FedEx Corp. (FDX) announced that its division - FedEx Express has achieved 16.6% fuel efficiency in its transportation fleet. FedEx has set a goal of making its fleet 20% more fuel efficient by 2020. Thus, this recent development is a key step ahead in achieving the target. In addition, the company stated that 20% of FedEx Express diesel vehicle fleet has been modified to adhere to the 2010 U.S. Environmental Protection Agency diesel emission standards.
The company announced that it is taking several steps toward making its fleet more fuel efficient and environment friendly. Among the initiatives, the company is increasing the number of its green fleet to 130 by adding 87 electric trucks. It is purchasing vehicle of right-sized engines like those manufactured by Mercedes-Benz. FedEx expects that over 35% of its U.S. pick-up and delivery fleet will be equipped with 11, 000 such vehicles by end of 2013.
Moreover, the company plans to add 114 Reach truck with composite body along with apt engine size that would curtail fuel requirements by approximately 35% compared to conventional vans. Initiatives also include testing of hybrid hydraulic parcel delivery vehicles of FedEx Ground to reduce fuel usage by 40%. Finally, testing six delivery vehicles reinstalled with electric drivetrains from suppliers is also one of company’s initiatives.
Separately, FedEx is also taking several initiatives including reducing flights and frequencies as well as redeploying equipment in other networks to reduce costs. FedEx will buy 27 Boeing 767-300 freighter planes to replace the old MD10s over the next few years. The first aircraft is expected to arrive in 2014, with six additional planes per year from 2015-2018. The new freighter planes are 30% more fuel efficient than the older ones and would lead to a 20% reduction in operating costs.
Further, FedEx delayed the delivery of eleven 777 freighter aircraft that were scheduled to be delivered between 2013 through 2018. We believe the delayed deliveries would help FedEx to better utilize the MD-11 fleet on international flights and chop down the overall costs and investments in the short and long term. Additionally, this network restructuring would provide significant fleet efficiency gains in the long term.
In 2010, Federal Corporate Average Fuel Economy (CAFE) set a fuel economy standard of 34.1 miles per gallon. This indicates the growing importance of eco-friendly transportation. Several companies, especially those involved in transportation and logistic services like FedEX and United Parcel Service, Inc. (UPS), are increasingly realizing the benefits of fuel efficient vehicles. If the Fed policies are implemented, market researchers estimate that average consumer would save an additional $3,000 on fuel cost over the life of a vehicle.
Consequently, we believe that FedEX’ goal of improved fuel efficiency is a significant step toward exercising significant cost control, which can be achieved through sustainable transportation.
Currently, FedEx retains a Zacks #3 Rank (short-term Hold recommendation). We also reiterate our long-term Neutral rating on the stock.
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