In today’s business world, the toughest expenses to plan for are the direct and indirect costs that arise from meeting regulations and the instability of this environment. Since Beverage Industry began conducting its Annual Fleet Survey in 2013, just more than a third of the respondents have consistently listed regulatory compliance costs among their Top 3 operational concerns. Additionally, an average of 22 percent of respondents consistently listed regulatory instability among their Top 3 operational concerns.
One of the key reasons that it’s so difficult to project the costs of complying with regulations is that regulatory agencies are required to provide estimates of compliance costs. These estimates can be wildly inaccurate, making them virtually useless for any long-term planning.
When reviewing the regulator’s projections of just more than $5,000 a truck to meet 2004-2010 emission regulations, the American Truck Dealers found actual acquisition cost increases of more than $21,000 a truck for heavy-duty models, and similarly inaccurate projections for medium-duty models.
Additionally, these added costs only addressed equipment acquisition, not any of the costs related to increased fuel consumption, maintenance or downtime that might be caused by the mandated emission control hardware.
Learning from experience
The main takeaway from emission regulations of the past decade is that fleet managers should be wary of any projections made when new regulations are proposed.
Costs will be invariably higher, even exponentially so; and promised benefits are likely to be outweighed by complications. Learning this lesson now is even more critical, as the focus has moved to the regulation of carbon dioxide emissions by way of fuel economy mandates.
Many truck operators already are so cost-conscious that they track fuel-economy down to the tenth, or even hundredth, of a mile for each gallon.
Although truck manufacturers and buyers likely will meet the deadlines for the fuel economy mandates, it possibly could be at the cost of delaying safety-development programs and a lost opportunity to reduce fuel consumption by addressing traffic congestion.
Little positive to be found
Whenever truck operators do see a benefit from regulation, such as tax exemptions that are designed help jump-start advanced truck technology, the unstable nature of these incentive programs can prevent their incorporation into any long-term planning.
For example, the emergence of the hybrid-truck market — which had considerable interest from the beverage industry — was stagnated after tax incentives for hybrid trucks were eliminated.
Now that the beverage industry has been a major participant in launching the market for natural-gas-powered trucks; how long might it be before that is impacted by regulations?
Is there a better way?
The underlying presumption behind many regulations is that absent from the force of government, a desired improvement would not be accomplished. After all, there’s no bottom-line benefit in cleaning up exhaust emissions, is there?
There are a number of fallacies behind this assumption. One of the biggest fallacies is that the regulators’ chosen method will deliver the most effective results.
As noted above, two of the most recent sets of emission regulations resulted in costs of more than $20,000 for each truck and delivered infinitesimal reductions in exhaust emissions, as the majority of improvements had long since been accomplished.
Meanwhile out in the free market, the beverage industry was making some changes on its own to reduce emissions.
Because of SKU proliferation and distributor/bottler consolidation, much of the industry began a paradigm-shifting change from traditional side-load truck bodies and trailers to cargo-style end-load bodies and trailers. Although this change originally was inspired by the physical logistics of the delivery process, the resulting productivity improvements have allowed fleets to consolidate routes, reduce overall fleet travel miles and significantly bring down exhaust emissions.
Similarly, as competition drove operating cost containment, more fleets deployed route/load optimization software, further reducing travel miles and exhaust emissions.
Doing your part
Unfortunately, when it comes to management of regulatory expectations, the lobbying organizations that represent truck manufacturers and the overall truck industry have a bit too much of a “go along to get along” strategy, preferring to at least be at the table in the regulatory process.
As such, it’s absolutely necessary for bottler and distributor executives to take an active role in the regulatory process. Because there is strength in numbers, it’s also important to support and actively participate in the associations that represent the beverage industry. BI