FedEx Sets New Fuel Efficiency Goal - Analyst Blog
March 07 2013 - 11:54AM
Zacks
FedEx Corporation (FDX), one of the
leading package delivery companies has set a new target of 30%
improvement in fuel efficiency of its fleet by 2020. The company
raised the fuel efficiency standard by approximately 50% from the
previous 20% target set in 2008 that it has already
accomplished.
We believe the company’s efforts will not only translate into
sustainable transportation solutions for its customers but will
also improve the company’s cost structure in the long run.
Previously in 2012, the company released its fourth annual
Global Citizenship Report, in which it highlighted its activities
towards achieving a sustainable freight transportation system. The
report highlighted that FedEx targets reducing aircraft carbon
emissions to 30% by 2020 besides meeting at least 30% of its jet
fuel requirements through alternative fuels by 2030.
We believe that the growing environmental awareness among
corporate houses like FedEx stems from the stringent actions taken
by the regulatory authorities to restrain environmental
pollution.
The U.S. government as well as regulatory bodies like the U.S.
Department of Transportation (DOT) and National Highway Traffic
Safety Administration (NHTSA), as well as the U.S. Environmental
Protection Agency (EPA) have taken several measures to curb global
warming. One of these key measures remains the establishment of the
National Program in 2009 – an agreement between the federal
government, state regulators and the auto industry.
The national program, also a two-phased program constituted
standards for establishing fuel efficiency improvements in a 30
years span, involving the first-ever global warming pollution
standards for light-duty vehicles.
The key highlights of the first phase (2012-2016) are setting
the global warming pollution standards of 250 grams per mile, on
average, for model year 2016 vehicles. In addition, NHTSA requires
fuel efficiency standards of an average of 34.1 miles per gallon in
a new vehicle. Cumulatively, these measures are expected to
translate in 23% improvement in new vehicle pollution standards,
representing an average annual improvement of 5% by 2016.
Going forward, the phase II (2017–2025) of the National Program
covers standards on light vehicles,finalized by the EPA and DOT in
Aug 2012. These standards require reduction in green house gas
emission by cars and light trucks to 163 grams per mile in 2025
that would lead to fuel efficiency of 54.5 miles per gallon.
Consequently, we believe that FedEx’s goal of improved fuel
efficiency is a significant step toward exercising these standards.
This will not only result in a cleaner environment but also lower
average consumer expenses on fuel, accounting for $140 billion in
2030 as per research data.
Moreover, FedEx is also in an attempt to improve its performance
level by concentrating on network realignment to match the current
demand level. In Jun 2012, the company announced plans to purchase
19 more Boeing (BA) 767 aircraft. FedEx expects
the delivery of these aircraft from 2015 through 2019.
These new aircraft are expected to benefit cost structure by
replacing the old fleet of MD-10 and A31-200 as well as by
exchanging equipment like spare parts, tooling and flight
simulators with the existing FedEx’ Boeing 757 Fleet. Additionally,
FedEx delayed the delivery of 11 777-freight aircraft that were
scheduled to be delivered between 2013 and 2018. We believe the
delayed deliveries would help in better utilization of the MD-11
fleet on international flights and lower overall cost and
investment.
FedEx, which operates with another big player, United
Parcel Service, Inc. (UPS), has a Zacks Rank #3
(Hold).
Other Stock:
Another related stock worth considering in this sector is
Deutsche Post AG (DPSGY). The company currently
retains a Zacks Rank #1, implying a Strong Buy rating.
BOEING CO (BA): Free Stock Analysis Report
DEUTSCHE PST AG (DPSGY): Get Free Report
FEDEX CORP (FDX): Free Stock Analysis Report
UTD PARCEL SRVC (UPS): Free Stock Analysis Report
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