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My Two-Cents on Energy Reform

December 3, 2008

There’s been lots of discussion recently about energy reform and America’s need to reduce its dependence on foreign oil.  Given the gravity of this issue, I truly believe the outcome of this national conversation will be a defining moment in American history.

To me, the solution to U.S. energy independence consists of three fundamental pillars.

  1. The maximization of domestic fuel production of all types – ANWAR, shale, the outer continental shelf, for example.
  2. The maximization of renewable energy to the extent that it’s technically feasible – wind, solar, nuclear, bio mass, and so on.
  3. A movement to electrify the short-haul transportation system, using plug-in hybrid technology and encouraged through government incentives and other programs.

Plug-in hybrid technology for short-haul transportation has real potential to significantly reduce our reliance on imported petroleum.  About 80 percent of all daily personal driving is less than 40 miles, and hybrids will have a range of 400 miles when the gasoline engine kicks in.

Reducing demand for petroleum by converting the short-haul automotive sector to plug-in would free up more diesel and middle-distillates for use by jets and long-haul trucks.  Electric power is already available in people’s homes, and efforts should be put toward producing electrical power in the cleanest and most economical way possible – wind, solar, nuclear, geo, hydro, and biomass. After all, it’s a lot easier to clean up 1,100 power plants than it is 250 million personal automobiles.


    jorge rojas says:

    Excellent point of view from Mr Smith, specially
    usin hybrid technology
    jorge rojas monterrey mexico

    George M says:

    I completely agree on the points. Not only does this affect the shipping industry. It impacts the price of everything in our world.

    That being said, getting there certainly contains some obstacles. The huge Tax on Diesel products is beyond rediculous. This is basically a VAT on top of our current other taxes. This is not only felt by business, but by its customers. Which in the end is who is always footing the tax bill.

    To move to a Hybrid shorthaul system is awesome. To obtain the desired results we need to be building new Nuclear plants now. Or we will simply be facing price hikes at the meter vs the pump. And people fear Nuclear, Pebble bed reactors can be built fast, cheap, and there is no safer method I am aware of. And I worked in the field.

    As a company I beleive FedEx could capitalize on our available roofspace (unrealized profitable real estate) using technology from companies like nanosolar. In conjunction with Plug in Hybrids to lower cost, increase profits and lead the charge in hedging against future price spikes. And for PUVs to be cost effective means mass production, which seems like everyone is waiting for someone else to make the first move.

    Ray Riley says:

    Fred’s post is right on the money. I would submit that we should be treating oil as a national security issue rather than an economic issue. Ultimately it is both. We need to allocate oil resources to necessary uses such as aviation and military. Ever try to fight a war without oil? Germany found out what that was like in the 40s. You don’t fare too well.

    Conservation is not just economically and ecologically sensible, it is a patriotic issue. If we are to keep our military capabilities and our nation strong, we need to act quickly. Delay only increases cost and weakens our position. Who knows what situation or disaster will arise in the world in the future.

    We need intelligence, discipline, and foresight to keep us all safe and prosperous.

    Nick Lucas says:

    I totally agree with Fred, We have a huge problem and it will take everything we can throw at it to fix it.
    Electric is what we need to be looking at for short haul fleet and personal use. I look forward to the day when I can pull my car into the garage and plug it into an outlet for a cheap fill up..
    We need to save the fossil fuel for our military use, long haul and aircraft operations. We need to be free of foreign oil, and all the grief that comes with it. I believe our future in this country depends on it.

    Ram Kubal says:

    Mr. Smith,

    I’m a FedEx employee.

    One suggestion I would like to make is to ask the government for more incentives (tax credits) to help reduce the break-even point on new (Hybrid) truck purchases.

    Published sources indicate that it takes 3-4 years to recover the cost of purchasing a new hybrid truck.

    If further incentives are offered (by the government) it could help reduce the break-even point. This would, in turn, convince businesses to replace some of their older fleets with new hybrid vehicles.

    The government can be convinced to offer these incentives by accepting a key condition: these trucks will be manufactured on American soil (not necessarily by American companies) so as to retain the jobs created, within American borders.

    Apart from the obvious benefits of reduced fuel consumption, lower environmental impact and job creation (manufacturing, training, maintenance, parts, etc.)

    3 other significant benefits would follow:

    A. Economies of Scale:

    FedEx and its competitors operate in excess of 400,000 trucks.

    Even if 25K to 50K of these trucks are replaced (over a 3 year period) with hybrid vehicles, manufacturers will be assured of a market and will be willing to make the capital investment required to mass produce these trucks.

    This should help lower the price point to a level that would attract smaller buyers, further expanding the use of Hybrid trucks.

    B. Increased Productivity:

    The cost savings achieved through lower gas consumption would not only reflect in the company’s bottom line but help lower the overall shipping cost in the long run.

    C. Improvements in Technology and Export Potential

    Moreover, increased use of these vehicles should attract increased investment in R&D, further improving the technology to achieve better mileage standards.

    By taking the lead, American companies would be in a position to export this technology thus creating a competitive position in the global market for commercial vehicles.

    Henry Nickell says:

    Next year, I will celebrate the 30th year in my career of representing energy consumers trying to navigate the “boom and bust” cyclical behavior of the worldwide energy markets. As the United States spends a greater portion of its GDP on foreign energy sources, those expenditures are removed from the US economic engine and are no longer available in the United States to fuel growth in the US economy.

    The chairman’s remarks are dead on. The huge extraction of wealth from the US that has occurred over the past 10 years of the energy bull market has now caught up with the US economy. If you look back through the post war era at spikes in energy costs, you will see a high degree of correlation between energy price spikes and recession in the US economy.

    We are at a crossroad where the US must decisively break the cycle of its growing postwar energy dependence if we desire to have a stable and prosperous US economy for the future.

    Just as Federal Express must have long-term strategic plans to be successful in competitive world markets, the US must develop and implement long-term strategic plans to minimize our dependence on foreign sources of energy, and to halt the migration of US economic power by developing a policy of reinvestment of US GDP in domestic energy resources and cost effective energy technology.

    Henry Nickell

    Manager, Fuel Administration
    FedEx Express

    Tom Tompkins says:

    I am all for renewable energy, the increase in Hybrid vehicles and reducing our dependence on foreign oil. As we increase number of Hybrid vehicles we would also have to increase our infrastructure that produces electricity. A summer doesn’t go by where parts of the country today experience brown outs due to the demands on the power companies. Our utility costs are increasing at high rates. Our utility companies can barely provide the capacity that we need just to keep pace with heating, cooling and lighting. The hybrid solution is going to be another drain on the elecrticity producing infrastructure that isn’t there today. Hybrid vehicles are definitely better for the environment however what is the true energy cost per mile that we end up paying per mile of travel? Is it cheaper then foreign oil? Does the consumer end up paying the utilitiy company more and the oil company less and essentially improves the environment but doesn’t really save any money? As I move toward retirement I am interested in environmental issues and also reducing the cost of transportation to the consumer. I hope these solutions are a means to this end.

    Kimberly Morris says:

    I agree completely that we should take short-haul transportation to the next level which would be plug-in technology. I know that it will be a long process, but one that would be well worth the wait. We must think though, what can we do right this minute as a company. There is one thing that I see everyday that I think would help it all. There are contractors that own delivery vans that run on a less than desirable level. Leaking oil, smoking pipes and just over all poor quality of our delivery vans. I pride myself as a FedEx employee and have decided to make this my career. My brother has been employeed with the company for close to 20 years so I have seen it grow in ways. I find that the quality of these vans unaceptable and wish more would be done to hold these contractors responsible for the problems. I find it embrassing to be questioned about the ‘smoking FedEx Ground van’ that was seen today. These conditions can not be good for the fuel economy of the vans or our environment. How do we fix these problems? Maybe we should start small with something like this. Thank you.
    Kimberly Morris
    QA Clerk II
    STLD 434

    Ryan Walsh says:

    Has our company assesed the value of using plug-in battery electric vehicles for “tighter” routes? There are numerous vehicles available already getting anywhere from 40 to 100+ miles on a charge, they cost pennies to operate, have fewer routine maintanence costs, and release no emissions…

    Carl Hardeman says:

    And electrify the long-haul system with a nationwide set of electric rails running along and above the medians of the interstate highway system. We already are experts and have a microcosm of such an automated freight delivery and switching system in the Hub. Freight would be in ULD’s. Heavy and bulky freight would continue to be moved in trucks.

    Andrew says:

    I’d like to see FedEx starting incorporating Green building practices into their facilities. Surely there are long term advantages with installing solar panels on the roofs, collecting the engery could pay the utility bill and we could potentially sell the excess to nearby powerstations. Same concept for wind. Sure these inital costs could be high – but not having to pay the high electrical costs tp power a building, lower operating cost, potential tax breaks for green technology, and the profit for selling off the excess would outweigh this. In addition – a distinct competitive advantage which puts FedEx at the forefront. We should lead in this.

    Marie McVay says:

    Wise words from a VERY wise man! As always, Fred is right on target!

    Barbara Easley says:

    I am surprised that no one has thought of providing FedEx delivery Vehicles with electric power on a mass basis. Nationwide, FedEx has SO many field offices/FedEx Office locations, that utilizing these locations to provide charging stations would greatly reduce petroleum consumption. Use the field stations for recharging FedEx vehicles.

    sheryl bryant says:

    Reducing demand for foreign oil is the tip of the ice berg. For America to sustain its Global leadership position we must become the innovators of our past. Harnessing alternative sources of power is not new to us, remember the use of water to power flour mills and steam trains. We have forgotten our Mother of Necessity that formed the strong foundation our country rests on today. Unfortunately, Americans have chosen the quick, cheap, easy fix for everything including our health. We are now experiencing the residual of this behavior, the crumbling infrastructures in every facet of our lives. The chaos that comes from reflective 20/20 hindsight is always tumultuous. The surprise has been for many of us, how we allowed the chosen few our Government, to lead us down this path of total destruction. Now I question governments ability to help me and realize Americans must focus on rebuilding our Nation by individually rebuilding our own lives and the communities we live in. We have to have faith in where we come from one voice and two people.

    Scott says:

    While this seems like a good alternative and the buzz is surrounding alternative energy, it is a supply and demand cycle. Failed monetary policies of our and many other countries caused this global demand / price spike. Fact is that compared to other contries we are still wasteful in alot of ways. The fedex terminal I work at wastes countless dollars heating the dock area when all the garage doors are open, once the trucks are back in for the night from their routes close the doors! As people who bought hybrid cars are finding now that gas prices are plummeting…mainly because china and others can’t keep their currency artificially low anymore to keep their citizens underpaid and keep them flowing with all of our cheap assembly jobs as well as engineering and other higher paying jobs. That has brought people to buy american as our dollar falls they can buy more, that reverses our rediculous trade deficit. Point is these 3rd world workers can’t buy gas now at what they are paid…This is going to make demand fall….and that is what is bringing the price in check for gas now. As gas falls these precalculated payback periods fall even further behind and that is why the residential passenger cars should switch to electric. We can make more efficent diesel engines in our fleet…we need the horsepower and torque to haul packages. Our prices will come down, just don’t be to hasty with big cost gimmicks…instead let’s save what we can with no investment, that will be money truly saved.

    Deborah Gilbreath says:

    That is a great idea about using hybrid vehicles for Fedex. We could use natural gas in 18-wheelers that has dedicated routes. The engines could be converted cheaply. Then use the hubs sites as natural gas station, Fedex could slowly convert trucks into using natural gas. Until the natural gas station becomes more available. The electrical grid my not be able to handle the recharging of hybrid vehicles as soon as creating natural gas vehicles

    Shea says:

    In response to the 12/5 post in which Andrew expresses hope for FedEx to incorporate Green building practices — that is currently happening. You can read more about these locations.

    Whittier CA:

    Oakland, CA:

    Cologne/Bonn, Germany:

    Good things are happening!

    Brent Pinsent(CA YOWA) says:

    As a North American Fedex employee(Canadian)we all have a stake in both Canada and America’s success on the Environment,Fossil fuel dependencies,etc. We do breathe a lot of the same air and share a lot of water so we better take care of it!!We as a company have the tools to make this work as demonstrated by our own Solar projects in Oakland,Whitter,Fontana,Solarwall technology in both sides of the border. Geothermal in Switzerland and Cologne Germany’s solar project due for completion in 2010. Hybrid technology mergers between Companies(ie.Cummings and Freightliner) growing with all of the fleet (Freightliner,Sprinter,and Econolines)Its just getting an equal balance of Government incentives,Efficiency,and affordability to make this feasible on a Fedex Global scale.

    Raja Malla says:

    To add some additional considerations beyond whatever is already talked about, I want to think about what it does to the world if US reduces its oil usage.

    1. The good thing is that we will cut petro dollars to the bad guys who want to fund bad politics like religious fanaticism.

    2. On the other hand we leave a lot of cheap oil ( if there is a lot left in the gulf ) for the rest of the world and that means we will be subsidising the growth of China and others who can continue to utilize the Arabian resource where oil production costs are very low. It may not be bad to help the development of rest of the world ( in fact it is good for all of us ), but why should US pay disproportionately and way ahead of the rest of the world and foreswear the cheap resource?

    3. We also have to continue to foster inter – dependence and hence a certain leverage on the global economy instead of talking independence. It is hard work, but with out inter – dependence we will have no control to influence or moderate the behavior of our trade partners ( both good and not so good )

    4. Alternative energy is a must, but it has to be achieved through superior economic considerations and that is what the market place is supposed to do and it will in due course. If the petro dollars have not flowed into gulf like they did there wont be much of purchase power in those regions of the world to buy our exports and we wont be able to grow.

    5. If we do force an energy solution then we have to watch out for unintended consequences ( always there ) with out the jingoism of independence. As the global economy matures there will be lot more inter-dependence and security through inter – dependence ( hopefully ). On the other hand any hint of isolationism from a leading country like USA will set the clock backwards on global economic integration.

    6. When oil was selling at $147, it is not the oil producers who are making all that money. There are quite a few intermediaries for sure and that includes traders, speculators and such.

    So overall even though we all agree on alternatives, we have to make sure we do not give up any strategic advantage to the rest of the world ( especially to those regions that do not support our value system ). As always economic cycles will set the price of energy. I am just stating these things, but would like to see alternatives as competition in the market place. Also remember, as the USD moved more than 60%, oil price has come down 60%. That means we have to balance our trade and budgets and keep a strong dollar. Just my two cents.

    Dave DeVito says:

    The public is being lead to believe the fallacy that in the near future many automobiles will be electric hybrid vehicles. However, this future vision of electric vehicles everywhere may not come to fruition soon because it depends on batteries. We have very reliable and efficient electric motors easily capable of running a vehicle with little or no power loss as compared to an internal combustion engine. The problem is we have no efficient means of storing the energy needed to run them. The batteries needed to meet this goal do not exist. There has been relatively little change in battery technology in over 200 years. In the last few years, we have made a few advances in battery technology mainly driven by mobile devices such as cell phones and laptops. These advances in battery technology are not readily adaptable to meet the demands of running vehicles. Until new types of batteries capable of storing the energy to meet the driving demands of the consumer appear, only the rich and tree huggers will buy them. Who wants to pay $40,000 for a Chevy Volt that will only travel 40 miles on a charge? In addition, there is the cost of the infrastructure needed to charge these vehicles. It does not exist. We have to build it from the ground up. The same problem exists for any alternative energy source such as CNG, propane, and hydrogen for fuel cells. President elect Obama is going to jump-start the economy by spending on infrastructure but I have not read anywhere where he will be improving the infrastructure of alternative fuels sources. Until we have an energy source to run our vehicles that is as convenient as a local gas station, the majority of people will not embrace the technology.

    chong ng says:

    Dear sir, I couldn’t agree with you more on that. We have to be very careful on how the ideas are being pushed forward. We have to let the free market works its own way to achieve that. Many unintended consequences with well intention government actions and mandates have made a lot of things worse than they were.

    Brent Pinsent(CA YOWA) says:

    I have been with fedex for 17 years and I find we must take the first R from the three R’s,that’s Reduce, more seriously Eliminate paper timecards. Time cards should go into your inbox then with one click it goes directly to your manager’s .That would reduce our demand for paper that would leave a lot more trees in the ground in order to filter the air we breathe…Just a thought

    Joe Holmes says:

    It is absolutely imperative that the US get back to drilling for more oil and build refineries. Of course investing in more nuclear and alternative energy are a must. Our dependence on foreign oil has been brought about by environmental regulations that have choked out oil production and the closing of refineries since the 1970s. We shot ourselves in the proverbial foot by allowing the environmental noose to tighten to the point of practically begging OPEC to increase oil production when supply gets tight and prices skyrocket. It is widely known that fossil fuel is the most efficient form of energy we have to fuel automobiles,etc, so why is it that we have to spend decades waiting for technology to fine-tune these alternative energy sources that have so far proven to be inefficient and are very expensive to produce?
    The US could be energy independent if the US government would stop catering to the Environmental groups and pay more attention to the economic growth and national security of this nation by drilling here and drilling now.

    Kevin Gibson says:

    Mr. Smith is spot on. BUT…

    In the coming administration, federal investment needs to be focused on funding research into expanding currently viable renewable energy sources, as well as dramatically increasing funding to electric, plug in and hybrid vehicle technology.

    Let the private sector run with the tried and true energy sources. Government’s role needs to be in plowing the roads to allow private industry to do what they do best. A good start would be in dropping the corporate tax rates on capital investment.

    During a recession, the GOVERNMENT knows they need to invest in infrastructure; but what about private industry?

    Drop the tax on capital investment and ANWR, shale and offshore will happen much faster. And the side benefit will be; every business in America that actually creates jobs, will be in better shape to invest in things that creat jobs. (like Aircraft, trucks, vans, and service centers).

    Cost saving’s

    For direct deposit pay stubs, FedEx could use plain paper (.02 per sheet) instead of actual check stock. Glossy paper cost about .08 each, so my guess is that the heat sensitive, multi-color stock paper that FedEx prints on, cost much more.
    The cost savings in paper alone would be significant. FedEx would also save in shipping cost, due to less weight and paper. We would only need about 8 X 8, no need to use a space for the non-check part.(we all know that “this is not a check” )

    Or, instead of even printing on regular paper FedEx could setup up an e-mail server (encrypted), which could be access and printed from home. It would save paper, envelopes, plus a lot of time, by not having managers sort though and passing out 200,000 checks a week. Of course Employees without home computers will be able to print out pay stubs at work.

    FedEx could start a direct deposit campaign, which would enlighten the work force of the cost savings of not printing nine million checks a year. At .06 a sheet the savings would be well over a half million dollars a year.

    Also for employees without a checking account ( we have some who pay check cashing business to cash there checks ) they could be issue a Mac card which will enable them to withdrawn funds from any money access machine in the world.
    Which will save those employees check cashing fees. They will still be able to get their pay stubs at work with a company PC.

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