Startup Series: Fleetzero
Today's guests are Steven Henderson, Co-Founder & CEO, and Mike Carter, Co-Founder & COO of Fleetzero.
Fleetzero is building battery-electric cargo ships that operate with 5X higher net margins than fossil fuel ships. The startup's increasing the efficiency of existing diesel ships by converting them to battery-electric while pioneering innovation with the MVE7 - an electric ship designed for trans-pacific cargo delivery. Fleetzero'sbattery technology is the only pathway to decarbonizing the $1.3 trillion shipping industry without a green premium.
Steven is a marine engineer by background and has managed a wide range of businesses and operations in the marine environment, including cargo ships, a hospital ship, and one of the largest offshore facilities in the US Gulf of Mexico. He has a bachelor's of science in Marine Engineering Systems from the US Merchant Marine Academy and an MBA from Harvard Business School. Steven served in the US Navy Reserve as a Strategic Sealift Officer.
Mike is a marine engineer and enterprise sales professional. He graduated from the US Merchant Marine Academy with a BS in Marine Engineering Systems and received an MBA from Rice. Mike brings expertise in marine engineering, ship operations, and significant business experience in energy and shipping. He is also proud to have served as an officer in the US Navy Reserve.
In the episode, Mike and Steven walk me through Fleetzero's unique solution, why the ships are challenging to decarbonize, and what let them to found the startup. We also discuss why battery swapping is a viable solution, Fleetzero's funding to date, and the company's customer base. This is a fantastic episode for those looking to learn more about decarbonizing the shipping industry.
Enjoy the show!
You can find me on twitter @jjacobs22 or @mcjpod and email at info@mcjcollective.com, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded March 11th, 2022
In Today's episode, we cover:
An overview of Fleetzero
Mark & Steven's respective journeys into the climate space and what led the pair to found Fleetzero
Why it's challenging to electrify ships
The nature of the problem Fleetzero is tackling
The larger landscape to decarbonize the shipping industry and the viability of the different approaches in use today
Why people didn't think Fleetzero's solution was possible
Fleetzero's battery swapping solution
The types of companies that utilize Fleetzero's solution
Fleetzero's customer base and competition within the market
The importance of route planning to decarbonizing the shipping industry
Fleetzero's sources of capital and how equity factors in
Fleetzero's funding to date
Links to topics discussed in this episode:
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Jason Jacobs: Hey everyone, Jason here. I am the My Climate Journey Show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey, or MCJ as we call it, membership option. Membership came to be because there were a bunch of people that were listening to the show that weren't just looking for education, but they were longing for a peer group as well. So we set up a Slack community for those people that's now mushroomed into more than 1300 members.
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There's a bunch of great things that have come out of that community, a number of founding teams that have met in there, a number of nonprofits that have been established, a bunch of hiring that's been done, a bunch of companies that have raised capital in there, a bunch of funds that have gotten limited partners or investors for their funds in there, as well as a bunch of events and programming by members and for members and some open source projects that are getting actively worked on that hatched in there as well.
At any rate, if you wanna learn more, you can go to myclimatejourney.co, the website and click the become a member tab at the top. Enjoy the show. Hello everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help.
Today's guests are Mike Carter and Steven Henderson, co-founders of Fleetzero. Fleetzero is a recent MCJ collective investment that we're really proud about. They are building a fleet of electric ships to deliver cargo for their customers without a green premium. Decarbonizing shipping is hugely important. It's a big source of emissions. It is difficult to decarbonize and conventional wisdom says that electric just won't be viable.
But Fleetzero has found a way to do electric with swappable batteries that essentially instead of just taking the existing way that logistics and shipping are done and electrifying it, they're actually changing the frame by using swappable batteries, by changing the routes. And at any rate, we get into details during the discussion, but it's fascinating to talk not only about how important it is to decarbonize shipping, but also what some of the biggest barriers are that have prevented it from being done already, what some of the opportunities are and what Fleetzero is doing to reimagine how decarbonizing shipping can happen effectively.
Mike and Steven also have really interesting backgrounds. They grew up together in the mountains of North Carolina, which is a really conservative spot and they weren't exactly surrounded by a bunch of climate activists. In this episode, we talk about their backgrounds and journey, we talk about the origin story for Fleetzero. We talk about their progress to date, their long vision, what's coming next, some of the challenges that are holding them back and some of the opportunities both for them and for others that are looking to have a similar impact on decarbonizing this very important industry. Mike, Steven, welcome to the show.
Steven Henderson: Hey, thanks, it's great to be here.
Mike Carter: Thanks for having us.
Jason Jacobs: Great to have you. Yeah, and disclosure upfront, we're proud investors in Fleetzero. So I know something about the business, but I still have so many questions and it's such an important area. And so this episode is partly to help others learn about you because we're proud to be involved, but it's also just for me to learn a lot more. Because as I said, I'm excited about your vision and the problem you're solving, or I wouldn't be here, but I still have a lot to learn.
Steven Henderson: Yeah. I mean, first off, Jason, we just wanna thank you again for all the sports you guys are- are not just investors, but what you're doing just for the climate movement and also for Fleetzero. You guys have been absolutely amazing and we're just really grateful to be associated with you guys.
Jason Jacobs: Well, likewise. And the other disclosure is that this is the first podcast I'm ever doing from my car parked next to my house so that I can use the house wifi because my house is a zoo right now. So it sounds okay so far, but if it sounds a little different than normal, that's why. So what's Fleetzero guys? Either one of you can take it, doesn't matter.
Steven Henderson: Sure. We're building battery electric cargo ships and our mission is to affordably decarbonize ocean freight. So maybe to unpack that, we looked at this industry and realized there's all sorts of technical solutions that you can make shifts that have zero emissions or lower carbon impact on the world. But everything that we had looked at, it was probably being discussed, it was gonna cost a lot more.
And that's not just bad because it may make your coffee cost more or your t-shirts, but it actually, you know, when you increase the cost of something that's just so vital for the global economy like freight, you really impact people in the globe. So I used to live in West Africa. I lived for a year in Congo and for a year in Guinea. And these are two countries that are really outside the global supply chain.
And I saw what that does to an economy, to people and we realized that if the folks in the west decarbonized ships and everything costs 20% more, or two times, you might be cutting billions of people out of the global supply chain, that just kind of a moral impetus to this. We said, "Hey, we've gotta think about this industry. Is there a technology, the ways we can innovate and decarbonize ships without making it cost so much more?"
And not only that for the more reasons, but if we want to do this in a timely manner and actually have an impact on the climate, we can't wait for regulations to force this. We need to lead with innovation and do something that there's a pull from industry. The companies want to use because it's cheaper, it's better service and it's green and that's kind of the mission behind Fleetzero.
Jason Jacobs: It'd be great to hear a little bit about each of your personal journeys to founding the company and when and how and why those journeys intersected.
Mike Carter: If you've heard one of our stories, you've probably heard them both. Steven and I, we actually grew up together in the mountains of North Carolina, which a lot of people scratch their head about it's pretty far away from the ocean. We just had this passion for sailing, for the ocean. We had a passion for engineering and we wanted to serve our country. So we were high schoolers, we were looking to go to a service academy.
We didn't really wanna study philosophy or literature or something, we wanted do something that was technically challenging. We wanted to study engineering. So we had a local congressman at the time that really pushed us to go to the United States Merchant Marine Academy, which is not the most widely known of the service academies, but is really a crown jewel. It's just amazing the education that they're able to give you in terms of learning about ships.
So we learned everything pretty much I think there is to know about ship propulsion and ship technology. So Steven and I both attended there at the same time and then our pathways diverged a little bit. I worked in the energy industry for a company called Transocean after the Macondo Well incident or the BP oil spill. My job was to help figure out ways to ensure something like that, you know, just wouldn't happen again through refining our maintenance practices and procedures and the way that we conducted business and thought that was a really interesting challenge.
Also found out that the energy space really wasn't for me so I took a left turn and, uh, went into the software industry where I helped run a group of energy and shipping professionals and helped stand up that line of business for a software company. So Steven and I, we came back together, our pathways converged again after that short divergence, and we were able to see Fleetzero through something that we've been talking about for the better part of two decades.
Jason Jacobs: And what about you, Steven?
Steven Henderson: Yeah, so similar to Mike, you know, technical background, both marine engineers, ship nerds. Many folks have heard of naval architects, naval architects design the outside of a ship, marine engineers designed the inside, so all the stuff that moves around and makes a ship go. So that's kind of our background. And much like Mike, we took our commissions in the military and the Navy as reservists, and then went into private industry.
So I did the same, ended up working also for transition, same sort of story as Mike right outta school, and then left that to go work for an NGO in West Africa called Mercy Ships, fantastic organization, great mission. Got to see uh, a lot of really things that really impacted me personally just about the way the sort of forgotten economies of the world works and there's this enormous part of the globe that are probably most exposed to climate change and also have the least tools at their disposal to do anything about it.
And that just, you know, really hung with me and I got a real passion for energy poverty. Maybe an anecdote around that so in Guinea, Conakry which is, I think the third poorest country in the world, there used to be a beautiful forest that went all the way to the sea and now you have to drive several hours inland before you find trees because there's no energy, grid or system to provide cooking fuel. So the locals are forced to cut down this forest to make charcoal to cook which causes all sorts of lung problems, injuries to children and obviously deforestation and all this. And that's the ugly end of- of energy poverty.
So I went back, got an MBA, was fortunate enough. I think I was the admissions mistake at Harvard Business School. And they allowed me in and was able to go through that program and then had this real passion for energy poverty, went to work at Shell, which was at the time, you know, I think they still are one of the most progressive energy companies and got plugged into that, uh, strategy group and then in operations, which was really eye-opening just to see how our energy economy works, how it's all held together.
Was great, but realized that if we wanted to change this industry or really anything else, that- that has to happen from innovative, new interests. While these big companies are there, they can play a part in the energy transition and- and helping the economy go that, you know, really to do something fast in the time skills that are needed for climate change. It's gotta come through startups. It's gotta come from solutions that just aren't out there. So Mike and I had this continuing conversation for years about going back to our roots in shipping. We were really annoyed at lot of the articles we had been reading, some of the strategy work that I saw.
Jason Jacobs: Were you guys in the same geography when you were going back and forth or was this digital, was it text, phone, Zoom? I'm just curious, a random question.
Steven Henderson: Yeah, we were actually... Mike was in Houston, I was in New Orleans when this was going on.
Jason Jacobs: And so what was your preferred mode of going back and forth like old men on rocking chairs? Was that live on phone or how did this back and forth tactically happen?
Mike Carter: Yeah. You know, it's kind of funny because when we had this aha moment with Fleetzero, we were both, I think like on FaceTime or something. That's typically how we talked to one another. And I was sitting in my backyard, Steven in his backyard. And about a month after that aha moment that we had, we were both talking and we could swore we were together during that moment like we were both in the same place, I was visiting New Orleans or he was visiting Houston when in fact we were miles apart separated just talking over a phone.
Steven Henderson: And that aha moment, it was kind of an outer body experience and it's where we realized this sort of technical aspect. So electrifying ships is really hard, it's not obvious like how you do it. If you just do sort of a front level first pass mat, that doesn't seem to make sense. And we realized that grid- clean grid electricity is the only way to really truly decarbonize shipping that's affordable. It's just a storage problem, how do you get over the fact that batteries are expensive? So we were really noodling on that.
And we figured out something that to us was really groundbreaking and it was kind of this out body experience. We were so excited we're just sketching it out on paper, modeling it on a computer. In later conversations, we forgot that we weren't actually in the same room. And I could have swore that he was in New Orleans on the back porch of my house looking over a park and he thought I was sitting next to his pool in Houston when we were remembering that conversation.
Jason Jacobs: And what is it that's so hard about electrifying ships?
Mike Carter: So initially Steven mentioned this earlier, but we were reading these articles about decarbonizing the, uh, ocean freight space and everything we read from marine engineers in us, we just fundamentally with a lot of things agreed with and a lot of things disagreed with. You know, we read batteries would never work to decarbonize ocean freight. And so we had to run through the mental model ourself and kind of crunch some of those numbers. So we did. We've tried to figure out what it would take in terms of batteries to get something like the MMRs from the East Coast of China to the West Coast of United States.
Steven Henderson: And the MMRs is one of the biggest ships in the world. So that's just an example. I'm not picking on- on that ship or- or that company, but it's, you know, one of these really big ships you see in Long Beach.
Mike Carter: 24,000 containers, something like what you would see sitting off the coast at Long Beach right now waiting to come into port. So we did that math and the size of battery you would need is something like something basically like surface area of a tennis court two miles tall. It was like we couldn't even fathom how big this battery system or battery pack would need to be. And interestingly enough, the ship actually could technically do it, [laughs], could haul the way to the batteries and the volume, but it just was so impractical, there's no room for cargo. So we're like, "Okay, you know what? Maybe you can't electrify these giant ships."
Steven Henderson: But then we started to unpack it and we started to think about it. And you know, where we got that battery size is we looked at the energy that's stored in the fuel tanks of a ship and said, "All right, let's convert that and do some math, convert that to batteries." And we realized, okay, wait, we're solving the wrong problem. There's a higher order problem. The higher order problem is you don't need to electrify that ship, you need to move cargo with electricity from China to of the US.
So we said, "All right, let's sort of rethink this." Like what is this ship? So there's really big ships. They're actually hyper optimized around lowering fuel cost 'cause fuel's the biggest cost on the P&L for these companies that are operating. And we realized that a ship that can carry 20,000 containers, it has enough fuel capacity to circumnavigate the globe and more. And the reason they do that is the fuel's so expensive, they- they pick one place, let's say Singapore and the Pacific.
And they'll go to Singapore and they'll fill up there once every now and then, and they'll get the best deal they can on fuel and essentially like a physical hedge on fuel price. So instead of hopping in each port and taking fuel, which is really expensive, they get it directly from the refinery, as cheaply as possible and the storage on the vessel is essentially free. It's just a metal tank. Once it's there, it's there, you've very little maintenance. So you have free storage, expensive fuel. We realized, okay, we've got a different problem with batteries. You've got really relatively cheap fuel with expensive storage.
So what does it look like to operate a ship with expensive fuel tanks and cheap fuel when you have smaller fuel tanks and the ship may be smaller 'cause you don't need to have as long of a range and you might make more stops to refuel? And how do you do that? How do you do that faster? We realized, okay, you can't build the fuel tank into the ship, it needs to be swappable. So we realized battery swapping was gonna be necessary to run an efficient business.
And something really kind of amazing happened. This was this out body sort of aha revelation that we had, is that if you separate the batteries from the ship, you can share those batteries across multiple vessels. And our technology and what we've been building enables doing this in such a way that you use actually fewer batteries to move the same amount of cargo than you would if you had a plugin model. So by doing battery swapping, we can move more cargo with fewer batteries.
And what that does is effectively, if you look at long term average freight rates and do the math and breakdown, what it's like to operate a shipping company, it gives us something like five or six times higher margins in a traditional fossil fuel ship. And I don't mean it today is like inflated freight rates, I mean at decade average freight rates. But to do it, you've gotta think of a shipping company in a bit of a different way, solve that higher order problem. It's not about electrifying the bigger ships of the day, it's about moving cargo with electricity on ships. So our model uses somewhat smaller vessels and more of them and they share swappable batteries across a network, which is pretty different than what's out there today.
Jason Jacobs: Uh-huh [affirmative]. So if I'm hearing right, it sounds like the traditional model is to take the ship and load it with fuel and enable to go for a long time, and that ship needs to get there assuming without any stops because the price of fuel's unpredictable. Did I get that part right so far?
Steven Henderson: Yeah. It's not that it's unpredictable. You know, the fuel that ships burn is so kind of unwanted, it's called residual fuel. It's very thick. You have to heat it if you wanna pump it. Uh, so it's actually very expensive to move around. So the best way to get it is at a refinery. And for example, in the Pacific, Singapore has a refinery right there that can sell to these ships this fuel. So they're just hyper optimized around their fuel source. And we said, all right, like what would it look like to hyper optimize ships around our fuel source, which is electricity stored in batteries. And you end up with a system that just looks different solving for a different set of constraints. And I think that's what folks had missed in the past in the industry when they did a cursory look at what it takes to electrify shipping.
Jason Jacobs: Yeah. 'Cause they assume that it's just changing the fuel source and nothing else. And what you're saying is, well actually if you change everything, then potentially the fuel source could into plug into a different frame which means the fuel source could take a different shape than what you might thought was possible when you were comparing it with the existing frame only.
Steven Henderson: Yeah, exactly. And using smaller vessels. When I say smaller, these are solely the big ships, right? So a ship that can carry 20,000 containers. That's sort of the largest that's out there. That's like the one that stuck in the Suez Canal and made the news a few months back. That's one of those really big ships. Our ships carry four to 5,000 containers. So they're still very big. They end up being about a fourth the size from a length standpoint.
And that's more like ships have been in most of the last century. So the- the average size of ships has increased every decade since the '50s, and that's again, driven by fuel cost. So we're actually kind of going back to the heart of logistics system as it was built in the last century, all the port infrastructure, all the roads, everything around shipping is actually built and designed for smaller vessels. And these really big ships while they lower fuel costs are actually really bad for the global supply chain. They're so big there's only a few ports they can go into.
So there's all these sort of underutilized ports along the west coast and the US, for example, that these big ships can't call on, can't go into and it's sort of wasted infrastructure. So we took a tour on the west coast of Long Beach a little while back to go look at all these ships that were stuck out there, and now our north was a port called Hueneme, which does not have delays. And there's a number of reasons why it's not being used, but one of the big ones is that these ships are too big to go into a lot of these underserved ports like Everett, Washington or port of Portland further up the west coast.
Jason Jacobs: So can you talk a bit about where are we with decarbonizing shipping in general? And as we gear up to get more aggressive about it, what are the different approaches that are being talked about the most or most viable in potentially bringing that about?
Steven Henderson: Yeah. So everyone's got a favorite depending on their sort of like background and interest in this conversation, right? So energy companies like- like Shell favors hydrogen, for example, other energy companies do. And I think if you look into that, it's because that's a maybe a comparative advantage that they would have in delivering that. Methanol is another that some carriers have looked at and then ammonia, that's probably the top three. So these are fuels that are gaseous or liquid fuels that would be burnt in some sort of combustion engine. You could put hydrogen through a fuel cell, but essentially you have a, basically the same concept that you have today, except the fuel maybe has a different density.
Jason Jacobs: So cleaner fuels, but the frame stays the same essentially?
Steven Henderson: The same drivers would be at play, right? So you would still want a very big ship. You want big fuel tanks and you would fill up at a few selective places and that's kind of what you would do with a liquid fuel model. And the issue with that is that for one, residual fuel is, you know, what you're competing against, what the state of the art today is, IFO or international fuel of the heavy fuel that ships burn is so cheap that it's really hard to compete with. It's what's left over after they take all the good stuff out of a barrel of oil.
And refineries are practically giving this away. A huge part of the cost with it is actually with the transportation, not even just the- the creation of it. And the problem, it's kind of a safe fuel to operate with. I tell a story sometimes when I'm explaining this to folks. When I first went to a ship, I was 18, I didn't know anything, I was very kind of green. And this really salty chief engineer took me down to the engine room and he was smoking a cigarette, which he used to be able to do on ships. And he walks in, he says, "This is the fuel pump," and it's dripping with fuel, it's very wet.
You know, he takes a cigarette out and puts it out on the fuel sitting on top of this fuel pump. And he's just watching me, right? He's just trying to scare me, and he did. But he's teaching me a lesson, he's trying to show me this very important principle with diesel engines, is that the fuel these ships burn is really hard to ignite. And it's kind of inert most of the time, so it's okay if it leaks out of things. If that fuel had been any of the three I mentioned, hydrogen, ammonia or methanol, you know, we would've died just when he walked in the door with that cigarette, right?
So hydrogen is extremely flammable, hard to contain. Ammonia is toxic to humans and wildlife, and methanol's also toxic, can cause you to go blind just getting it on your skin. So all these things, right? So you need a more expensive ship that has higher CAPEX to sure that you don't have fuel leaks, right? 'Cause that's no longer acceptable. And then the fuel itself costs more.
So you're looking at creating a new global infrastructure for either of these fuels ammonia, hydrogen, or- or methanol or any biofuel, for that example, you need to create all new infrastructure globally to where the fuel stations. You need to have totally new ships that cost a lot more, and then the fuel itself costs more. That's where Mike and I were just banging our head against the wall saying, "This can't be the future of shipping. We just don't see that, there's gotta be a better way and let's kind of go back to first principles and think about it."
Jason Jacobs: And so when you came to that conclusion, what next? Where'd you start?
Steven Henderson: We went broad. We thought about kind of everything from one of the craziest ideas we had was heating up salt to liquefy it, pumping outta the ship and then cooling it down, which, you know, I think folks of research sort of grid storage. We looked at compressed air. A lot of these things were just sort of once you really got into the engineering were kind of hilariously infeasible. And we realized that there's all these advantages to electrification, and that there's multiple technologies to store it and there's really high efficiencies in converting it to mechanical energy.
So a diesel engine, a really good diesel engine on a ship might be 40% efficient at its kind of peak efficiency rating. But most of the time, the ships don't operate at that point. They're operating at a much lower speed and then lower on their efficiency curve. So a lot of times ships efficiencies are in the teens or twenties. And electric motor can operate on a range of powers in a much higher efficiency. So you actually need less energy to begin with if you're using electricity, which is huge. That bar keeps getting lower as you think about it. I mean, if you realize you don't need to go as far. And you know, we just started doing the math and realized that you get to a point where it makes sense. Mike?
Mike Carter: Yeah. And aside from the efficiency gains you get from going to an electric powertrain system, which there's a lot of benefits with that, there's all these other unintended benefits that you get. So you think about like EV cars like when they first came about, you saw that, you know, you could remove the engine, it was previously there, make a space for a trunk. And that was like pretty novel. That was interesting to think about what-
Jason Jacobs: I'm sitting in my EV car that has space for a trunk where the engine used to be [laughs] so-
Mike Carter: Exactly, now you get all this extra room for cargo and much like a ship.
Jason Jacobs: I'll keep all my podcasting equipment since this is my new studio.
Mike Carter: [Laughing]. Yeah. So that's exactly right. So when we started looking at this, we said, "Okay, well when we can electrify a ship, we can get rid of all of the diesel equipment that was previously in there." So the diesel engines, the heaters, the purifiers, every other piece of auxiliary equipment that goes along with that, a lot of piping, pipe trunks, which are, you know, places where pipes run and sometimes were big enough to get a human through it, so a lot of wasted space there.
The fuel tank tanks which Steven mentioned earlier, ships have been optimized around these giant fuel tanks. You get rid of some of that stuff, and then you can get rid of some of the ballast tanks because for every gallon of fuel oil you burn, you have to replace it with seawater to make sure the ship can remain stable. So when you start getting rid of all this stuff, you realize there's all this extra room for cargo, which significantly would help a- a shipping business.
And we're still heavy in the engineering of this, trying to figure out if we can completely get rid of ballast water that we're taking from the outside into the ship. And the reason for that is evasive species. You know, it's a big issue when you're picking up water say in one part of the world and transporting and shipping goods to another, and then dumping that water into that local environment. So there's a lot of areas that have been affected by that. And so electrification also could lend itself to perhaps getting rid of some of the ballast water and going to more to a permanent ballast type of model. So a lot of things as we started unpacking this, we just became more and more clear that electrification was the right way to go.
Steven Henderson: The other benefits that, you know, diesel engines have thousands of moving parts and they are constantly breaking, they constantly need to be rebuilt. And this is kind of where Mike and I earned our chops, cut our teeth in shipping is, is working on diesels and gas turbines. And with an electric drive train, there are just as way fewer things to break and certainly fewer things to make maintain. And that's maybe the second and third biggest expenses on a ships' operation, is its maintenance and its crew that are there doing the maintenance.
So when you go for an electric drive train, you need fewer mechanics, you need fewer folks out there. You need fewer folks doing really dangerous things at sea, and you have, you know, less spare parts and less consumables. 5% of the typical operating costs for most diesel ships is lubricating oil. And that's just something that doesn't even show up as an expense for an electric ship, it's just such a minimal part of it, and that's just one of many, many things. So as you start to unpack this, there's all these unintended benefits.
Mike and I used to sail on sailboats in New York. And these boats are so graceful in the water, it's kind of the design of cell that's has evolved over thousands of years of iterations from countless cultures and they just interact so naturally with the ocean. And a diesel ship is like the opposite of that. It's like this square peg and a round hole. And when you go back and you sort of rethink ships from a purpose-built electric standpoint, it's way closer to that hand and glove, it fits with the environment. It's just way more natural from an engineering standpoint and an architecture standpoint to build a ship around an electric drive train.
And to be clear, we're not starting out building our own ships from the ground up, we are starting into conversions. So our first several ships likely the first eight will be conversions of existing diesel ships, and that's just for speed and to move quick because you can't rebuild the entire global fleet. So we think it's important to be able to retrofit, but we are thinking, and we know that purpose build electric ships will be the future and that just give you so many advantages.
Jason Jacobs: So correct me if I'm wrong here though, but everything you just said, that isn't necessarily new information generally that everyone would agree. And again, correct me if I'm wrong, that electric would be better if it were viable, right? But I think the reason it hasn't been pursued before is not... And again, I'm saying it like a statement, but it's really a question of it's not like people didn't know that it was better if it were viable, they just assumed that it wasn't viable, right?
Steven Henderson: Yeah, absolutely. And there's sort of like two big things that most people miss. For one, a lot of times, a lot of the calculations you read, it's really based on battery data and performance that's more than five years old or more than three years old. And to be clear, this has really only become economic in the last three to five years with the improvement of- of certain battery chemistries being commercially available. And the other bigger one is battery swapping.
Battery swapping is the difference from this being economical for one to 2000 mile range versus truly going across the Pacific or the Atlantic and being able to do battery swapping and the efficiencies you get, meaning fewer batteries for the same amount of cargo moved. That's what gives us a cost advantage in long range shipping. And pulling that off was the real aha and like how that happens and our core IP and technologies around enabling that.
Jason Jacobs: Uh-huh [affirmative]. And I'd love to just double click on that for a moment because it's like, okay, gosh, there's all these challenges with the liquid fuels that are gonna make it hard for this to unseat the incumbent oil, but that incumbent oil really needs to be unseated because we need to decarbonize. Gosh, it'd be great if electric worked, but it's just not gonna work for any type of range. And so I get that swappable is what makes it possible, but how'd you come to that?
Steven Henderson: It was actually because of a challenge that someone threw out at us. So we talked to a really early advisor who retired from the Navy. And we were talking about this and we said, "All right, you know, electric ships." We actually picked a short route that we thought it would be economical on and we said, "All right, look, you can't plug this ship in the port. There's no place to plug it and it would take forever to charge anyways. So- so you have to have a battery swapping system." And we said, "Okay, from this point to point," the route we looked at was actually Miami to Puerto Rico.
And we said, "All right, let's say it's a hundred batteries you need on the ship to go between Miami and Puerto Rico." And the guy pointed out and our advisor said, "Look, if you are doing batter swapping, you need 300 batteries, you know, in that example, right? You need a hundred batteries in Puerto Rico, you need a hundred batteries in Miami and a hundred on the ship, 'cause you gotta have other set when you show up there." And we're thinking, "Oh my gosh, it's ruined." So that was our setback.
And then we- we were really scratching our heads. We looked at it and said, "Okay, well what if you had two ships?" Well, if you had two ships, you need 400 batteries to make this work. And if you need three ships, 500 batteries, and now like how many batteries per ship are you talking about? Okay, that's interesting. Like it's starting to get more like maybe asymptotically approaching back to a- a model where you just had a hundred batteries per ship.
And we realized if you put a stop in the way in the middle, then each of those ships only need 50 batteries to make it halfway. And if they do a battery swap somewhere in the middle that now if you do the math, how many batteries per ship if you had five or six ships operating. And it gets to a point and it's very counterintuitive and it is a bit of a logistics thing, but if you get to it, you get to a point where you can use fewer than a hundred batteries per ship to make this work.
And they're very practical numbers of ships and stops and really real routes of real cargo that this works in the real world. And it's actually not uncommon for ships to make stops. Right now they do it for cargo, they do it for maintenance, they do it for all sorts of reasons. So we started looking at ship behavior and making sure we weren't losing something and making these stops and we realized this happens today with even the very big ships. Very few go point to point, most of them make multiple stops along the journey just for cargo and then more and more. So I'll stop there, but this serves maybe the teaser premise behind like how battery swapping works and how we came to that.
Jason Jacobs: And are there corollaries or sources of inspiration that led you to this where it's like, oh, this is actually working in this unrelated space, but if we could borrow that and apply it here, you know, almost like a remix or a mashup or something, or is this something that just kind of started with a dream and a clean slate?
Steven Henderson: I think the battery swapping piece started with a problem. I hope that there corollary is going into like heavy trucking and other directions where- where trains perhaps where battery swapping, we can prove it on ships and that it might work for a train platform. You know as you get to smaller vehicles, it gets harder and harder just because there isn't infrastructure there to perform swapping.
So our batteries are built into the same container format that cargo has. So pretty much every port in the world can handle container as cargo, can handle our batteries, every truck that carries container can carry our batteries. And so that was kind of a hand in glove fit just unique to ships where you already have that capability, you don't have to make new cranes for example at a truck stop to swap out batteries. So the remix is in the '50s, we containerized cargo and now we're containerizing propulsion.
Jason Jacobs: Okay. And if I'm a company that ships goods let's say all over the world and I have a system in place that's delivering for all of my use cases, does working with you require changing that frame that I'm using across everything that I'm doing, or can it just be for one subset and keep doing everything else the same? And the reason I ask is because I'm assuming given what you just mentioned, that there are some scenarios where this model is not viable so that you can't provide a hundred percent coverage for these companies, and is that a deal breaker?
Steven Henderson: That's a great question. And we're solving for routes that matter most to our customers. And we've got great relationships with companies that we're calling launch partners that- that own cargo and lots are at the moment confidential, be happy to share some of those soon. But yeah, we're working specifically with logistics departments in some of the biggest companies in America on that exact question. What we've found, pitch back to us from them is that most of the time, this actually unconstrains their supply chain.
Right now, they are in a pinch point or a pain because there's so few places to bring in ocean cargo. We can bring cargo in to other ports that don't have the delays. And we are attempting at least for the most of our fleet to have American flagged vessels which have a preference in ports, meaning that American flagship coming into Long Beach does not have to wait in line. It can jump in, there's protections laws there called the Jones Act that enable these ships to skip the line.
And because we're an American company and one of very few American shipping companies and our team is all American mariners, I think that that was sort of a natural step for us and that's what we're working towards. So we actually end up providing a lot more flexibility to be supply chain professionals they otherwise have.
Jason Jacobs: So I get that there's that flexibility where it works. I guess my question is how prevalent are the areas that don't work because there aren't those small frogger jumps in a row the way they need to be, yeah.
Steven Henderson: I see what you're saying. So most of the world's cargo moves on a coastal route even between China and say Long Beach in California. So if you stretch a string across the globe, you're actually on a coastal route if you go between those two cities, you go way closer to Alaska than you do say to Hawaii. So a route that's like less natural for this is like between LA and Hawaii, where there just aren't any stops in between. Now, it's also really expensive to send things to Hawaii. So at current freight rates, it would still be economic on batteries, but it's not necessarily a strong suit where you don't have a stop in that island route. But that's a rarity. Most cargo does move on a coastal route, so a significant portion.
Jason Jacobs: And you mentioned that you have some early customers that you're working with. Maybe talk a bit about what types of companies are the sweet spot for your entry into the market and what the stated value proposition is to them and how much that changes from customer to customer versus being consistent across the board.
Steven Henderson: I mean, there's like maybe three ways we had value and I'll- I'll let Mike talk to one, but I'll- I'll talk to the first two. But right now these customers are- are really getting stuck with just the state of the supply chain. And Jones Act, particularly shipping, so that's on coastal routes in the US is very expensive, very difficult to find solutions at all. So we provide a future albeit solution for that tactical problem that they face. A lot of these companies really care about reducing their scope through emissions and there just aren't a lot of solutions out there.
So the type of companies we're talking to, big box retailers, we've got letters of intent from major retailers across verticals. So whether it's apparel or department stores, electronic stores, furniture, and even industrial companies, and these are the types of customers that we have. And yeah, the value proposition for most of them is what Mike's gonna talk about, which is, you know, this tactical way to address their scope three emissions and partnering with us, but also just like working with our supply chain teams as we route plan when we build our next four vessels, for example, where those vessels operate, you know, we're working specifically with these customers to make sure it hits their needs.
Mike Carter: We tried to cast, like Steven said, a really wide net here. I think that's important to highlight. Like just about everybody ships things over the ocean, you know, 90% of the world's goods travel over the ocean. So as we were identifying launch partners, we really were identifying folks that cared about the environment, cared about making an impact, they weren't greenwashing, they really, you know, were putting their money where their mouth was.
So some of these launch partners, like Steven said, they represent each kind of industry microvertical. The short term value proposition for them is being a part of this launch event. So about middle of next year, we're gonna have our first prototype vessel that's gonna be operating. It's going to break a bunch of records. It's gonna make a lot of press and news events. It's gonna be really exciting time. We're gonna have a vessel that we're gonna convert to be a battery electric vessel and we're planning to- to go about 500 to 750 miles.
And as part of that event, we're gonna have our launch partners have branded containers that we're gonna put on the back deck of the ship. And we're gonna demonstrate to the world that not only is battery electric shipping possible, but these are the brands that really care about it and are- are making an impact. And so Steven had mentioned, you have the route planning's gonna be wildly important in between now and that launch event time, and that's where we're gonna be strategically planning where we're gonna operate these first couple of routes.
We're super excited about that. I think another thing that's kind of interesting for us and we didn't necessarily realize this at the onset, but there's a pretty big demand that we found for our battery packs. So these are highly energy dense, ruggedized marine great battery effects. We had to initially went out looking to buy these packs and couldn't find anything that like them that existed. If there's something close to it, there's a lot of safety concerns, which we've all spent time on ships, we've all been on shipboard fires. It's not cool, right?
So we decided strategically, we just... we have to build of our own battery pack. We've gotta build it for the marine environment. And so we ended up talking to a lot of folks over the last couple of months that would have a use for these battery packs ports, especially on the west coast of the United States and California. There's a cold ironing wall that's coming to effect that basically says ships have to plug in when they come into port, gotta shut off their engines.
There's no great solutions for that. And we can totally dive into the details of this, but I'll spare you. It's much more a cost advantage to basically plug a ship into a battery pack than into the grid. And then there's other interesting areas in the marine space for these battery packs as well. So just another area on the customer front on what we're value that we're looking to provide to ocean shippers, as well as to folks that could benefit from these type of energy storage solutions built for the marine environment.
Jason Jacobs: I'm glad you brought that up because it leads to a follow up question that I was planning to ask anyways, which is that, okay, so you uncover this approach that by changing the frame and having this kind of rotational structure with smaller stops, it makes the... and smaller ships, it makes the batteries viable. And then over time, I would assume as the costs come down and the technology gets better and stuff so you can do bigger ships as well. But I guess my question is you just lay that out there for any of the existing players that are hearing that, what stops them from just going and doing that? How is this defensible and in which ways?
Steven Henderson: Yeah, it's really hard to make marine battery packs. And you need to bring together folks not only with battery experience but with true sort of marine chops. We're moving really fast. We've got a lot of really unique ways that we've come up to make battery packs safe for ships. Just to put it in perspective, maybe some of your listeners have seen the news of the ship that burnt down with EV cars onboard. That was a fire that was really hard to put out, the ship's crew had to abandon the ship.
So it just shows that, you know, battery packs can be dangerous for a vessel. That was in our sort of design basis, our first principle was we have to find a way to make these battery packs safe on a ship. So most of our team, Mike mentioned this in passing, but most of our team has actually been in a shipboard fire. I've been in a room full of burning diesel and it, uh, changes you to be in a situation like that. So it's more than just sort of the academic knowledge that fire safety is important.
So our battery packs have a lot of innovative ways of being safe intrinsically. We use the chemistries that don't self oxidize so that if there were to be a fire, it can be extinguished well before that. Our packs are ruggedized, they're meant to be stable if they're dropped or penetrated. If you walk around a shipyard today, you'll see containers that have holes in them where someone drove a forklift into it.
I find bullet holes inside of containers, um, when I was at sea just because sometimes people shoot at containers or shoot at container ships. And you can't have that catch on fire, which would be the case if you used a lot of the batteries that are out there. So the pack that we've made, we think it's absolutely the safest, most robust marine battery pack. And we're submitting our patent application actually Monday for several of the things that we've got inside of that that provide that safety.
Jason Jacobs: So it sounds like, I'm saying this is as a statement but asking it as a question, that there's some differentiation with the battery itself, that there's some differentiation with the swapping system, and it sounds like some technology involved with- with making that so as well, that these are powering a service and that you're starting with retrofits, but ultimately you envision that ships could be built. Is there a fork in the road where you need to decide, are you a battery company, are you a ship company, are you providing the service that powers lots of different battery makers and ship companies? Or is it Apple where you try to do everything end to end? Like how do you think about these focus areas and whether they're distinct, or I guess how you think about them today and also how you think about them long term?
Steven Henderson: No, that's fantastic. Like our goal is to deep carbonize shipping as quickly as possible. And we know the fastest way to do that is to build our packs and to operate the ships ourselves to begin with. We wanna build a really big business around that. We think it's a huge opportunity.
Jason Jacobs: Operate ships that you build?
Steven Henderson: We build or convert for ourselves. We're certainly open to selling and licensing our technologies to other shipping operators. We certainly wanna... to get value for that. We think the future of shipping is electric, and we think we've got the best way to do that and lots of defensible OIP on that journey and we just wanna make it happen as fast as possible. And for us, that wasn't thinking of the idea and then trying to sell the battery packs to an existing operator, it's just let's go operate this. That's the fastest way to prove this works to others.
And when others see this, they're gonna wanna buy our technology and they're gonna wanna partner with us, and you know, we're certainly open to that. And I think what we're building is very difficult to replicate for existing shipping companies because you have to operate the vessels differently. It requires really sort of a different premise. And it's difficult for other sort of non-incumbent startups to come and- and tackle this space.
Mike and I are mission driven and we hope that lots of other companies are started that they're trying to tackle decarbonizing every industry including the marine space. We kind of welcome that, but we think that to do this, it has to be a new entrant. It's a really tough thing. Ships are intimidating and if we didn't have decades of experience in this industry, I don't think there's any way we could have approached it.
Jason Jacobs: Where does route planning fit into this and how important is it?
Steven Henderson: It's huge and that's why we're working really closely with our launch partners on that. And what we find is there's pretty strong consensus that the goal is to go from Asia to the US and to do it as quickly as possible, and then there's an intermediate routes along the way. But yeah, the devils in the details and that's why we've got these launch partners on board.
Jason Jacobs: And who does the route planning? Is it the end customer? Is it the current freight forwarder? Are there dedicated software companies that just do that and only that? Like what does that landscape look like?
Steven Henderson: Yeah, at its highest level, you know, we work directly with the customers. Customers for us can be freight forwarders as well as actually beneficial cargo owners of companies that- that own the products that- that are being shipped. It's kind of like a hotel. We're selling nights in a hotel, that's like, uh, you know, voyages on a ship and you can book a hotel through a travel agent or book it directly. And that tends to be what happens on ships as well so it's maybe the way to think about it.
Jason Jacobs: So long term, if Fleetzero is wildly successful beyond what you can even fathom, what have you achieved and also what does the company look like at that time in terms of what products or services it's providing?
Steven Henderson: Yeah, I- I think we operate a fleet network of ships and batteries for other ships, for other operators across ocean basins, uh, the Atlantic and the Pacific, as well as coastal routes in Europe and US and that our technology and what we've pioneered powers shipping globally for river in transport, as well as ocean transport and coastal transport. And I hope there's plenty of and a very viable shipping operators that- that use our technology, and that's how we see expanding as quickly as we can in decarbonizing, you know, what is a billion tons of carbon a year out of this, uh, industry.
Jason Jacobs: And do you think that this framework should ultimately be standardized across all of shipping or do you think it's gonna fit best in this type and there's still gonna be room for other approaches because this type isn't it gonna be the best fit across all the use cases for decarbonizing shipping overall?
Steven Henderson: Yeah, your kind of air quotes experts on any topic will say, "Oh, these are a smattering of solutions." But I think if you look in history, one technology tends to win out and then there's applications for others, and I think that will be the same and shipping. And generally it's whatever's the lowest cost and the highest kind of performance and that will be electrified shipping. So I think that will be the dominant mode. I think what you'll see for specialty applications are different ways of containerized energy storage, or generation onboard the vessel.
So that may be a fuel cell, could be a module of nuclear reactor on board. And that may be in the future for special, you know, military applications and really long range void as you really can't make stops. I think the norm will be electrons stored in containers in one form or fashion powering a ship. It's just there's too many benefits to not have that.
Jason Jacobs: And do you have a bias in terms of whether you are enabling the existing players to do it better or unseating them with a better approach?
Steven Henderson: I think we just wanna make sure this happens and we wanna build the best company around this as we can, and the biggest company as quickly as possible. So for us, that's becoming an operator as well. That said, I think if we had this amazing technology that could help the world and we kept it just to ourselves, it wouldn't be very magnanimous. We are again, mission driven and we wanna find a way. At one point, it will become faster to outsource our technologies to others than to just operate every vessel in the world, right? So I don't see a future where literally every ship in the world we operate but we will be a significant shipping operator, as well as provider technology to other operators.
Jason Jacobs: So it'd be great if you just talk about the future in terms of how you think about staging, what the key goals are of the next stage and- and also kind of a follow up or a sister question is just, how do you think about capitalizing a company and source of capital to deliver at those next few stages let's say?
Steven Henderson: I can outline a little bit of that. So right now we have two full voltage prototypes for our battery packs. We're gonna build eight more and convert the vessel that Mike mentioned for our launch event in the middle of 2023. That will be kind of record setting from a marine technology standpoint. And obviously we wanna have... include our launch of partners in the press event around that, so that's our next sort of milestone.
Going from there, we'll convert four vessels and then another four, so in two batches. That would be for operation, most likely on the west coast, again, we're working with our launch partners about where their ships operate. From there, we'll increase the number on that Pacific route. I think sort of the midterm long term goal is- is 20 vessels operating, you know, Shanghai to Long Beach, expand further into Vietnam during that time as well 'cause there's a lot of cargo coming from there.
We'll also look at east coast operation. About that time, we'll be looking at outsourcing our battery and networking system to other operators. That's our path. You know, everybody, when you start a company, you wanna make this spread mapping milestone, but you know, as a startup, you kind of make the next best decision and you keep an eye towards your sort of north star, which is for us making this as big and successful company as fast as possible so that we can have a meaningful impact on the environment.
Jason Jacobs: Well, everyone has a plan until they get punched in the face, right?
Steven Henderson: Exactly right.
Jason Jacobs: Isn't that... Was it Mike Tyson that said that? [Laughs].
Steven Henderson: Yeah. Your listeners can't see the gray hairs on, uh, Mike and I's young faces, but we've received a few punches in our careers so we're [laughs] familiar with that, yeah.
Jason Jacobs: How far do you think equity can take you and what other source of capital might you consider if any?
Steven Henderson: The current administration and even past administrations have actually really favored American innovation in the maritime space. So there's a lot of programs out there from the Department of Transportation, NORAD, Department of Energy that encourage what we're doing. And I think that we'll have some great opportunities for debt and- and other non diluted funding, we're open for that. Equity gives us the fastest pathway, equity powers the world. So we are, uh, raising a seed round here at the end of March into April as a part of Y Combinator, so we're excited for that. We've got lots of great, uh, conversations queued up and, uh, that will power us through our first, uh, vessel conversion. From there, I think we're gonna bring in some grants and then start working on some of the DOT and DOE loans for building our battery network and converting the next four vessels.
Jason Jacobs: Where do you guys need help? Who do you wanna hear from?
Mike Carter: We're always looking for folks that ship stuff on the ocean, which is just about everybody. So we're trying to expand our- our launch partner network here as we gear up for that launch event. So certainly folks that ship things over the ocean would be helpful. I think, you know, folks that are just thought leaders in the space, we're always open to ideas and opinions. We don't claim to have everything figured out, you know, about this technology and what we're trying to do. And there's been a lot of really good advice along the way. So we'd love to hear from you if you have some unique, compelling ideas or things that even challenging us really helps us to refine our approach for a lot of what we're doing, so...
Steven Henderson: And we're looking for good people as well. So we've been just absolutely humbled by the outpouring of folks that have wanted to help us. One of our employees actually asked us if we could cut his pay in half so we could hire someone else. We didn't do that. But why I mentioned that is when we wake up in the morning, we- we're really excited about what we're doing and we find that the folks that are on our team and are supporting us, uh, you know, have the same. One of our engineers texted me and said, "I can't wait for Monday." And I said, "Well, you don't have to stop working on the weekends." It's been really fun and it keeps us going. And I think, uh, you know, Mike and I, and most of our team, but not all of them, our maritime folks, and, uh, this is our industry and we wanna see it stay relevant and be leading in climate, not following.
Jason Jacobs: And, uh, along those lines, if you could change one thing outside of the scope of your control that would most accelerate your progress here, what would you change and how would you change it?
Steven Henderson: I think that the- the gut reaction is something about regulations and carbon pricing and all of that. I think what I would change is I wish there were 10 more companies like us that were starting these really hard to decarbonize industries from a technology standpoint from using capital markets, using capitalism and technology for good in areas that are kind of maybe unsexy, I wish there were 10 more companies like us, that's what I wish.
Jason Jacobs: What about you, Mike?
Mike Carter: Yeah, I think I would say, and me... I don't know, maybe you hear this a lot, but like regulation, you know, the governing authority or body for the maritime communities, the IMO, right now they've got targets I think except for 2050 or so. I'd love to see those pulled in a bit. The reason they're so far out there is because it's just not a technology solution that makes sense. I mean, a lot of these ship operators, you know, are looking, they've got 20 year plans and their capital base doesn't kind of become up for or refresh it, but every 20 years or so. So and the regulatory bodies I think are okay with that at least pushing these really far days. I think if you were to bring that up a little bit, it would force companies to work just a little bit quicker to tackle this problem.
Jason Jacobs: Great. And any parting words, guys, anything I didn't ask that I should have, or- or, uh, parting words for listeners?
Steven Henderson: Just super grateful for all the support again. And I know we thanked you in the beginning, but you guys, MCJ has been absolutely wonderful at supporting us, and, uh, we're just grateful to be associated with you guys. And look, if you're interested in decarbonizing shipping and helping out, you know, reach out to us, we love what we're doing and we love people who also love that mission, so reach out.
Jason Jacobs: Well, thank you both guys. Thanks for allowing us to come on the journey. Thanks for coming on the show and thanks for the important work that you're doing. Best of luck to you and the team.
Mike Carter: Awesome. Thank you.
Jason Jacobs: Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note that is .co not .com. Someday we'll get the .com, but right now .co. You can also find me on Twitter at Jjacobs22 where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
