Oil Scare Turns FedEx On To Energy Efficiency

The rising cost of oil isn't just a hit to the family budget. Businesses are hurt, too. Few are more affected than firms like FedEx. It deploys nearly 700 planes and tens of thousands of trucks and vans every day to deliver packages around the world. And few business leaders are more focused on finding alternatives to petroleum-based fuels than FedEx CEO Fred Smith.

Shortly after Smith founded Federal Express, the 1973 Arab Oil embargo almost killed it. The experience imprinted Smith with a keen interest in the price and availability of oil. "That would be an understatement," Smith laughs. "For sure."

FedEx now burns 1.5 billion gallons a year of petroleum-based fuels and, once again, the potential for conflict in the Middle East, specifically with Iran, has boosted prices and raised fears of a supply disruption. Smith says keeping the supply of imported oil flowing has cost the U.S. dearly over the past forty years. "We spend about $70 to $80 billion a year as a country doing that, not just for ourselves, but for the rest of the world as a whole," Smith says.

Smith has tried to address those issues, advocating strategies for the country through his seat on the Energy Security Leadership Council, a group of CEOs and retired generals and admirals. He has also developed a corporate plan to reduce the use of petroleum at FedEx. It includes three strategies — one for its light vehicle delivery vans, another for its heavy trucks and a third for its planes.

For delivery vans, says Smith, FedEx is betting on electric or hybrid vehicles. In FedEx's fleet of over 90,000 vehicles, 408 are hybrid or electric, and 4,000 are fuel-efficient, lower-emitting "Sprinter" vans. "An all-electric pickup and delivery van will operate at a seventy five percent less per mile cost than an internal combustion engine variant," he says. "Now, I didn't say seven-and-a-half percent, [I said] seventy five percent. These are big numbers."

Smith points out that the vehicles would be charged in off-peak hours, minimizing the need for additional power plants. Battery life and cost remain a challenge, but Smith is optimistic. "And I think in three or four years you will have a battery vehicle with a range that's probably double what it has today; a couple of hundred miles versus a hundred miles, and it'll probably be twenty five percent to forty percent cheaper than [it] currently is." Smith says he believes that six years from now, electric vehicles will be in wide commercial use, transporting everything from FedEx packages to plumbers and pizza deliveries.

For FedEx's fleet of nearly 700 planes, Smith says bio-jet fuel, probably produced with algae, will replace much petroleum-based jet fuel. The technology has already been proven, but breakthroughs are needed to produce the fuel on the scale that's necessary.

For larger trucks, Smith says, the alternative energy answer is liquid or compressed natural gas. He says companies like Navistar and Cummins are developing new engines to power those trucks on natural gas, at savings of about forty percent compared to diesel at current prices. "As Cummins and Navistar and these folks put these engines out there, anybody that makes their living driving long-haul trucks, or locally fueled trucks or buses is going to have a powerful incentive."

While natural gas refueling stations are a hurdle, Smith thinks an adequate number, as few as 700, could be quickly installed along the interstate highway system to make long-haul trucking with natural gas viable within a few years.

Smith believes the country's immense shale gas resource, along with shale oil deposits in places like Texas and North Dakota, could help make the U.S. energy independent for the first time since he founded FedEx. But, he says, only if these resources are coupled with conservation and a move to alternative fuels. "You gotta do all of them. You can't sit on the left or the right of this issue," Smith says.

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