Investment in clean trucks reliant on EU policy

Volvo Trucks

19 July 2017. By Laurel Henning

About 60 kilometers outside of Brussels, near the Flemish port-city of Ghent, a rhythmic clanging and drilling punctuates the day. It's the sound of 225 Volvo trucks being dispatched onto European roads, every day, from the world's first, carbon-neutral auto factory. 

That adds up to more than 80,000 trucks each year, each one of them made to order. None of these vehicles will end up in a showroom, says Philippe Jacquemyns, product manager at Volvo Trucks for Belgium and Luxembourg. 

Jacquemyns is a man who believes in his product. He has lived and breathed the Volvo Group brand for 26 years, and he tells MLex that he still enjoys going to work each morning — the new day bringing with it new and different challenges.

And his excitement for the Swedish brand is tangible as he strides around the group's biggest truck factory in Europe, grabbing cable-ties, metal fasteners and bolts.

"The [production] line doesn't stop," he repeats as he moves between different assembly stages of what he describes as a giant Lego factory. "If it stops, we lose money."

Yet what's truly remarkable about this factory's efficiently run production line is that while Europe's economy is only now taking its first, tentative steps toward recovery after the financial crisis, the market for these trucks is booming. 

A quick glance at the figures tells the story. During the financial crisis, the factory was producing about 11,000 trucks a year, Jacquemyns says. That's just 13 percent of today's production rates. 

Why is that? How could today's production levels be dwarfing the factory's output from the financial crisis when the rest of economy is still smarting from the recession's effects? 

The answer isn't what you'd expect. 

According to Jacquemyns, the two factors spurring orders for trucks from European logistics companies are the growth in online shopping and — surprisingly — an increased consumer interest in organic and fresh produce. 

With online retail, the trend is global, with purchases estimated to reach 8.8 percent of total spending around the world in 2018, compared with 7.4 percent in 2016. 

But the organic side of things is a bit harder to fathom, with Jacquemyns giving the example of organic yogurt — a dairy product with a relatively short shelf life.

"People want an abundance of choice, and these products create a huge demand because they are produced in smaller volumes and require quick renewal," he says. 

This may be a bitter pill for environmentally minded consumers to swallow. The search for fresher, more organic produce is leading to more trucks on our roads and, therefore, more emissions.

Yet the link between an uptick in the economy and the need to move goods is inescapable, Jacquemyns argues.  

"If the economy improves, the first pressure to deliver more is on trucks," he says. 

And there's a catch: Trucks are the only form of road transport in the EU not subject to carbon-emissions standards from Brussels. 

Beyond standards

Trucks, buses and coaches produce about a quarter of CO2 emissions from road transport in the EU and some 5 percent of the bloc's total greenhouse-gas emissions — a greater share than international aviation or shipping. 

The European Commission is expected to announce carbon-emission standards for trucks next year. 

But in the meantime, Jacquemyns tells MLex that Volvo Trucks, owned by the Volvo Group, is constantly trying to go beyond the EU standards currently in place.   

The company overhauled its factory design to deliver trucks that would adhere to the EU's Euro VI standards, which govern emissions including nitrogen oxides and carbon monoxide and entered into force on Dec. 31, 2013. 

Since the overhaul, larger components of a truck cab are put together adjacent to the main assembly line and feed in like a fish bone. Without these new factory designs, Jacquemyns says the production line would be three to four times longer than it is today. 

The complexity of the new cabs is a result of "a lot of sensors and electronics," Jacquemyns adds, emphasizing the step up in standards from Euro V to Euro VI. 

But the factory still assembles trucks built to meet Euro V standards, but only to sell outside of the bloc, he says. 

As for future carbon emission standards, Volvo Group still wants to be ahead and breaking targets, Jacquemyns says. 

The Swedish-owned manufacturer of trucks, buses and construction equipment is no longer associated with Volvo Cars, which is now owned by Zhejiang Geely Holding Group.  

Future uncertainty

Volvo Trucks has worked on prototype vehicles that would be powered by alternative fuels, such as gas derived from waste or diesel from cooking oil.

The company already produces vehicles that can use compressed or liquefied natural gas as "a bridge fuel" from fossil fuels to clean energy sources.

Once biogas from waste is "standardly available," Jacquemyns says that these gas-fueled trucks will be ready to use it.

But as things stand, gas only fuels around 5 percent of the trucks that Volvo produces, with vehicles using gas most popular in France and Sweden. 

"You can't force customers," Jacquemyns says. "A new truck is an investment and must be profitable." 
 
He says the company "encourages initiatives from Europe to stimulate" demand for low-carbon trucks, but as long as diesel and natural gas are subject to the same environmental standards, "there is no benefit." 

Governments should take a lead on environmental standards for trucks, especially where municipal vehicles are concerned, he says. 

Jacquemyns believes the right legislation could ensure that consumer choice is driven not just by price, but also by the environmental value of the product. 

Brexit questions

While the European truck giant prepares for new EU legislation to cover its vehicles, it must also contend with the ongoing uncertainty of what Britain's exit from the bloc will mean. 

More than 10 percent of the trucks produced in Ghent end up on the British market. Even if the company is still able to export trucks to the UK, tariff-free, there are other Brexit challenges to contend with.  

Karl Pihl, Volvo Trucks' director of EU public affairs, told MLex that rules governing how national authorities in Europe approve trucks for road use are a "concrete issue" when considering Brexit. 

Volvo is getting its vehicles "type approved" for the EU market in the UK, France and Germany. 

"If the UK leaves the EU's type-approval system, then we need a new deal," Pihl said. 

As for trade arrangements, both Pihl and Jacquemyns say the prospect of import tariffs being imposed on their trucks destined for the UK market is real and that a trade deal similar to the 2011 agreement between the EU and South Korea "could be a model" for the bloc. 

Jacquemyns argues that Volvo is a brand and a company at the forefront of what is environmentally friendly and safe, which will always go beyond new standards. 

But with truck orders so clearly linked to broader economic factors, the fate of manufacturers such as Volvo Trucks relies on policy settings that go beyond the environmental standards for both vehicles and the factories that assemble them. 

Those policy settings are what drive investments and, as Jacquemyns says, create the right environment for logistics companies to invest in new and cleaner trucks. 

To push companies to spend more on cleaner vehicles will require more work from national governments and the EU.

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