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We must electrify the transport sector

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This story first appeared in The Financial Times on May 9, 2011

It is tempting to say that the headlines about rising fuel prices, Libya and other events in the Middle East will be a wake-up call to the dangers of oil dependence. But such calls have been repeated for almost 40 years, and yet the vulnerability – both in the US and across the globe – remains.

Our mobile economy remains defenseless against oil-price shocks and supply interruptions. In the US, transport accounts for 70 per cent of petroleum consumed. 97 per cent of transport fuel in the US is derived from oil, and there are no plausible substitutes. When prices go up, there are only two choices: drive less or pay more. If supplies are disrupted for any reason, the choices are even worse. This must change.

Every American recession over the past 35 years has been preceded by – or occurred concurrently with – an oil-price spike. The last time this happened, just a few years ago, the average retail price of gasoline in the US increased from $1.46 to $3.27, costing typical households $2,115 a year in increased fuel expenses. That price spike contributed greatly to the recession and financial crisis which the world is still struggling to recover from.

This addiction has also led the US to commit its young men and women in uniform to protecting the world’s oil infrastructure. And it means that western diplomacy is handicapped by the need to placate oil-producing nations, including those that do not share America’s views or values.

So what can be done? First the US should produce more oil at home. Increased safety and environmental standards must come hand-in-hand with this increased production, but such standards – along with stalled permit processes and endless litigation – must not stop the US from exploiting its domestic resources.

Drilling is not the sole answer to this problem, far from it; but considering that last year the US sent more than $260bn overseas to pay for oil, and it is highly likely it will surpass that number in 2011, the wisdom of producing more domestically becomes clear.

Second, America must continue on the path started by George W. Bush and continued by President Barack Obama to make cars, light trucks and commercial vehicles more fuel-efficient. The less oil used to drive the transport system, the less effect a price spike will have.

But these are interim measures. The only way to truly end the threat is to move toward millions of vehicles that are powered not by oil, but by a vast diversity of domestic power sources. And the best way to do that is with a large electrified transport sector.

Only electricity can give the transport sector the flexibility to switch fuels when one or more become too expensive. Electricity from homegrown sources – wind or solar, coal or hydro, natural gas or nuclear – would free America’s mobile economy from dependence on a single source. And unlike some alternatives, the infrastructure backbone for “refueling” electric vehicles already exists in the US national grid, which offers significant spare generating capacity at night, when it is needed for this purpose.

I am not someone who tends to advocate for increased government involvement in the private sector. Free-market solutions to these economic threats would be ideal. But there is no free market for oil. To the contrary, today more than 90 per cent of proved conventional global oil reserves are held by national oil companies that are either fully or partially controlled by foreign governments, whose interests often have as much or more to do with geopolitical considerations than free-market principles.

Every time we make an investment decision at FedEx, we ask ourselves: “What is the return on this investment?” That is the question we must ask here. The Electrification Coalition, an organization of which I am a member, has put forward a plan to deploy electric vehicles at scale throughout the US. These policies would cost far less over all of the years of their implementation than the hundreds of billions of dollars America sends overseas to pay for oil in a single year. In almost every conceivable area, the coalition’s plan represents a positive return on investment, from a $127bn improvement in the US balance of trade to millions of new jobs.

We cannot fix today’s gasoline price spike. But we can finally put ourselves on the path to a future in which we are in much stronger control of the fuel supply that drives our vehicles – and our economy. Little has been done to address this problem for the past 40 years. The time to do so without truly calamitous consequences is rapidly running out.

Frederick Smith is chairman, president and chief executive officer of FedEx Corporation

Comments (23) 

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Thank you Mr. Smith for taking this much needed postion on the current US Energy policy. When an industry reports over 35 billion dollars in profits in one quarter alone; and still receives Federal Government subsidies in excess of four Billion dollars a year; we can clearly see who is in charge of US energy policies. The oil industry has tradionally exerted an enormous amount of influence on US Energy policies and our politicians who legislate and enact US energy policies. Until the US oil industry's viselike grip is loosened the US economy will continue its downward spiral as we watch the few who are ultra rich continue to accomulate more and more wealth at the expense of a nation that is increasingly looking more and more like a third world debtor nation. The special interests that rule our country are quickly depleting the core and backbone of this nations economy, the vibrancy of the middle income sector has been greatly compromised and its extinction is a very distinct and looming reality. We all hope that the business interests that Mr. Smith is advocating are a strong enough coalition to counter the self destructive forces of these special interest groups.

Agree completely with the need to reduce (or eliminate completely) our dependence on foreign oil. For this to truly become a reality, the EPA must stop creating uncertainty so that utilities can proceed with building coal-fired and nuclear power stations. Wind and solar are great, but neither (alone or combined) can provide enough electricity to fuel fleets of vehicles.

I share the same idea that Fred Smith shares. This is a big-powerful nation and we need to take this idea to the next level. every good idea starts with a dream and I believe that if the United States starts acting serious and put all its resources to work together it will be only a matter of years and we will actually see the return of investment. I mean, look at how much money we all are spending in Gas each and every single day! and a handful of countries are getting richer while the rest of the world is paying the for it. I hope to see this dream come true not only for myself for my childre's future as well.

Dear Mr Smith - While public transport and electrical transport are proven viable alternatives for city transport in various parts of the world- let us not forget the role natural gas can play to provide the 15-20% flexibility we will need off grid. I fully agree with centralizing the energy source and emissions issue versus having millions of automobiles to convert and control. I do however feel that , given the landscape and especially the lack of smart grids and even for that matter power generation short falls- natural gas and efficient diesel will always play in the game. So why not start here? Why neglect the viable proven LNG/CNG solutions available to start right away? Of course in countries like India which face power shortages - a different percentage mix approach may have to be taken. The main issue is that the challenge is global - and here in lies an opportunity for the US to take the lead and export technologies and answers to reduce the deficit double fold- one by local power an two by export of solutions Meanwhile a logistics company like your could take a lead position and innovate a great deal in solving the logistics of recycling batteries and technologies that will be required for electric power storage and grid tie ins.

You couldn't be more right about freeing us from our foriegn oil dependence and giving the country many more options when it comes to the energy source of our transportation. John, Mr. Smith said clearly that we need to diversify our powersource for our transportation industry and the reason gasoline won over electricity and biodiesel was the bottom line, it was cheaper at the time. We all know there is no silver bullet for this dilema we are in but switching a portion of our vehicles to electricity would be a step in the right direction, helping push the industry forward as well as making the technology more affordable.

I have been reading about electric vehicles for some time and it is definitely the right way to go. The benefits are quite numerous. I can't wait to see what comes from this.

"I find it dismaying that one of America's greatest entrepreneurs would join the crowd that thinks we can not be dependent on our sources of energy including oil." What's wrong with thinking that? "The present administration has targeted domestic oil production. ... We in North America sit on what amounts to be a lake of oil that can provide for our energy needs well into the 21st century while we develop other resources." I believe Mr. Smith advocated changing that policy. And even if we do develop those sources, removing the dependence on oil would free us to sell domestically produced oil overseas. "I would think that if solar, wind and other so called renewables held the promise that many claim, the market would have developed them long ago." We are only lately developing the technology to pursue renewable sources of energy. "Thomas Edison tried to develop electric cars and his rival this endevour won out with internal combustion engines, Henry Ford. So this is not a new fight but an old one. Common sence wins out if we face reality." I think the assumption is that battery technology has improved during the century since then. Of course, if the technology is ready, the free market will demand that they be deployed. The only question is whether government has the capability to speed this process, or whether it would only waste money until if and when unplanned technological breakthroughs occurred.

I agree Mr. Smith, We already have solar powered Hubs as well as electric test engines throughout the world. We as an Organization recycle everything imaginable. Let's do what we do best "Model the Way" and "Inspire a Shared Vision" to continue to protect our future. Respectful and Grateful to manage under your Leadership! Regards, Karen Roell

What Mr. Smith has said is absolutely true. However, there is something missing here that always seem to be overlooked. George Bush pushed for alternate methods of energy, but how much of his (and his family's) money is tied up in the oil business? How about any other big name politician? The problem lies in the fact that what the politicians are spouting is simply lip service. Until they invest their own money into alternate energy sources, they will only be concerned about their own pocketbooks which are slick with oil. It's not a coincidence that record profits are being made by these petro companies. It's another examples of the rich getting richer. Sadly, the american public's hands are tied and will be for the next 20 years minimally. We will continue to be slave to the pump until alternate energy vehicles are readily available to the public at a cost less than that of a vehicle with an internal combustion engine. While Fred and FedEx may be able to utilize their resources to procure eco-friendly transport, the general public doesn't have the same resources.

In my opinion, this is the key sentence in the article. "So what can be done? First the US should produce more oil at home. Increased safety and environmental standards must come hand-in-hand with this increased production, but such standards – along with stalled permit processes and endless litigation – must not stop the US from exploiting its domestic resources." This is the first step to take because it will give the fastest result with the least cost. (ROI) Thank you for a very good article!

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About This Blogger

Smith gives his perspectives on the global economy as well as issues of importance to FedEx.

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