Today's Pickup: as fuel costs rise, UPS leads the way for alternatives

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Good day,

United Parcel Service Inc. is aggressively growing its fleet of alternative-fuel trucks as the delivery behemoth pushes to reduce fuel costs and vehicle emissions. Fuel is historically one of the biggest fixed costs for transportation companies. While diesel prices dipped in 2015 and 2016, the cost is 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. 

While alternative-fuel vehicles account for a slim portion of the overall truck market, many companies are actively exploring new strategies in the face of rising costs. About 11% of carriers said they have vehicles that use a fuel other than diesel or biodiesel blends, according to a 2016 survey by ATRI.

By contrast, by 2020 UPS aims to have one in four new vehicles to 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. According to the company, between 2008 and 2018 UPS will have invested more than $1 billion in alternative-fuel and advanced-technology vehicles and fueling stations.

Did you know?

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.

Quotable:

“The competitive threat from digital startups is overplayed, in our view. Echo has been investing heavily in technology, and has the benefit of better data, the right personnel to service customers, network scale, and an understanding of shipper pinch points. These attributes take substantial time and investment to build, in our view, and give the company a competitive advantage that is often overlooked by investors in the excitement for digital change.”

—Stifel analyst, J. Bruce Chan

In other news:

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Canada passes legislation legalizing marijuana, sales expected within 12 weeks

Canadian lawmakers passed sweeping cannabis legalization on Tuesday that will legalize recreational use of marijuana by adults. (USA Today)

Companies Spent a Record $1.5 Trillion on Shipping Costs in 2017

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Final Thoughts:

As noted throughout its earnings results, FedEx was able to benefit from growth in industrial production, which it expects to rise 3.8% this year. Consumer spending will increase 2.7%, Subramaniam said. The CMCO also noted that the company’s U.S. domestic package business increased 4% and international package volume grew 10%.

Among its operating segments, FedEx Express posted revenues for fiscal 2018 of $9.6 billion and an operating margin of 10.3%. Operating income was up 11% year-over-year to $990 million. The results included a 9% increase due to higher yields and favorable net impact of fuel and currency exchanges, the company said.

FedEx Ground said higher daily package volume of 6% and higher base rates leading to a 12% increase in revenue and 18% increase in operating income. Fiscal 2018 income was $832 million on revenue of $4.80 billion. The company did not that higher purchased transportation costs offset the revenue growth and ongoing cost management efforts. It also increased staffing in the division.

Within FedEx Freight, a 35% climb in operating income from $130 million to $175 million was the result of an 8% increase in both daily shipping and revenue per shipment. Revenue for the unit was $1.86 billion, up 16% from $1.60 billion.

Hammer down everyone!

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