FedEx and Brown Are Going Green

And by buying cleaner and more efficient trucks in bulk, they'll make them cheaper for everybody else

Practically every day, more than 70,000 boxy brown UPS delivery trucks rumble to life across the country. They travel more than 1.3 billion miles annually to deliver some 4.7 billion packages, combusting tens of millions of gallons of diesel fuel along the way. No wonder United Parcel Service (UPS ) Inc. will try just about anything to save a few pennies for each of those miles. The Atlanta-based shipper once developed a motor that could burn cheap corn oil.

The engine never made it out of the lab. But that hasn't kept UPS from hunting for cheaper, cleaner replacements for the old, smoke-belching diesels that power most of its trucks. "We're driven to cut costs in finding cleaner fuels," says Thomas H. Weidemeyer, UPS's COO and president of its air unit. Today, UPS's green fleet includes around 2,000 vans running on everything from compressed natural gas to electricity. Compared with standard diesel engines, the CNG vans shave 15% in fuel costs and emit 35% less pollution.

That's just a fraction of what's to come. UPS and its big rival FedEx (FDX ) Corp. are beginning to swap out the old diesels from their combined armada of 100,000-plus delivery vehicles. In their place, they're testing a variety of cleaner technologies, including diesel-electric hybrids and hydrogen fuel cells. In part, they're doing this to satisfy Washington's push to cut emissions, given that trucks produce more than 30% of urban smog.

The biggest motivation is cost savings, though. The delivery giants are finding that green machines, while pricey to buy, are cheaper to maintain and operate. Hybrid electric vehicles, for example, can cut fuel costs by half, while lowering emissions by 90%. Of course, such big cuts in pollution also make great PR for a historically dirty industry. Still, "the driving motivation here is the bottom line," says Donald Broughton, a transportation analyst at A.G. Edwards (AGE ) & Sons Inc. "[These CEOs] haven't suddenly joined Greenpeace."

Where FedEx and UPS lead, the rest of the nation's 5-million strong delivery fleet will follow. Over the coming decade, the price of hybrid trucks will likely fall as a result of FedEx' 30,000-unit order for hybrid electric vans. If so, others are ready to make a commitment. The U.S. Postal Service plans to mix hybrids into its fleet of 142,300 trucks once the price is right. "These technologies provide a huge potential for the transportation sector as a whole," says Margo T. Oge, director of the office of transportation and air quality at the Environmental Protection Agency.

This movement started with small steps. In the late '80s, UPS invested heavily in CNG-powered trucks. Even after Washington reversed its backing -- and funding -- for CNG a few years into the trial, UPS continued to build the necessary infrastructure. Since 1998, it has been testing a hybrid electric van. And UPS is also expanding its fleet of ultralow-emission diesel trucks to 5,000 from 3,200. Next year, UPS will work with the EPA and DaimlerChrysler (DCX ) to test the first hydrogen-powered fuel-cell delivery truck in the U.S.

FedEx is tinkering with its fleet, too. In May, the Memphis-based company announced it had bought 20 hybrid delivery trucks, the vanguard in a program that will eventually replace its entire fleet of 30,000 express delivery vans. "FedEx really raised everybody's eyebrows," says Fred Silver, director of business initiatives at WestStart, a nonprofit transportation technologies think tank in Pasadena, Calif.

Hybrids are nothing new, to be sure. Toyota (TM ) Motor Corp. and Honda (HMC ) Motor Co. sell passenger cars powered by mixed gas-electric motors. But FedEx is the first in this country to try to adapt the technology for diesel delivery vehicles on such a large scale. Mitchell Jackson, FedEx' managing director of corporate and international environmental programs, boasts: "We've got the most innovative project on the ground in the industry today. This is not a demo. It's a commercial vehicle."

Indeed, most experts -- even those at UPS -- believe hybrids offer the best near-term promise. Hybrids combine a high-efficiency diesel or gas engine with an electric motor. A computer orchestrates how to channel energy around the engine, the electric motor, and the wheels most efficiently. Hybrids require less maintenance because they run cleaner. Plus, the braking systems last longer because the motor itself helps slow the vehicle down -- in a process that recaptures much of the energy used in decelerating. Between fuel savings and lower maintenance costs, FedEx claims it will break even on the hybrid vans in about a decade.

The scale of FedEx' commitment is likely to transform the economics of hybrid commercial vehicles. What are now exotic custom-builds could soon become mass-produced and less expensive. Smaller players could then consider hybrid trucks. "FedEx is taking a big gamble," says Andrew J. Hoffman, a Boston University professor who specializes in corporate environmental strategies. "But it's a gamble that should jump-start the commercialization of this technology."

Cleveland-based Eaton (ETN ) Corp., which makes the key electro-mechanical power systems for FedEx' hybrids, says it expects to sell up to 30,000 such units within the next five years -- and not just to FedEx. "This should be a substantial new business for us," says Tim J. Morscheck, Eaton's vice-president of technology in the trucking division. Morscheck believes the hybrids will get cheaper as sales volume grows.

The numbers are beginning to add up. In a recent report, consumer consultant J.D. Power & Associates Inc. estimated there will be more than 500,000 hybrid vehicles on the road by 2008 -- 40% of them trucks. After years of experimentation, UPS and FedEx are now ready to deploy green vans in a big way -- possibly heralding the end of the smoke-belching delivery van.

By Charles Haddad in Atlanta, with Christine Tierney in Detroit

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