Those who believed that oil would be forever cheap, flowing with ease through our thirsty nation's pipelines, awoke to a painful new reality the morning after Hurricane Katrina slammed into the bayou. The price of oil spiked to more than $70 a barrel, gasoline to more than $3 a gallon, and although things have settled a bit since September, there will be no return to the rock-bottom prices of the 1990s. The days of reckless consumption may be history; conservation is on its way in.
Even President Bush is now saying that "we can all pitch in" by being "better conservers of energy." But such pronouncements are certainly not reflected in his administration's energy policies. The real leaders, it seems, may be in the private sector, in particular among those behemoth corporations with the resources and foresight to invest in new technologies that will insulate their operations from increasingly volatile oil prices.
The first sign that business wasn't quite as usual came in mid-August, just before Katrina hit, when Wal-Mart reported its earnings for the second quarter of 2005. The bellwether of American consumerism attributed its poor performance to rising gas prices. Not only did shoppers have less to spend, but also energy prices had driven up the company's operational costs: $100 million lost to higher utility bills and $30 million to higher diesel prices.
According to the American Trucking Associations, the industry's total fuel bill for 2005 will be $85 billion -- a $23 billion increase over 2004. The average price of diesel for 2005 is projected to be $2.45 a gallon, 35 percent higher than the previous year's average of $1.81, and that in turn was a 20 percent increase over 2003. Next year, the federal Energy Information Administration expects the average price to climb even higher, to $2.56. The spike, it seems, may be less an isolated peak than an elevated plateau.
Big-box stores such as Wal-Mart, Home Depot, and Target operate on thin profit margins and rely on vigilant trimming of operational fat to pass on savings to customers. They depend on cheap fuel to ship an enormous number of inexpensive, foreign-made products to the United States, and then truck them to distribution centers and stores across the country. Until recently, however, efficiency focused on logistics -- strategically managing supply chains to save time and money -- not the actual vehicles that deliver the goods.
For now, moves toward greater energy efficiency will rely on existing technologies that can be adapted with as little capital cost as possible. In the trucking industry, for example, diesel engines are the only technologically available, cost-effective option. For long hauls, there's simply no point in switching to hybrid-electric power -- there's not enough stop-and-go to take advantage of the electric battery.
Wal-Mart, which operates one of the largest privately owned trucking fleets in the country, recently joined the Environmental Protection Agency's SmartWay Transport Partnership, a voluntary membership program that requires trucking companies to adopt fuel-saving measures while manufacturers and retailers agree to ship a percentage of their products using trucking companies that are members of the partnership. Home Depot and IKEA are founding partners in the initiative, as are Coca-Cola Enterprises, Nike, and several major players in the trucking industry, such as Swift Transportation, Yellow Roadway, and Schneider National.
Because of the scale of their operations, the trend toward greater fuel efficiency promises real benefits for giant companies like Wal-Mart. In late October, CEO Lee Scott announced plans to increase the efficiency of Wal-Mart's trucking fleet by 25 percent over the next three years and to double efficiency by 2015.
Fuel consumption by long-haul trucks averages about 6 miles per gallon, but that figure can be raised by as much as 25 percent, to 7.5 mpg, by a variety of measures. These include using more efficient tires, reducing drag by installing windshields and by narrowing the gap between cab and trailer, and offering incentives to drivers who follow fuel-saving acceleration techniques and drive at the most fuel-efficient speed (for large rigs, that's often just above 60 miles per hour). Improving Wal-Mart's fleet-wide efficiency by just a single mile per gallon could save the company $52 million a year.
Schneider National operates one of the most efficient trucking fleets in the nation. Whereas most fleets are idling an average of 44 percent of the time, Schneider National's average is less than half of that. In 2005 the company began installing small diesel-fired heaters to warm cab interiors while drivers are stopped (they're required by law to rest 10 hours for every 11 on the road), discouraging them from running their engines all night. Schneider National is now looking for more efficient ways to air-condition the cabs during idle time and hopes to have a plan in place by early 2006, says Dennis Damman, the company's chief engineer.
Damman and others are frustrated by the lack of federal funds for efficiency research and development. Department of Energy R&D funding has fallen off in the past several years, and SmartWay's largest grant to date was $3 million awarded last October to the Texas Transportation Institute, a state agency and member of the Texas A&M University system.
That may not sound like much, but for a federal grant, it's actually on the generous side. By contrast, Wal-Mart plans to put $500 million a year toward research and development of more efficient technologies for its stores and truck fleet. In his October speech to employees, Wal-Mart CEO Scott also pledged to share the company's findings with the rest of the industry. His logic? As the market grows, production costs fall, making it cheaper for the new, energy-efficient technologies to be implemented on a truly large scale. Once again, it appears, the retail giant plans to honor its well-known slogan: "Always low prices." And this time at least, the rest of us may benefit.
-- Laura Wright