FedEx Corp. (FDX) has initiated the deployment of electric trucks at its distribution center in Silicon Valley, CA. By the end of this year, the company expects delivery of 34 electric trucks across San Francisco Bay Area. FedEx also expects to deploy electric trucks in international markets like Hong Kong, Berlin, Florence, London and Paris.
Deployment of these trucks is a part of FedEx’s previously announced goals of increasing the number of fuel efficient transportation in its fleet. The company currently boasts achieving 16.6% fuel efficiency and targets 20% more fuel efficient by 2020.
The company is taking several steps toward making its fleet more fuel efficient and environment friendly. It is increasing the number of green fleet to 130 by adding 87 electric trucks. It is also purchasing vehicles with 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 the end of 2013.
Moreover, the company plans to add 114 Reach trucks with an 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 the initiatives.
FedEx is taking several initiatives, including reducing flights and frequencies as well as redeploying equipment in other networks to reduce costs. The company will buy 27 Boeing (BA) 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 to 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 and 2018. We believe the delayed deliveries would help FedEx to better utilize the MD-11 fleet on international flights and lower 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 the average consumer would save an additional $3,000 on fuel cost over the life of a vehicle.
Consequently, we believe that FedEx's fuel efficiency goal is a significant step toward exercising significant cost control that 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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