Refrigerated truck and trailer customers who are holding onto cash until the last minute can hold on a little longer.
That's because enforcement of California's transport refrigeration unit regulation just got pushed back again. Originally scheduled to go into effect at the beginning of this year, it was moved to July 17. That deadline has come and gone, and the California Air Resources Board (CARB) now says it will begin enforcing the reefer reg January 1, 2010.
For those of us who live outside the Golden State, the initial reaction to the regulation might have been to write it off as a rulemaking that applies only to others. But to do so would be to grossly underestimate its impact.
Regardless of the state in which their customers operate, those who sell to refrigerated fleets are already feeling the effect of this regulation. That's because the CARB rule is not just directed at California refrigerated trucks and trailers. It also applies to transport refrigeration units (TRUs) and TRU gen sets that are installed on trucks, trailers, shipping containers, or trailers that are based outside California.
Sooner or later, a large portion of these vehicles cross the California state line. And when they get there, they will need to comply.
The American Trucking Associations and others have challenged the regulation. The underlying reason, of course, is cost. Under the CARB rule, if the refrigeration unit is more than seven years old, it no longer complies. When that happens, the owner has several ways to get the equipment back in compliance:
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Replace the unit. Rough estimate: $22,000.
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Replace the engine. Rough estimate: $7,000.
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Install a diesel particulate filter. Rough estimate: $5,000.
The financial impact for refrigerated trucks and trailers is substantial in a variety of ways.
“The trade-in value of a 2001 refrigerated trailer has dropped $5,000,” says Steve Bowman, sales manager for the Utility dealership in Boise, Idaho. “That's because it will take a minimum of $5,000 to get that trailer legal for operation in California.”
It's hundreds of miles from Boise to the California state line. But the regulation — when it eventually goes into effect — will impact the Boise trailer dealer's customers just as if he were selling trailers in California.
“At first, we had customers say that they just wouldn't do business in California,” Bowman says. “But that's not realistic. We grow potatoes here in Idaho, and we want to ship them to California. Not doing business in California isn't much of an option for our customers.”
Bowman says that his company — which also is a Carrier Transicold dealer — had seen an increase in service work earlier this summer as customers were getting their equipment ready for the regulation. That dropped off sharply when the compliance deadline was extended.
“We installed about 30 filters before the enforcement date was moved back from July 17,” Bowman says. “We will expect to install more of them as we get closer to the end of the year.”
Because refrigeration units meet the requirements of the regulation if they are less than seven years old, a refrigerated truck or trailer operator can squeeze out a few extra years of compliance by purchasing used equipment. A 2004 model refrigeration unit, for example, will be able to operate in California until 2011.
The implication for the used trailer market is obvious — an uptick in demand for 2004 models and newer. But in today's market, fleets don't seem to be in any mood to part with their late-model trailers ahead of the normal five- to seven-year trade cycle.
California has led the nation in the area of environmental regulations, so much so that the state has been granted special status with the federal Environmental Protection Agency to supersede EPA regulations (subject to EPA approval). Such was the case earlier this year when Robert Meyers, EPA's principal deputy assistant administrator for air and radiation, allowed this regulation to move forward.
In spite of the potential health benefits of California's regulation, we question a system that makes it so easy for a state to impose its will on those outside the state. If California wants to place such restrictions (along with the accompanying costs) on its own industry, it has every right to do so. We fail to see where that same right extends to the rest of the other 49 states.
Others question the regulation itself, claiming that it will ultimately put small refrigerated fleets out of business and eventually create a shortage of refrigerated trucks and trailers to serve a hugely important market for refrigerated cargoes.
Meanwhile, some refrigerated carriers reportedly are upset because they bought a $5,000 filter, only to find out that it wasn't the last minute after all.
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