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FedEx Adds Fuel Efficient Vehicle

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One of the largest package delivery companies, FedEx Corp. (FDX - Free Report) has reportedly added 1,900 fuel efficient vehicles to its fleet. We believe the company’s focus on increasing such vehicles remains concurrent with its target of making its fleet 30% more fuel efficient by 2020.

The company raised the fuel efficiency standard by approximately 50% from the 20% target set in 2008. We believe the company’s efforts will not only translate into sustainable transportation solutions for its customers, but will also improve

In 2012, the company released its fourth annual Global Citizenship Report, in which it highlighted its efforts to achieve a sustainable freight transportation system. The report highlighted that FedEx targets reducing aircraft carbon emissions to 30% by 2020 apart from 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. federal and state governments 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 is the establishment of the National Program in 2009 – an agreement between the federal government, state regulators, and the auto industry. This is a two-phased program to set standards for establishing fuel efficiency improvements in 30 years, including 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 into 23% improvement in new vehicle pollution standards, representing an average annual improvement of 5% by 2016.

The phase two (2017–2025) of the National Program covers the standards for 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 market reports.

Moreover, FedEx is also trying 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 - Free Report) 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’s 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 players such as United Parcel Service, Inc. (UPS - Free Report) and Expeditors International of Washington Inc. (EXPD - Free Report) , has a Zacks Rank #3 (Hold).

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