions

As Kermit the Frog might have said, it’s not easy being green.

That can sum up the perspective of Matt McLelland, the director of innovation at truckload carrier Covenant Logistics Group. From his perch, McLelland has seen the coming of requirements that carriers will be facing in order to meet environmental standards that unlike the past won’t be coming top-down from a government regulator. Instead, they’ll be coming bottom-up from shippers that are implementing policies on sustainability and environmental goals and expect their carriers to meet certain standards or at least show they’re on the way to getting there.

McLelland, in a year-end interview with FreightWaves, said he has worked on at least three different shipper request for proposal submissions in which an inquiry into Covenant’s policies on sustainability were part of the RFP. “It wasn’t necessarily a requirement that we have these policies but they specifically asked whether we had them or not and was it part of our short-term planning process over the next five years,” McLelland said. “So it was not a requirement to play, but it was required because of what they wanted to know.”

McLelland said working on these RFPs helped drive home his role, which he said is “to get up every day, look at the trends and think about how relevant they are.”

But those broad concerns can quickly morph into minutiae. These small things aren’t impacting operations now but will need to be considered in longer-term planning. 

McLelland’s interview operated under the assumption that somehow, through a variety of methods, a fleet would need to electrify the drivetrain on many of its vehicles to meet sustainability goals. 

The overriding concern is a combination of things, McLelland said. “First of all, everything falls under: ‘What is it going to cost to operate this?’” But that is a difficult number to come up with now because “there is so little information out there,” he said.

“As much as you read about it, you’d think there would be fleets running Class 8 electric trucks, but there’s not,” he said. As a result, the base of knowledge about long-term maintenance and other costs has many holes in it.

Among the questions: Since an electric truck has fewer moving parts, what are the potential savings on maintenance? But even as the savings from maintenance can add up, what are the costs of putting electricity into the truck if you’re in an area with high electricity costs like California versus an area with lower costs like the southeast U.S.? To that latter point, what sort of incentives is a regional utility offering for electric vehicles as it seeks to meet its own sustainability goals?

Even though the maintenance costs might be lower, McLelland said, “how much do we have to train people to deal with this technology that we’ve never dealt with before, and how much do we rely on dealerships to do that?”

McLelland said the industry will need to get acquainted with a whole new language — electrification — so the difference among megawatts, kilowatts and watts per hour can easily be understood by all.

Another word that fits there is mechatronics, which dates back to the 1970s, according to some sources, but more recently is defined as the science of mechanics and the relationships with computers and technology. “So many of these new vehicles are going to be rolling computers,” McLelland said. 

Getting drivers to transition to an electric vehicle should not be too much of a challenge, he said, but hiring enough maintenance workers who are experts in mechatronics will be harder.

Another issue is that currently, McLelland knows of no original equipment manufacturers that are offering leases on trucks. Leasing is a key way of building fleets, either at larger companies or for individual owner-operators. “Everything is a purchase,” he said. 

Even if the costs of operating a vehicle are known and the costs of acquiring an electric vehicle are known — McLelland uses a figure of about $375,000 per truck for the prototype vehicles that can be ordered — one thing that can’t be known yet is the life cycle of such a truck. None of them has been driven long enough to know about things like the lifetime of the battery. 

If an OEM says that a truck will last through 500 charge cycles, that can’t be anything but “theoretical” at this point, McLelland said. By comparison, there are years and years of data on the life cycle of diesel trucks. 

The difficulties in getting the trucking sector into a new era of sustainability were never more clear that just a few weeks ago, when an analyst called on Tesla to abandon its plans to build a battery-powered Class 8 truck. And while attention has been directed at big rigs, McLelland said there have been more successful tests with trucks with a day cab running 75 to 80 miles per day and then coming back to a depot with the batteries still charged to 30% to 40% of their capacity.

The pace of industry adoption to sustainability principles, along with its counterparts in the ESG — environmental, social and governance — movement, is one that all large transportation companies are wrestling with. Some ESG-driven steps will have no impact on the types of vehicles the industry is going to drive. For example, Werner Enterprises in November put out a statement of its ESG principles and it involved such steps as greater diversity on its board and in its management ranks. But on the issue of fuel use and efficiency, its goals look largely like those that any company pursues as it tries to keep its costs down. And that all comes down to the fact that the technological breakthroughs needed to significantly change the environmental impact of a trucking company and its vehicles are not here yet. 

“We’re probably at least a year away from where Covenant or J.B. Hunt or U.S. Xpress comes out and says, ‘By X date we expect to have a certain percentage of the fleet on batteries or hydrogen,’” McLelland said.

McLelland circled back to shippers driving the conversation. They are the ones who are more likely to have sustainable procurement practices or goals of carbon neutrality by a certain date. “And they are saying that in order for us to do that, we have to be working with our providers to help us get there,” he said.

But to drive home his point about how many unanswered questions remain, he cited something that isn’t an issue now: Where does a truck fill up with energy?

At present, that’s an easy one to answer: at a truck stop or some sort of retail outlet selling diesel. But in the future, if a truck needs two hours to recharge its batteries, is there a responsibility of the shipper or distribution center to provide the recharging infrastructure?

And then there’s another issue: If a driver is recharging a truck at a customer site and the charging takes two hours, does the driver get paid for detention?

“Shippers and carriers are going to have conversations about investing in some of this stuff,” McLelland said.

More articles by John Kingston

Investors, Wall Street research firm like Covenant’s bullish forecast

Covenant stock hammered on earnings but execs affirm support for transition

Sloppy earnings at Covenant but restructuring steps in Q2 were significant

John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.

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