On Jan. 1, 2010, the Environmental Protection Agency’s Clean Air Act mandated that all on-road diesel vehicles manufactured must reduce harmful nitrogen oxide (NOx) emissions. These stricter emissions standards include class 1 to class 8 heavy duty vehicles.
The leading technology to meet this mandate is to inject diesel exhaust fluid (DEF) into the exhaust of vehicles using Selective Catalytic Reduction (SCR) technology. DEF is a non-toxic, high quality, urea solution. When sprayed into the exhaust, it is then hydrolyzed before the catalytic converter breaks down NOx into nitrogen and water.
The consumption of DEF is approximately 3 percent of the diesel fuel consumption, for example, for every 100 gallons of diesel consumed, 3 gallons of DEF would be needed. How to provide DEF continues to pose a challenge for retailers, especially those that are off-highway, although some major chains are ramping up their offerings.
Pilot Flying J announced this fall that the company is offering DEF at the pump at more than 1,100 fueling lanes at 175 nationwide locations, up from 600 fueling lanes at 135 locations previously. The company plans on making DEF available at 1,800 fuel lanes at 300 Pilot Flying J locations by May 1, 2012.
Love’s Travel Stops says it will be offering bulk DEF at all chain locations within the next year and a half. Travel Centers of America expects to install nearly 65 on-island DEF dispensers at locations across the country in the coming months. Installations will utilize new dispenser and POS systems that will make purchasing DEF quicker, more efficient and customer friendly. Currently, all TA and Petro branded locations currently offer 2.5 gallon containers of DEF.
Yara, the world’s largest DEF producer, launched the first ever DEF mobile locator application for Android mobile devices this past October. The company had previously introduced the Air1 DEF Mobile Locator app for the iPhone; now the Android version will use GPS technology to find the retail outlets closest to the driver’s location to make finding DEF easier.
Along with the reduction in NOx emissions, SCR technology also has the added benefit of improving fuel efficiency. Some existing fleets with 2010 heavy duty trucks have reported fuel savings of around 5 percent compared to similar 2007 models. At a recent Diesel Emissions Conference put on by Integer Research, PepsiCo’s fuel optimization manager, James Thomas, said the fuel efficiency gains of PepsiCo’s SCR equipped trucks led to savings as high as 20 percent.
Kim Doran, the chief executive officer of Quixote Group Research, estimates the annual need for DEF to operate SCR-equipped trucks will be roughly 101.6 million gallons per year. Yara estimates the market for DEF in 2012 will go up to 130 million gallons.
“The DEF market is certainly on the uptick,” said Chad Dombroski, director Air1 of Yara. “The truck sales are dictating that increase.”
Air1 is the name brand Yara developed to ensure a secure supply of high-quality DEF. The company has formed a partnership with the largest U.S. distributor, Mansfield, to guarantee the DEF supply in North America.
“We’re expecting a 30 fold increase by 2015,” said Dombroski. “We’ve seen in the last three months a huge rush for the move to bulk.”
“The diesel exhaust fluid market is estimated to reach 1 billion gallons a year by 2020,” said Dave Michael, Mansfield’s general manager of DEF. “While the past two years have been filled with marketers establishing their supply chain and making small packaged deliveries to their customer base, 2012 will be heavily focused on bulk, both in retail and wholesale environments. “
In the recent past, the packaging that has been sold to retail outlets has been in small totes.
“Initially retailers raced to place inventory of 2.5 gallon jugs of DEF at high traffic locations to ensure product availability,” said Michael. “These days large truck stops and retail facilities are now racing to install bulk tanks and access to DEF at the pumps on multiple islands to ensure convenience.”
“Now we’re moving to the bulk model,” said Dombroski, with 2,000 gallon tanks and at the busier truck stops, 8-12,000 gallon tanks.
Supplying by full truck loads makes the best economic sense for these retailers. Smaller outlets, such as the independents, tend to go for the mini-bulk sizes, 800, 1,000 or 2,000 gallon storage units, which are mostly aboveground.
This change is underway at Brown Evans Distributing Co., one of Arizona's leading petroleum marketers serving wholesale and commercial customers from three bulk petroleum facilities. The company, a Pacific Pride franchise with ten locations, decided last year to make DEF available at some of its sites.
“We converted three oil vending machines to DEF,” said Kathye Brown, one of the owners of Brown Evans. “Then looked to bulk tank dispensing.” The company just purchased three units made by Separation By Design and six of Brown Evans’ sites will have DEF available by the end of the year.
“Sales have been slow,” Brown said, with the oil vending machines going through on average 50-100 gallons a month. “So that’s not a lot of volume yet.” But Brown Evans saw that not enough places were making it readily available, and “We decided buying it in the gallon jugs wasn’t convenient for drivers, since you have to pour it into the tank.”
The company also did not want their customers having to go somewhere else to get it. “People are creatures of habit,” said Brown. “We didn’t want them going somewhere else early on to get their DEF.”
Tim Sweeney, chief operations officer for Brown Evans, said the company has DEF at its bulkplant. “We’re making some bulk deliveries,” he said. “About 1,000 gallons a month, so it’s very small, but it’s growing.” He added that it wasn’t half that just a couple of months ago.
“The projection numbers from Integer about the DEF market looking like a hockey-stick curve has come about,” said Greg Iverson, president of Pacific Pride Services. He added the market has been about one or two years behind, “but right now it’s turning a corner.”
Pacific Pride has been working with DEF equipment providers for marketers.
“At first, marketers were asking what is it and who cares, but in the last three to four months, it seems like the spigot has been turned on full speed,” said Iverson. “The race is on right now, the tone has definitely changed,” with the demand coming from fleets that have to replace their equipment to some that are making the move for efficiency purposes.
Yara made pre-investments in tanks and mini-bulks to respond to their customers’ needs, which helps immensely during this time that many fleet companies are starting to look to DEF. Dombroski said that they are seeing DEF is a good product, it’s easy to use and has some reportedly great benefits of fuel economy. Plus, since it’s a lower cost product, fleets can save on fuel costs. Thus, companies are converting more trucks more quickly.
Pacific Pride has approximately a dozen marketers that have DEF on cardlock sites, some are using dispensers, some have smaller totes. Iverson said Pacific Pride’s sites are typically in industrial areas, and “If you have DEF at cardlocks in those areas, you are going to get more diesel vehicles.” If the cardlocks don’t have it, then a fleet won’t want to have to go to one place for fuel and another place for DEF.
When demand for DEF goes up, a given retailer will say they need the easiest way to offer DEF at the fuel island, and the fuel companies will take a look at what’s the best equipment and who can best supply the product.
“Yara has invested millions of dollars in production assets and terminal facilities,” said Dombroski. However, since DEF is partially an import product, urea is supplied from outside the U.S., having a global supply network is crucial. He said the company has invested $600 million in the Netherlands, which has the largest urea plant.
Yara has terminals on the coasts, where the product is brought in, facilitating a large scale access to the supply. Then Yara’s Delivery1 works with Mansfield to distribute the fuel, moving it in and out of local markets and to the fleets.
When moving bulk, you move product to point A to point B, with a full truck load that meets certifications and standards. The carriers work within the Yara network across North America. But some companies need less product for their smaller tanks. In these cases, Dombroski describes the model as a “Milk Run,” where a delivery will drop off some gallons here and some gallons there.
However, DEF isn’t for everyone.
“Today demand for DEF is still relatively small while supply is abundant,” said Michael. “Basic economic principals kick in and dictate a buyer’s market. Marketers are competing heavily for new business, and end user price points have completely ignored cost inputs placing strain on margins throughout the supply chain.”
Thus, 2012 is looking like it’ll be a year of transition and an interesting one at that “as marketers will need to make business decisions potentially forcing an exit from this space,” said Michael.
“The margins have been quite good for early adopters,” Iverson said, but added that being ahead of this curve that’s starting to move is key. “You don’t want to be playing catch up.”
Quality and Education
“We elected to approach our customer base by focusing on the education of the product itself and what procedures fleets will need to follow in order to handle DEF properly,” said Michael.
Although DEF is widely viewed as a safe product, it has some specific characteristics and requirements that need to be adhered to. DEF needs to remain in its purest form, but problems with it won’t immediately show up.
“It’s kind of like smoking,” said Dombroski. “You won’t notice a difference in the six months or even a year after you smoke, but it’ll affect you later.” This is why it’s important to deal with a company with the expertise to handle the product in the supply chain.
“A critical factor we learned from Yara, and its European head start to this market, was that 80 percent of product contamination occurred on the shop floor,” added Michael.
To educate the consumer, Yara’s Air1 provides a handout entitled, “Tips on how to use DEF”:
“We’re learning how best to handle it,” Brown said. “It’s different than fuel and oil products, you go to customers’ sites where they have a DEF tank and you’d swear it was 10 years old, but it’s only three months because the product is so corrosive.” She said her company looked into buying a truck for DEF and remarked that it’s very cost prohibitive since the tanks have to be all stainless steel due to DEF’s corrosive nature.
Terra Environmental Technologies (TET) produces TerraCair Ultrapure Diesel Exhaust Fluid. TET has teamed with Brenntag, the world’s largest full-line chemical distributor supplying DEF. The companies have committed to assuring the quality of TerraCair by testing it at Brenntag’s on-site labs as well as offering it to customers in closed container systems. The companies also pride themselves on conducting studies on shelf-life testing, new equipment compatibility analysis, DEF storage equipment and dispensing design, and more.
When Brown Evans was looking at adding DEF, Sweeney said they went with Brenntag (TerraCair) because of their quality assurance on their product and that they’re big promoters of a closed system.
“The last thing we want to do is cause damage to a truck,” he said.
Iverson added that both Brenntag and Yara have good DEF products, but another thing to consider is the varying quality of dispensers.
“We’ve heard horror stories of leaking hoses because DEF is so corrosive,” he said and warned that there are cheaper options, but a cardlock absolutely needs quality equipment.
“We went with Separation By Design because of the quality,” Sweeney said. “Especially how well-insulated their dispensers are as well as its good interface with Veeder-Root.”
When an entire fleet is undergoing the change to SCR technology, Mansfield has found it beneficial to provide solutions steps ahead of problems.
“In addition to ensuring product knowledge, we rolled out a value add equipment life cycle program providing a viable solution for each step encountered during a fleet’s conversion to SCR vehicles,” said Michael. “Our go to market strategy was quite simple; eliminate misnomers and confusion surrounding DEF and provide answers to fleets’ questions prior to them being asked.”
Even though DEF is a whole new supply chain and requires somewhat of a new distribution model, many of these companies are building on their past fuel distribution experiences.
In the end DEF is predicted to be a 1.2 billion gallon industry in 10 years, so the market continues to evolve.