Ultra Low Sulfur Diesel (USLD) and EPA Engines

August 31st, 2006 at 06:57am David Bush - Iasta

Freight impacts a tremendous amount of sourcing decisions and coming in 2007 a new EPA requirement will be adding to the complexity and certainly the cost structure. Beginning June 1st, the EPA mandated that all diesel fuel meet the new low emission standards, and although some extensions have been granted, the process will be completed. There are many interesting facts about the industry available at Facts on Fuel (which is sponsored by the American Oil and Natural Gas Industry). As mentioned, assembly lines will start producing truck engines under the second part of the clean air initiative which will trap additional particulates but at a cost of $5000-$8000 per truck.

What is definitely good for the environment will be felt by all of the supply chain and consumers. The basics of rising freight costs are:

• Higher fuel costs
• Higher production costs of new engines
• Less efficient fuels and higher maintenance costs on engines

The expected impact of these changes will result in higher prices in multiple layers of the cost breakdown. This is certainly good news for the air we breathe, but sourcing professionals need to be aware of all the factors that will cause price increases with freight escalators. In addition, having e-Sourcing tools that optimize the supply chain allocation will become even more important as buyers weigh decisions of vendor supplied freight vs 3PL vs using their own resources to each delivery location. With these new requirements, you may be interested to collect additional details in your eRFx from the freight suppliers as to who is following these EPA requirements and how that will impact your business. As always, RFx documents will need to account for freight/fuel escalators but analysts can pin down the locked costs by building accurate scenarios through advanced sourcing optimization.

Look for a good article in September on the issue from Supply Chain Brain.

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Entry Filed under: General, Global Supply Issues/Risk, Optimization, Suppliers, e-RFx