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2:03 am
Mon April 2, 2012

Oil Scare Turns FedEx Onto 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 40 years.

"We spend about $70 [billion] 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. "And that's even before we get to the $1.3 trillion we've spent on Afghanistan and Iraq, and as Alan Greenspan, the former chairman of the Federal Reserve, said pretty plainly, 'Iraq was about oil.' Not totally, but ... so these are very big issues."

Smith, a former Marine, 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.

Betting On Hybrid, Electric Vehicles

For delivery vans, says Smith, FedEx is betting on electric or hybrid vehicles.

"An all-electric pickup and delivery van will operate at a 75 percent less per-mile cost than an internal combustion engine variant," he says. "Now, I didn't say 7 1/2 percent — [I said] 75 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.

"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 25 percent to 40 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.

Adding Biofuels, Natural Gas To The Mix

For FedEx's fleet of nearly 700 planes, Smith says biofuel, 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 40 percent compared with 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," he says.

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.

A Game Changer

Smith says the discovery and unlocking of the vast amounts of natural gas in shale formations is a game changer.

"For the United States, it's been near providential," he says. "I think it offers us an opportunity to deal with a lot of issues that have been very difficult."

That includes America's reliance on coal to generate electricity. If natural gas were used instead, harmful emissions could be cut 50 percent.

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. "You've got to be willing to maximize our resources, and you've got to be willing to conserve and transition to nonpetroleum-based transportation."

That would be a big change from the way things were when FedEx began.

"To me, the most tragic thing is to think about these families that lost these 5,000 wonderful young men and women in Iraq and Afghanistan," he says. "The human cost of this reliance on petroleum from unstable and unfriendly parts of the world has cost this country dearly, and we need to work as hard as we can to solve this problem."

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

Now, one factor having an impact on the economy is the rising price of gas. And it doesn't just hit family budgets. Businesses are being hurt as well. Few are more affected than courier firms like FedEx. That company deploys nearly 700 planes and tens of thousands of trucks and vans every day to deliver packages around the world. NPR's John Ydstie talked with FedEx CEO Fred Smith about finding alternatives to petroleum-based fuels.

JOHN YDSTIE, BYLINE: Shortly after Fred Smith founded Federal Express, the 1973 Arab Oil embargo almost killed it. The experience imprinted on Smith a keen interest in the price and availability of oil.

FRED SMITH: That would be an understatement, for sure.

YDSTIE: FedEx now burns a billion-and-a-half 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 40 years.

SMITH: We spend about 70, 80 billion dollars a year as a country doing that, not just for ourselves but for the world as a whole, and that's before we even get to the $1.3 trillion we've spent on Afghanistan and Iraq. And as Alan Greenspan, the former chairman of the Federal Reserve, said pretty plainly, Iraq was about oil, not totally, but - so these are very big issues.

YDSTIE: Smith, a former Marine, 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's 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-duty trucks, and a third for its planes. Smith says for its delivery vans, FedEx is betting on electric or hybrid vehicles.

SMITH: An all-electric pick-up and delivery van will operate at a 75 percent less per mile cost than an internal combustion engine variant. Now, I didn't say seven and a half percent - 75 percent. These are big numbers.

YDSTIE: 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.

SMITH: 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 will probably be 25 percent to 40 percent cheaper than it currently is.

YDSTIE: 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 a lot of regular jet fuel. The technology has already been proven, but break-throughs 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, at savings of about 40 percent compared to diesel at current prices.

SMITH: 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.

YDSTIE: While natural gas refueling stations are a hurdle. But 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 says the discovery and unlocking of the vast amounts of natural gas in shale formations is a game changer.

SMITH: For the United States it's been near providential. I think it offers us an opportunity to deal with a lot of issues that have been very difficult.

YDSTIE: Including America's reliance on coal to generate electricity. If natural gas were used instead, harmful emissions could be cut by 50 percent. 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 within a decade. But he says only if these resources are coupled with conservation and a move to alternative fuels.

SMITH: You got to all of them. You can't sit on the left or the right of this issue. You've got to be willing to maximize our own resources and you've got to be willing to conserve and transition to non-petroleum based transportation.

YDSTIE: That would be a big change from where we were when you started your company.

SMITH: To me, the most tragic thing is to think about these families that lost these 5,000 wonderful young men and women in Iraq and Afghanistan. And the human cost of this reliance on petroleum from unstable and unfriendly parts of the world has cost this country dearly. And we need to work as hard as we can to solve this problem.

YDSTIE: Fred Smith, the founder and CEO of FedEx.

I'm John Ydstie, NPR News, Washington.

GREENE: And you're listening to MORNING EDITION from NPR News. Transcript provided by NPR, Copyright National Public Radio.