Image: UPS van
David Zalubowski  /  AP file
UPS, which delivers more than 15 million packages daily, has nearly 100,000 vehicles. As such, it may pay off to wait out competing technologies even as gas skyrockets.
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updated 5/29/2008 7:33:35 PM ET 2008-05-29T23:33:35

Earlier this month, United Parcel Service, the world's biggest private delivery service, placed the single largest commercial order for alternative-fuel vehicles — 200 hybrid-electric vehicles and 300 compressed-natural gas vehicles — ever made.

A green revolution? Hardly. Collectively, the 500 vehicles almost cost less than the logistics giant pays in parking tickets most months.

Despite the surge in gasoline prices, alternative-fuel vehicles are still a dicey proposition for delivery services like UPS and FedEx Express. While the companies will likely need to make significant investments on more efficient vehicles in coming years, the technological uncertainty surrounding vehicle technology today continues to constrain investments. Companies as small as Tesla Motors and as big as Toyota are developing competing vehicle technologies that could dramatically outperform currently available vehicle technologies.

UPS, which delivers more than 15 million packages daily, has nearly 100,000 vehicles. A bad bet on which technology will ultimately prevail could be fatal.

As a result, UPS has not committed too heavily to any particular vehicle technology but developed a diverse portfolio of alternative-fuel vehicles. The company's fleet now includes electric, hybrid electric, CNG, liquefied natural gas and propane-powered vehicles. The 500 additional vehicles, scheduled to enter service in 2008 and 2009, will increase the size of the company's alternative-fuels fleet by nearly a third from 1,718 to 2,218 vehicles.

Although UPS will not disclose how much it spent on its recent order, it claims to have invested roughly $15 million in its alternative-fuels fleet altogether. To put this in perspective, the company paid New York City more than $18 million for parking violations in 2005.

"This purchase is just a piece of the larger puzzle at UPS," said Elizabeth Rasberry, a UPS spokeswoman. "We have been introducing alternative-fuel vehicles into our fleet incrementally for quite some time, testing them to make them more commercially viable."

Dabbling in alternative-fuel technologies is nothing new for UPS and its industry peers. The U.S. Postal Service relied heavily on electrically powered delivery vans before World War I. Similarly, UPS used electric trucks in New York City in the 1930s.

Not surprisingly, UPS is not the only delivery service company currently rethinking its vehicle fleets. The U.S. Postal Service and FedEx have significant numbers of alternative-fuel vehicles in daily use. FedEx has the largest fleet of hybrid-electric delivery vehicles in the U.S. while the USPS has the nation's largest alternative-fuels fleet, which now includes roughly 37,000 vehicles.

The future of vehicle technology is so important to the delivery-service industry that a few companies have actually funded their own vehicle technology research. For instance, UPS has partnered with the U.S. Environmental Protection Agency and the U.S. Army National Automotive Center in an effort to develop a fully hydraulic hybrid delivery vehicle for urban environments. Hydraulic hybrid technology replaces a conventional drive train with a hydraulic one, which eliminates the need for a mechanical transmission and driveline. FedEx and other companies have launched similar research projects, revealing an industry-wide effort to accelerate the transition into more efficient vehicle technologies.

© 2012 Forbes.com

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