Navigate new emission limits in trucking

“You have to look at how you charge the vehicle, and the downtime of charging the vehicle. Do the electric grids and charging stations in place allow you to complete similar deliveries as to your historical network?”

Russell Norris

Grant Thornton Transportation Industry National Managing Partner 

The regulation emphasizes zero emissions, rather than just lowering emissions, so it pushes the industry toward electric vehicles. To make the shift to zero-emissions trucks, Grant Thornton National Managing Partner for Transportation Russell Norris, highlighted challenges that transportation companies must address:

1. Technology: Companies need to determine how to adapt to electric truck technology, which has its own limitations. “For example, they may not have the battery-powered longevity to complete a haul similar to what a current tractor-trailer would be able to accomplish,” Norris said. “You have to look at how you charge the vehicle, and the downtime of charging the vehicle. Do the electric grids and charging stations in place allow you to complete similar deliveries as your historical network?”
   
2. Cost: The transition to electric will come with a cost for companies, and the industry is currently experiencing a cyclical downturn. “It's not that there's a lack of motivation to improve emission standards, but the economics of the industry are cyclical, and we just so happen to be in a downturn,” Norris said. “The industry has significant recessionary pressures, and is navigating through a very challenging 2023, so having to suddenly spend on this type of equipment is exceptionally difficult.”
   
3. Time: The regulation requires capital expenditures, often with long lead times, approaching a year. Given the expense associated with both the trucks and the necessary infrastructure, companies will struggle to fund and implement these changes within a short timeline. Smaller carriers could be disproportionately affected.

These issues can be further complicated by another California regulation passed in 2020, the Assembly Bill 5 (AB5) law, or “gig worker” law, that limited how trucking companies can work with independent drivers. “It basically said that independent drivers need to be treated as employees,” Norris said. He explained that some California transport companies have not owned trucks because they relied on independent drivers. However, they are now required to hire those drivers as employees. “Many of these employee drivers don’t have equipment, so the companies are having to invest in equipment now, just to change the employment model,” Norris said.

“It's a lot of costly equipment, and some of the costs are unknown at this point.”

Russell Norris

Grant Thornton Transportation Industry National Managing Partner 

1. Reallocate cash: To address cost and time issues, companies need to forecast and budget for the changes and enforcement on the horizon. “It's a lot of costly equipment, and some of the costs are unknown at this point,” Norris said. However, companies need to do what they can to “plan from a cash flow perspective aiming for compliance, or determine whether the networks you're currently doing business in will make sense longer-term.” To stay updated and budget accordingly, look for ways to inform or be informed by the regulations in process. “It’s clearly best if you can get involved in the regulatory discussions, to understand where this is going to go from a timeline perspective — to appropriately plan for the needs that you're going to face to have your fleet compliant.”
2.  Replan routes: To address the technology and cost issues, some companies are already re-planning routes around the restrictions of zero-emissions trucks. “Some of the larger carriers are starting to invest in some of this equipment and test it on their normal transportation patterns right now, trying to figure out, ‘If our typical length of haul is X miles, here's what we can do. Here's how we're going to have to adjust to meet these criteria into the future,’” Norris said. “Especially for those that have a terminal network, or are contracting with customers in different areas within these networks, it's a question of how far that length of haul should be. It’s really helpful to have the ability to go through the testing and develop a longer-term vision of how this is going to look.”
3.  Redraw territories: To address the cost and time issues, companies might need to reconsider where to (or not to) operate. “In some cases, we've seen carriers say, ‘We're going to shift around our direct network, and start using other carriers to achieve those goals,’” Norris said. “In some cases, carriers are selling California property,” Norris said, adding that other carriers are forming partnerships or networks to maintain nationwide coverage. “I think it's about forming the networks — deciding really what's realistic for you and your company, based on your size and goals, and building out that framework.” On the other side, some companies could see new opportunities as competitors abandon jurisdictions they currently serve.