PCAR PACCAR Inc

By Jennifer Smith 

United Parcel Service Inc. is growing its fleet of alternative-fuel trucks as the delivery giant pushes to reduce fuel costs and vehicle emissions.

The parcel carrier is spending $130 million to buy 730 compressed natural-gas vehicles, boosting its current CNG fleet by about 19%, and to add five CNG fueling stations to its existing network of more than 50 stations, UPS announced Tuesday. The new equipment includes 400 Freightliner and Kenworth big rigs from Daimler Trucks North America and Paccar Inc., respectively, and 330 terminal trucks, which move trailers around UPS facilities, from TICO Manufacturing and Power Solutions International, Inc.

The UPS investment is part of a broader effort to trim the company's greenhouse-gas emissions from its ground operations by 12% by 2025. It comes as the company is investing $20 billion to automate its facilities and upgrade technology as it adjusts to swelling volumes of e-commerce packages bound for consumers' doorsteps. Such deliveries tend to be less profitable than drop-offs at businesses.

Fuel is historically the biggest expense for transportation companies. While diesel prices dipped in 2015 and 2016, the cost has been climbing again. Over the past four weeks, the average on-highway price hovered between $3.239 to $3.288 a gallon, according to the U.S. Energy Information Administration. Last year, UPS's fuel expenses jumped 27% on higher prices for jet, diesel and gasoline fuel and on increased package volumes, according to the company's annual report. Some of those costs get passed on to customers via fuel surcharges.

Companies are exploring alternatives. In recent months, trucking operator U.S. Xpress Inc. and beer-maker Anheuser-Busch, the U.S. subsidiary of Anheuser-Busch InBev, have reserved hundreds of hydrogen-electric trucks from Nikola Motor Co. Companies are also lining up to test out Tesla Inc.'s all-electric Semi big rig, including Walmart Stores Inc. and J.B. Hunt Transport Services Inc., which each operate thousands of trucks, and Deutsche Post AG's DHL Supply Chain and truck-leasing and fleet-management company Ryder System Inc.

Still, alternative-fuel vehicles account for a slim portion of the overall truck market. New models provide significantly better fuel economy than a decade ago, and the market for natural-gas powered commercial trucks contracted when diesel prices retreated and initial buyers had trouble selling the vehicles, which carry a higher up-front cost. About 11% of carriers said they have vehicles that use a fuel other than diesel or biodiesel blends, according to a 2016 survey by the American Transportation Research Institute.

In UPS's case, by 2020 the company aims to have one in four new vehicles purchased be an alternative fuel or advanced technology vehicle, such as a hybrid truck or one incorporating lightweight materials that improve fuel efficiency. It also wants to swap out 40% of all fuel for its ground operations with sources other than conventional gasoline and diesel. Between 2008 and 2018 UPS will have invested more than $1 billion in alternative-fuel and advanced-technology vehicles and fueling stations, according to the company.

Businesses with large logistics operations also are grappling with rising freight expenses, from trucking companies to manufacturers and retailers. Companies spent a record of nearly $1.5 trillion on shipping costs last year, according to a report by the Council of Supply Chain Management Professionals, as demand for transportation surged on economic expansion, while rising fuel costs and a limited supply of trucks drove up freight rates.

The volume of goods moved by truck year-to-date jumped 8% in May compared with the same period in 2017, according to the American Trucking Associations.

Write to Jennifer Smith at jennifer.smith@wsj.com

(END) Dow Jones Newswires

June 19, 2018 14:50 ET (18:50 GMT)

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