Now is not the time to stop fuel-saving innovations

As of today, the average gallon of gasoline in the United States is $2.06. It is even much less in some regions of the country. In New Jersey, drivers are spending only $1.69 a gallon. That is the lowest cost to fuel a car since 2009.

 

Diesel prices have also seen a drop with the average at $3.09 a gallon, down 83 cents from the same week a year ago.

 

Americans are saving millions of dollars each week on fuel costs. But if history tells us anything, we should not expect it to last. Fuel prices are highly volatile.  Companies would be wise not to make important decisions based on their current low fuel bills. That is especially true of firms that have programs designed to reduce their energy spend. Now is not the time to change course.

 

I recently visited Burris Logistics, a company that has made it a mission to reduce its fuel consumption significantly. Working with Ryder, Burris has redesigned its trucks, including modifications in engine design, gear ratios, and automatic transmissions to reduce fuel usage. They have also changed the body designs of the cabs and trailers to make them more aerodynamic and able to slice through the wind. They have added low resistance tires and mud flaps that allow air, but not road spray to pass through them. All of these innovations have increased the miles per gallon on Burris trucks by 50 percent since the campaign began.

 

My hope is that companies such as Burris do not stop innovating, even though diesel prices have dropped. The fuel nirvana we are now experiencing will not last. Innovations will still provide a reasonable return on investment, now and in the future.

Bill Logue’s Legacy

William J. Logue walked into the fire when he was named to run FedEx Freight, FedEx Corp.’s LTL unit, in 2010. The LTL sector was flat on its back, hammered by freight and economic recessions, and by ill-conceived rate-cutting moves designed to defend market share and to try—unsuccessfully as it turned out—to force YRC Freight, the then-market leader, out of business.

 But Fred Smith, FedEx’s founder, didn’t build a $44 billion colossus by getting the big personnel decisions wrong. Smith knew that Logue, who ran air and ground operations at the parent’s main “FedEx Express” unit, was a master operator who grasped the trucking industry and how to apply processes long used in the express business to improve LTL’s value proposition. In addition, with more than two decades at FedEx, Logue had the corporate savvy to maneuver through the cultural maze to get things done.

Last Wednesday, Logue retired, leaving behind a healthier and profitable FedEx Freight for his successor, Michael Ducker, who, not coincidentally, comes to the job from the same role that Logue had when he was tapped. More significantly, Logue leaves having positioned FedEx Freight to be the type of operation Smith wants as he leads a vastly revamped FedEx into the balance of the century’s second decade.

One of Logue’s first tasks was to undo the disastrous scorched-earth rate strategy that was implemented before he got to FedEx Freight by people at higher levels than him. Then he engineered the most important step in the unit’s history: A dual-use network design to support a "priority" service for shipments that required delivery within two days, and an "economy" option for deliveries of three days or more.

Logue reasoned that LTL shippers accustomed to paying for services based on miles driven would gravitate to a model that offered choices based on transit times. He had to fight consultants who doubted that shippers would pay for slower times for shipments moving less than 600 miles. In the end, though, the customers got it, even if the consultants didn’t.

The service’s success depended on flawless execution utilizing the same type of tracking technology that made FedEx famous. It also depended on an increasing use of rail intermodal to keep the service economical. Today about 18 percent of all shipments—and about one-quarter of traffic moving over the “economy” network—travels via intermodal, according to a source close to FedEx. So far, the model has worked, with the “economy” service generating an especially strong following.

Logue (who was not available to be interviewed prior to his retirement) leaves with an industry that has become quite profitable, and is poised to become even more so. But he also leaves with one objective undone: Migrating FedEx Freight away from "classification" pricing, where rates are determined by the characteristics of commodity classes, to a structure based on shipment dimensions and density.

The approach, long used by FedEx's parcel customers, would be a "game-changer" for LTL if adopted, Logue said in early 2012. Logue departs as LTL is on the cusp of such a profound change. Though he won’t be around to see it, he was around to get FedEx Freight to the point where it appears to be set for years to come. For that, the company owes him a huge debt of gratitude

—Mark Solomon
Senior Editor