The EPA has released new carbon emissions standards for trucks that will require a 25% reduction in emissions by 2027. This will impact both the trucking industry and industrial real estate sector. The new standards will increase costs for trucking companies but save on fuel costs in the long run. For industrial real estate, the changes may lead to greater dependence on rail and fewer but larger distribution centers over the long term as efficiency reduces the need for as many sites. Smaller trucking fleets especially may struggle with the costs of compliance.

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VIEWPOINT U.S. INDUSTRIAL & LOGISTICS
As part of its 2016 global focus on transformation of the supply chain, the CBRE Global
Industrial & Logistics team is exploring the various factors that are putting pressure on
industrial and logistics (I&L) owners and occupiers, resulting in a change to the logistics
network. Just as the rapid growth of e-commerce and automation is impacting the physical
supply chain, government regulations will undoubtedly prompt change within the I&L sector.
In this CBRE Viewpoint, we explore the recently released EPA carbon emissions standards and
what they mean for the trucking industry and industrial real estate vis-à-vis the ongoing
transformation of the supply chain.
Coming Clean:
What the new EPA
carbon emission
standards mean for
trucking and the
industrial sector
David Egan
Americas Head of Industrial & Logistics Research
Matthew Walaszek
Senior Research Analyst, Global Industrial & Logistics Research

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VIEWPOINT U.S. INDUSTRIAL & LOGISTICS
“Increased fuel efficiency standards will change the location and
number of warehouse sites and may give a long-term advantage to
those sites with immediate access to rail, water and other
alternatives to long-haul trucking infrastructure.”
– Adam Mullen, Senior Managing Director, Industrial & Logistics
Key Takeaways:
• In an effort to reduce greenhouse-gas emissions in the U.S., the Environmental
Protection Agency (EPA) has released the final standards for large vehicles. The EPA is
requiring up to 25% lower carbon emissions and fuel consumption in certain models
by 2027.1
This new standard could reduce carbon emissions by an estimated 1.1
billion metric tons, and lower fuel costs by as much as $170 billion for fleet operators.
• These new standards will have major implications for both the trucking industry and
the industrial sector. Although the initial costs of compliance may initially strain
smaller trucking companies, they have more to gain in the long run considering they
are currently over-burdened by fuel costs relative to larger fleets. There may be fewer
trucks on the road, as many smaller fleets struggle to meet the new expenses. As a
result, this may place greater dependence on rail or intermodal terminals and thus
affect where industrial operators choose to locate.
• Over the long term, the initially higher costs should be recouped by trucking
companies in lower fuel consumption, necessitating fewer supply chain locations
because of increased fuel efficiency.
Although the trucking industry has questioned the federal government’s climate agenda
in the past, many companies now see this as an opportunity to cut costs across large
commercial trucking fleets with more efficient fuel like natural gas and more efficient
engines.
First proposed in June 2015, the regulations include two broad categories for standards:
one for the load-pulling tractor unit of large semitrailers and one for the trailer it hauls.
These final standards that apply to large hauling trucks will be slightly more stringent
and will result in higher compliance costs than last year’s proposal. The EPA argues that
given the long lead time of 10 years for compliance, this is feasible for the trucking
industry, with most companies recouping their costs within four years.
1. Environmental Protection Agency Regulations & Standards: Heavy-Duty: EPA and DOT Finalize Greenhouse Gas and Fuel
Efficiency Standards for Medium- and Heavy-Duty Engines and Vehicles, retrieved September 2016.

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Between 2008 and 2015, fuel represented the largest share of total average marginal
trucking costs at 34%, but last year dropped to 25% primarily due to massive domestic
oil production driving down fuel prices. Driver wages ticked up to 31% of the total costs
in 2015, surpassing fuel as the leading cost for trucking companies, according to the
American Transportation Research Institute (ATRI).
Given the challenges with driver shortages, an aging workforce and carrier productivity,
driver wages have increased by 5% over the past year. This is partially attributable to
many states and municipalities passing legislation to increase minimum hourly wages
from the federally mandated $7.25 to as much as $15, according to CBRE Research.2
Thus, reducing fuel costs will allow trucking companies to focus more on the labor
component as a major cost, ideally leading to higher productivity.
Among the various trucking sectors, “less than truckload” (LTL) shipping—relatively
small freight that does not fill an entire truck—had the highest cost at 42.3 cents per
mile (CPM), followed by specialized carriers—those requiring specific equipment for
loading, unloading and transporting cargo—at 40.5 CPM, and full truckload carriers
(TL) at 39.4 CPM, according to ATRI. E-commerce has had a significant impact on the
LTL segment as many retailers use LTL to deliver their goods to consumers within the
“last mile” scheme. E-commerce’s penchant for free delivery is creating cost challenges
for the LTL carriers and shippers as they determine who will pay for the true cost of
delivering e-commerce, especially larger items that are more costly to transport. Many
2. Every Penny Counts: The Impact of the minimum wage on the supply chain, CBRE Research, March 2016.
3. Wall Street Journal, April 2016.
Figure 1: Total Trucking Costs, 2008-2015
Source: CBRE Research, ATRI, September 2016.
34% Fuel Costs
28% Driver Wages
13% Truck/Trailer Lease
or Purchase Payments
9% Driver Benefits
8% Repair & Maintenance
4% Truck Insurance
2% Tires
2% Permits and Licenses
1% Tolls

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VIEWPOINT U.S. INDUSTRIAL & LOGISTICS
trucking companies charge a minimum $25 fee for a home delivery; however, that is
probably not covering the extra labor, equipment and time required.3
Accordingly, the
compliance costs brought on by the new EPA regulations may create an extra burden on
these carriers as they take on the additional expenses, potentially driving up prices for
shippers and consumers, and impacting the last segment of the supply chain.
Furthermore, fleet size can also affect fuel costs. Larger fleets tend to have lower fuel
costs per mile on average, compared with smaller fleets. The primary reason for this is
that larger companies have more diesel buying power and they are more sophisticated in
their price hedging strategies. Arguably, the smaller fleets have more to gain by cutting
back on fuel costs over the long run, considering they are relatively more burdened by
these costs. However, should smaller trucking companies struggle to invest in the proper
technology requirements needed to move toward fuel efficiency, we may see an uptick in
M&A activity within the industry.
What do these new standards mean for the trucking industry and industrial real estate?
• Regulators estimate that the new EPA standards will add at least $6,400 to the cost of
a semi-truck starting in the 2021 model year and as much $12,440 by the 2027 model
year. The added cost of a smaller work truck will start at about $1,110 and rise to as
much as $2,700 over the same time frame. Based on reduced fuel expenses, the
Figure 2: Respondent fuel cost per mile by fleet size
Source: ATRI, September 2016.
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
Less Than 5 Power Units 5-25 Power Units 26-100 Power Units 101-250 Power Units 251-1,000 Power Units 1,000 Power Units+

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payback will take about two years for big rigs, about four years for work trucks and
about three years for heavy-duty pickups and vans, according to the U.S. Department
of Transportation.
• The regulations allow manufacturers to achieve reductions through a mix of different
technologies. Big rigs, for example, can use advanced aerodynamics, engine
improvements, automated transmissions, lower rolling resistance tires and
automatic tire inflation to meet the standards.
• These new regulations present an opportunity for truck engine manufacturers, as
demand for more efficient engines likely will increase.
• Companies that rely on the trucking industry stand to benefit from greater
efficiencies and economies of scale, which is a primary concern when competing for
more consumers. The new regulations will also encourage technological innovation,
potentially increasing domestic economic growth and consumer demand.
• Autonomous trucks may be a reality by 2027, allowing them to travel much farther in
less time than what is currently allowed due to driver restrictions, thus creating a
sense of urgency among trucking companies to modernize engine technology for
increased fuel efficiency, including a shift toward natural gas.
• The expense of new fuel regulations may prohibit many smaller fleets from complying
(nearly half of all fleets have only one truck).4
This may place greater dependence on
rail or intermodal terminals by industrial operators.
• Over the long term, the initially higher costs should eventually be recouped by
trucking operators in lower fuel consumption (more quickly for larger fleets), which
will necessitate fewer supply chain locations. This trend is evident with the use of
automated technology as well, as explored in CBRE Global Industrial & Logistics’
Automated Technology: Driving Change in Real Estate report, which concludes that
lower transport costs will lead to warehouse consolidation and fewer but larger
distribution centers.
• As we continue to explore the various factors impacting the transformation of the
physical supply chain, such as the rapid growth of automation and e-commerce, the
implementation of these new fuel standards will put further pressure on the logistics
network to change and adapt along with the trucking industry.
4. Owner-Operator Independent Drivers Association.

6. VIEWPOINT U.S. INDUSTRIAL & LOGISTICS
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Scott Marshall
Executive Managing Director
Advisory & Transaction Services, Investor Leasing
+1 630 573 7026
scott.marshall@cbre.com
Follow Scott on Twitter: @S_R_Marshall
Adam Mullen
Senior Managing Director
Industrial & Logistics
+1 404 923 1414
adam.mullen@cbre.com
Spencer G. Levy
Americas Head of Research
+1 617 912 5236
spencer.levy@cbre.com
Follow Spencer on Twitter: @SpencerGLevy
David Egan
Americas Head of Industrial & Logistics Research
+1 312 935 1892
david.egan2@cbre.com
Follow David on Twitter: @Egan2David
Matthew Walaszek
Senior Research Analyst
Global Industrial & Logistics Research
+1 312 297 7686
matthew.walaszek@cbre.com
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