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>> [crowd dining]
David Sandalow: Well, hello everyone. I hope you're enjoying your meals. I hope you're
enjoying your meals, and we have a very special desert to offer you tonight. Thank you, everybody. I hope you're enjoying
your meals, and I am delighted to welcome to the stage yet another extraordinary leader
of American business. Fred Smith was a marine in Vietnam, and came home and went to Yale,
and he had an idea. And he turned that idea into a little company called Federal Express.
In doing that, Fred Smith didn't just create a business, he created an industry. Before
Fred Smith, there was no such thing as reliable overnight delivery service, but Fred Smith
made that happen, and he has built FedEx into an extraordinary company, into an extraordinary
brand. And -- but he has done much more. Not only has he built this amazing company, but
he has taken on leadership on the issue of oil dependence in a quite remarkable way.
He is co-chair along with General P. X. Kelley of securing America's energy future and the
Energy Security Leadership Council, whose work was absolutely instrumental to the congressional
success on energy efficiency and fuel savings over the course of the past year. And it's
because of, really, Fred Smith's tireless work that some of those really important legislative
victories happen. So we're thrilled to have him tonight. Fred is going to talk for a few
minutes. Then we're going to have a dialog for a few minutes on stage, and then he is
delighted to take questions from the crowd eager to do that. We have a microphone over
here, and so, if you want to ask a question, as we're kind of winding up our dialect, please
go stand at the mic. And delighted to have a conversation with the room. So, ladies and
gentlemen, Fred Smith.
>> [clapping]
Fred Smith: Thank you very much, David. I appreciate those kind remarks. One clarification.
I went to Yale first, and then I went in the Marine Corps. Kindly, David did not bring
up the subject of the poor grade, in his view, that I got for the term paper I wrote about
FedEx when I was at Yale in the mid-1960s. So, I do -- always in front of an audience
like this, erudite, and familiar with urban legends like that -- provide a clarification
about that term paper, because I'm quite sensitive about it.
>> [laughter]
Fred Smith: And I want everyone to know that I was very happy to get a C grade. That was
a very good grade for me, indeed. So I appreciate your not bringing it up.
>> [clapping]
Fred Smith: All kidding aside, let me congratulate and commend everyone in this audience for
the important work you're doing in this important convocation here. Google, one of my favorite
companies. I applaud the leadership that they're demonstrating in this particular sector. Now,
let me do two or three things very quickly, and then, listen to my drill instructor over
here and sit down and shut up and take some questions. Let me tell you a little bit about
FedEx, and why we're interested in energy. FedEx has become, from its startup some 35-plus
years ago, a very large transportation and business services entity, revenues almost
$40 billion. We operate seven hundred aircraft, almost eighty thousand vehicles, we serve
two hundred and -- I think at the last count -- 222 countries and territories around the
world. It's the largest transportation system ever put on the planet. We burn a lot of fuel,
not nearly as much as the passenger airlines, because our business is not one that depends
on frequency. You don't care how many times a day we go from New York to Washington or
to LA. So our airplanes tend to get bigger and fatter and, fortunately for us, over time,
much more fuel efficient. And we also, as I mentioned a moment ago, operate about eighty
thousand vehicles. And between that fleet of seven hundred airplanes and eighty thousand
vehicles, we burn about one-and-a-quarter billion gallons of aviation fuel and hundreds
of thousands of gallons of diesel fuel. So I'm interested in energy and conservation
for a number of reasons. One, I'm interested in it, because I'm a citizen of the planet,
and I think it's the appropriate thing to do, but I can assure you that there's a lot
of self-interest involved here. And we've tried to be as steelly-eyed and objective
and as quantitative as we could be on this matter. And in that vein, when Robbie Diamond
of SAFE, the umbrella organization that spawned the Energy Security Leadership Council, came
and asked if I would participate, and co-chair it, along with General Kelley, I was happy
to do so. One, because of the outstanding scholarship and analysis that SAFE had done
on this particular issue, and demonstrated through its now-famous oil shock wave simulations,
the profound economic and security risk, as Chairman Dingell mentioned a moment ago, that
would face us in the future if we didn't have to address this. And this is before we even
get into the environmental considerations. It seemed to me to be an important endeavor,
and so I signed on. For those of you who don't know, the ESLC is a group of CEOs of transportation,
generally companies, or energy-intensive companies like FedEx, UPS, Southwest Airlines, Royal
Caribbean Cruise Lines, and so forth, and about ten, four-star admirals and generals
that had the responsibility, again, as Chairman Dingell mentioned, of protecting this vast
oil network that supplies our daily needs. And we developed a recommendation to the Congress
that had as its bedrock foundation three, interrelated recommendations, the first of
which, as was mentioned, that the United States would reinstitute for the first time in many
years, new, fuel-efficiency standards, but in a different manner, basing them not on
averages, but on attributes, category attributes. Second, that the country would promote and
otherwise incent people to produce alternative biofuels to the extent that it was technologically
and economically feasible to do so. And third, which may not be popular in this particular
audience, to increase domestic petroleum production in Alaska and the Outer Continental Shelf
to displace imported oil as we move away from a petroleum-based society in order to lower
the balance of payments, the deficit that we're currently seeing, to minimize the potential
for more conflict like we've seen so graphically in the Middle East. As you know, the legislation
passed last December. The grand compromise that we recommended did not take place, but
better to have us pose two loafs than no loaf at all, even if you can't get three. And we
did get the new fuel efficiency standards, which as you might have gotten a little flavor
there, weren't popular in every quarter of the country. Certainly, some of our automotive
customers let me know that very directly. But it seemed to us that this was such an
urgent problem, that the consequences of that had to be put aside for the greater good.
And I do think that the institution of these fuel-efficiency standards, whether directly
or indirectly, will have profound effects on our becoming more energy efficient as a
society. I don't think it's by accident that within ninety days of the passage of that
legislation, a plethora of announcements were made about new electric and plug-in electric,
hybrid vehicles. Somebody had had a lot of work going on, in a lot of places, that wasn't
exactly getting a lot of press releases. So I believe that that has appropriately incented
automotive manufacturers everyplace to bring these very important vehicles on the road.
And let me just say a couple of things about our energy efficiency initiatives, and then
I'll sit down and do what David told me to do.
>> [laughter]
Fred Smith: We have, for a long time, been trying to improve our energy footprint at
FedEx. We've made multibillion-dollar investments in new, more fuel-efficient airplanes. Our
new, Triple Sevens will come in. It'll be 25, 30 percent more fuel efficient than the
MD-11's. And in fact, aviation has an extraordinary record of improving its fuel efficiency over
the last 30 years. If the rest of society had had the same relative improvement, we
wouldn't be sitting here, quite frankly, and having this conference. And the other thing
we did, along with the Environmental Defense Fund and Eaton Corporation is, we put together
the first commercial hybrid vehicles. And these vehicles have about ninety percent less
emissions than the conventional diesel-powered trucks that they replace. They have about
50 percent more fuel efficiency. The problem was, because the only people that were buying
them were FedEx is, the capital cost of the vehicle was about $90,000 as opposed to the
capital cost of a regular diesel of the same size about $55,000, the seven hundred thousand
cubic foot pick-up and delivery vehicle. But now, with diesel fuel not far off $4.50, guess
what? The ROI that you can achieve by going to hybrid pick-up and delivery vehicles and
hopefully soon, plug-in, all-electric, or hybrid-electric vehicles, offers stupendous
returns on investment, and all of the environmental benefits and profit-and-loss benefits you
get -- not for free -- but on a cost-effective basis. So, we are completely committed at
FedEx with the tens of thousands of vehicles that we buy, to moving to a new paradigm which
is directly on point with the focus of this conference. And we look forward to working
with many of you, and the ESLC, I can promise you, will promote to the maximum extent that
any credibility we might have with any constituency, to the maximum of our ability, the movement
towards this type of technology that moves short haul transportation into the electrified
realm. And I hope we'll see in a few years a much less serious economic and national
security challenge because of the good work that's being done by this group. And look
forward now to taking any questions that you might have.
>> [clapping]
David Sandalow: Thank you very much. Thank you. Thanks a lot both for those remarks and
for the leadership. I want to start by asking about transformation. There are a lot of people
in this audience that would like to change the world. And we heard this afternoon, I
think, a lot of good reasons to change the world along the lines of electrifying transportation,
but we also heard a lot about the challenges of doing that. We're talking about changing
cars in ways that haven't been done ever, changing power trains we're talking. A speaker
said we have adequate electric generating capacity, but it may take significant changes
in the way utilities do business with time-of-day metering, and other types of changes. You
have changed the world, and when you look out at the challenge that's involved with
electric vehicles and the types of changes that are needed to be done -- kind of big
picture transformation -- do you have any thoughts for an audience like this about how
to address a challenge like that?
Fred Smith: Well, I think in my career day that I've watched many, many innovations and
concepts which most everybody agree are good to struggle. And many times there are casualties
along the way, and all of a sudden something happens. And to borrow the quote of the famous
book from -- about the Silicon Valley or the IT thing -- the ?product crosses the chasm,?
and all of a sudden it goes up on that fantastic S curve, and what seemed to be strange, different,
it becomes acceptable. And I really think that, that's where the electrification of
short haul, at least transportation, is. Because remember, I've been through this four times.
FedEx was almost killed in its cradle because of the first oil embargo. Then, through '79
and '80, then through the '90-?91 period. And now, this in 2000 really, four, through
2008, and there's a very big difference today. And that is, that the technology that's available
both on the automotive and on the battery side of the house is robust. You are no longer
talking about experimental things and battery technology that is really not viable. It's,
as best I can tell at this point in time, an issue of scale. And we were talking at
the table here. We would have no compunction whatsoever to buy thousands of all-electric,
plug-in, pick-up and delivery vehicles. They originate and terminate at the same location.
The management of the battery issues and all is really quite simple to us. So, I think
that you see a lot of people in that point of view. And the second thing, on the production
side, there is a huge amount of industrial, intellectual capital going towards this business
problem now. Some in this audience, lots of places around the world. So I do think that
it's a lot different than it was in '79 and '90, because you're talking about real technology
that can be brought to market at scale and have an incredible effect on climate change,
by reducing CO2 emissions and by improving our dependence on imported petroleum. Now,
you get to the upstream issue and that's a different area, but I do think there's hope
on the horizon there, too.
David Sandalow: So, you mentioned up at the podium something about doing what David tells
you to do, and I like the sound of that.
>> [laughter]
David Sandalow: And so with that in mind --
Fred Smith: Only for tonight, David.
David Sandalow: Well, okay. I?ll take -- with that in mind, let's talk about FedEx procurement
practices.
Fred Smith: Okay.
David Sandalow: I mean, you started to get into it just a moment ago. But, you are keen
to work on this. Let's say you decided that you wanted to buy five thousand or ten thousand
plug-in, hybrid trucks --
Fred Smith: Mm-hmm.
David Sandalow: -- to do that type short haul distribution you're talking about.
Fred Smith: -- or plug in all-electrics. It doesn't have to necessarily be hybrid.
>> [clapping]
David Sandalow: Thank you. Thank you. I stand corrected. So what does that look like from
your standpoint? What would be the constraints in getting it done? And how could people in
this audience help you overcome those constraints?
Fred Smith: Make us an offer, you know?
>> [audience laughter]
Fred Smith: We would, if we had a credible manufacturer that could produce at scale,
plug-in, all-electrics, or hybrid electrics, we would buy them. I mention the joint venture
that we had, the partnership we have with Environmental Defense Fund and Eaton and FedEx.
And we now have three hundred of them out there. We've gone over two million miles.
And that's a regular hybrid. But again, it seems to me that the plug-in is where you
need to go. The recharge cycle is getting better and better. The batteries are getting
better and better. As most of you know, we're on the automotive side. We can go to all-electric,
the different -- the freedom in design parameters are fantastic. It particularly lends itself
to commercial vehicles. So, what we need is some manufacturer that wants to get into this
space, and we would go out and make a substantial commitment, if we could get those kinds of
vehicles. Now, we run a business that depends on reliability. I mean, from the getgo, FedEx
was all about absolutely, positively. So the one thing we're not going to do is to put
our customers' interests at risk. And we're not going to do something that makes us uncompetitive
by paying two and three times for a unit of capacity that a competitor can produce, that's
not as sensitive, if you will, or as interested in this area. But that's why I made the point
about ?crossing the chasm.? I don't think you have to make those compromises anymore.
I believe that with the lithium ion battery technology and with the other things that
are out there, and what's been learned about this in the last few years, it is now possible
to build these types of vehicles on a commercial scale.
>> [clapping]
David Sandalow: I've got one more question for you, and then if anybody wants to go to
the microphone, Fred would love to take questions from the crowd. So, how about policies? We're
here in Washington. We're here at this conference to talk about the types of policies that Washington
should implement to help spark this revolution. You know, yesterday on the floor of the Senate
we saw, really, pretty stark partisan divisions on this whole energy area, specifically with
regard to plug-in electric vehicles. Are there bipartisan approaches that you think could
win the day? Are there any approaches that you think we should be taking forth to Capitol
Hill this year and beyond, in order to make this revolution come quicker?
Fred Smith: Well, we were talking at dinner down here. This might surprise you. I'm not
an expert on Cap-and-trade, but -- and I gave you the scope of -- scale of -- our consumption
of petroleum-based product. But, if I were a -- the policy czar or whatever, wizard that
had the capability to come and put a policy in place, my belief is that the best policy
would be a carbon tax, because it's simple, it's efficient, it doesn't get into the gaming
that would necessarily go on. And I understand in general, and I checked it before I came
up here with a very smart lady, I understand the rational for Cap-and-trade, but I've been
around Washington long enough to know when you have something that is that many moving
parts, you have a real opportunity to have a lot of unintended consequences.
>> [clapping]
Fred Smith: So, a carbon tax to me, gradually phased in -- so everybody knew what the name
of the game was. This year it's X, next year it's X plus one thing or another -- then,
this is the most important -- those monies that are collected by the carbon tax don't
go into anybody's agency. What they do is they go straight back to reduce carbon consumption
through incentives or production subsidies or whatever the case may be. Or, if you didn't
want to do that, just give it back to people and reduce FICA taxes. So you tax the bad,
the things that are creating the national security risks, the economic risks that SAFE,
and oil shock wave, shows shockingly we're on the horizon, and now, my goodness, we're
way beyond what even our worst fears are. And I think there's a lot of empirical evidence.
I believe it was Denmark or one of the -- you know, when you have the money that goes
straight from the carbon side to reducing carbon, it works pretty well. It's when you
get into all of the political logrolling that I'm afraid of Cap-and-trade.
>> [clapping]
David Sandalow: Just one follow up, and then I want to go to Professor Frank. So, many,
many members of Congress have signed no-tax-increase pledges, which limit their flexibility to
do what you just suggested. I mean, is it safe? Would you like to tell them that, in
your view at least, the type of rule that you just made should be viewed as an exemption
or shouldn't be prohibited by their no-tax pledge?
Fred Smith: Well, the biggest mantra on the Democratic side of the House is income inequality.
And as someone who employs almost 300,000 people, I can tell you that employment taxes
are a disincentive to employing people. And in fact, corporate taxes are a disincentive
to employing people. All of the studies show that if corporate taxes go down -- and the
United States is not competitive in this area -- seventy percent of the income goes to the
wage earners in that corporation. Now, you can get all up in arms because there's some
fat cats that, you know, benefit too, but the majority of it goes to the wage force.
Now, with that understanding, there's a relatively simple solution to your problem. That's why
I put point B there. Just take the tax increase on carbon, which is bad, and take it directly
into people's pocketbooks into reducing FICA. Take it from the IRS and put it into Social
Security. So you achieve what you're trying to do, which is less carbon-intensive society,
and you reward work by making, you know, the taxes on employment less. It's very straight
forward.
>> [clapping]
David Sandalow: Please.
Professor Frank: My turn? [laughter]
David Sandalow: Your turn. Thank you.
Professor Frank: Thanks. By the way, FedEx now has hybrids from Eaton, and I know it's
a good program and of course, it's saving fuel. But the main question is, ?Are you going
to let an RFP out for a plug-in hybrid?? If you do, I'd like to know about it.
Fred Smith: Well, let me ask you this much. You know, it takes two to tango here. Do most
of the people here that know what they're talking about, believe that industry could
produce plug-in, hybrid, pick-up and delivery vehicles now at scale and production at a
competitive price? I mean, do we -- I'm not being rhetorical. I'm just asking the question.
Do you think so? Well, then we might do that. We might do that.
>> [clapping]
Professor Frank: Let's put it this way. I've been building plug-in hybrids for almost 15
years and I?ve built pickup trucks and I've got a medium duty FedEx truck essentially
for another customer on the works right now. And we're only a University and it could be
done. It could have been done five years ago, ten years ago. What Eaton has done is a good
start, but it's got to go to the next step, and that is.
Fred Smith: Well, we might just do that. I mean, if we can ascertain that people can
actually meet that requirement, that might be an excellent suggestion, Professor, for
us just to come out with an RFP.
>> Right. That's what I?d like to see. And if you do that, we'll bid on it.
Fred Smith: Okay. I promise you.
>> [clapping]
David Sandalow: Could you identify yourself? If all the questioners would identify themselves.
Thank you very much for the question.
Paul Heitman: Yes, my name is Paul Heitman with Converge. We're a demand-response provider.
First, I want to thank you for all the innovation that you've brought. And particularly as an
Ebay user, the package tracking is my favorite. Being able to find to where your package is
just a simple but phenomenal thing. Now, my question is along the lines of -- you described
your value chain of your transportations segment, but you also have building facilities and
package processing, etc. What's your view on the integration of the electric grid and
service to those buildings and any solar panels etc. The roofs might support and their integration
with your transportation assets. And also, how do you view that as giving you some business
flexibility and variability when times are slow and you're not using the cars as much.
You might be able to plug them in and use them for revenue generation along with the
building?
Fred Smith: Well, regarding the first, we have two, massive, solar installations in
California. We put solar panels on our big hub in Oakland, California. And I believe
I'm correct that almost all of the power -- I'm sure there's some surge or so forth that's
not covered by the solar production, but it's produced by solar power. We did the same thing
down near Los Angeles -- I can't remember where it was. I think it was Fullerton, but
I may be off base -- which we just opened up about three weeks ago. We're looking at
a similar situation in Woodbridge, New Jersey. We have a concept with Bloom Energy -- some
of you know them -- to put their equipment in one of our hubs. So I think that our position
on that is, if we can get close on the economics, solar and locally powered is where we want
to go. Through the excellent work that Robbie Diamond and his folks did and some other papers
I've read, I believe that, for a pretty good while, we could produce in the off-peak hours,
a lot of electricity that otherwise is simply going to waste. I think if we had a national
initiative to modernize the electrical grid and make it more efficient, we could produce
even more power.
>> [clapping]
Fred Smith: Now, obviously using the unit of capacity as a storage unit for back --
and selling it back, I think that's great too. I'm not knowledgeable enough to comment
on that. As far as upstream, I personally believe, and again, maybe some of you don't
like the off-shore production; it may not be popular with everyone. But, I don't think
you can keep nuclear power out of the equation. It's the only completely carbon-free, power
generation system we have. Tonight, after I leave here, I'm going to get on a plane
and go to Paris where we have our largest European hub. Eighty percent of the power
in France is produced by nuclear. I think there is very exciting nuclear technology
on the horizon developed by our government and Sandia and Los Alamos which will allow
you to substantially mitigate the proliferation risk, and so forth, make small pocket-size,
nuclear devices. So I think if there's a commitment to the electrification of a lot of transportation,
the upstream thing can be solved either with clean coal or with nuclear. I don't think
you can do it without both of those, obviously, without having carbon effects that nobody
wants.
David Sandalow: We're running short on time, so three quick questions, please.
Mike Jung: My name is Mike Jung. I work with Silver Spring Networks. FedEx is probably
one of the smartest companies out there. Like the previous questioner said, you know, Where
your package started, where it is right now, and when it's going to get delivered. He also
talked about a smart grid that would provide that equal level of information for the electricity
that gets delivered to your company and others. What would you say, as one of the biggest,
most geographically-diverse companies, how important is it to FedEx that the smart grid
become interoperable and universal, so that you have essentially one standard that you
can plug into as opposed to having a different standard in every place you serve?
Fred Smith: Well, you're getting way beyond my technical knowledge. I appreciate the comments
about FedEx, but as I understand it, it is technically achievable. It's simply a matter
of national will and policy. So you ask as to what one of the policies be, it would seem
to me that that's something that the federal government could actually do, if it just had
the kind of support that Chairman Dingell and our own United States Senator, Lamar Alexander
-- who's a wonderful man by the way -- if we could put behind this. So I see no reason
that that could not be done. And it's not like we don't have the power right-of-ways.
You know, it's an easier problem than siting a new nuclear plant or some of the other issues
that we're talking about. It's just a matter of national will.
David Bercovich: Hi there. David Bercovich from Google. Thank you so much for coming.
It struck me when you were making your introductory remarks that I also wrote a term paper on
FedEx at Yale.
>> [laughter]
Fred Smith: I wonder if you got a better grade than I did.
David Bercovich: Well, I did. So I don't know what that says about Yale's grading system,
because your paper is probably better than mine.
>> [laughter]
Fred Smith: You're obviously a lot younger than I am, and I can promise you the admission
standards were quite different when I went there than you.
>> [laughter]
David Bercovich: Anyway, my question is, first of all, thank you so much for your leadership
and great talk tonight. You know, I think one of the things that a lot of us in this
room are pondering is, how do we bring the business community along, whether it's a carbon
tax or Cap-and-trade or you know, the system that we need to reduce carbon emissions. You
know, you're taking a very long view that something that might be painful in the short-term
but is going to be fruitful in the long-term, and how do we get other businesses to think
about this that way?
Fred Smith: Well, first of all, remember the examples that I gave you. We had a little
bit of pain because we did some R and D on hybrid vehicles. Quite frankly, we're like
every other for-profit company. There's a limit to what you can spend without a return.
So that's why I said it's a matter of production of scale or the price of fuel making it an
ROI project. The airplane decisions were real easy because you could see the bottom line
effect. And the solar installations that I mentioned to you, well, they were right on
the borderline. So, we push it as hard as we can, but not to the point where we would
put at risk our fiduciary duties to the shareholders or to the team members. But that's why I made
that point about crossing the chasm here. I think there is getting to be near unanimity
about this problem. Let's face it. Both the Republican nominee and the Democratic nominee
have both said that global warming is a big problem. That's -- that hasn't been the case
in this country. I think you're seeing people who really know what they're talking about,
many of the people in this room, they're saying that battery technology and plug-in, all-electrics,
and hybrid electrics are real technologies that can be deployed. One of the big heads
of the automotive manufacturers -- recently we spent about two hours at our headquarters
-- and he told me that, no question the recharge cycle on some of the vehicles they're going
to be putting out here in just a few years are going to be less than an hour. So when
you have that kind of utility and product improvement -- it's just amazing to see this
entrepreneurship. I'm very convinced that we're on the edge that you're going to see
the marketplace take over here.
David Sandalow: All right. We've got time for just one more question. My apologies on
that.
Joseph: My name is Joseph Flato. I'm just a local.
Fred Smith: I was hoping you weren't going down. You have the best tie by far.
Joseph: Oh, thank you.
>> [laughter]
Joseph: Thank you very much. The question I wanted to ask you is, are you familiar with
Plug-in Partners, and are you a member of Plug-in Partners?
Fred Smith: I'm not familiar with it.
Joseph: Okay. Plug-in Partners is a coalition of industry -- companies that are interested
in purchasing plug-in vehicles. And they, it's basically a soft commitment to purchasing
plug-in vehicles for industry. You go to their website and you sign in and you do that.
Fred Smith: Sure.
Joseph: The reason why I wanted to mention them is that you talked about scale. There
are about 30,000 members now, I think, that belong to Plug-In Partners that are industry
end. I think that it would be nice to be able to switch from the soft commitment that they
have with Plug-In Partners to actually starting to get down to the nitty-gritty, and actually
bringing a large number of them together and say, ?Okay, what can we actually provide for
you and let's get it all together and place one large order to basically bring the cost
down and bring the ROI.?
Fred Smith: Well, that's a very good idea, and just like the first one, suggestion, was
put out an RFP. If you will e-mail me, I'll give you my card before I leave, and tell
me how to put out. We'll take a look at that too.
David Sandalow: Any last words sir?
Fred Smith: No. Again, I just graduate you for the conference and.
>> [clapping]
David Sandalow: Thank you very much.
>> [clapping]