Rising oil is an issue for everyone; businesses and consumers. Companies such as FedEx Corporation (NYSE:FDX) who rely on gas to deliver packages, sees their bottom line cut when they have to pay extra for gas. The delivery service has 700 planes and tens of thousands of trucks and vans which make deliveries around the world on a daily basis, which is going to be a huge expense to worry about. This has lead Fedex Chief Fred Smith to find cost cutting alternatives to help boost his profits.
Competitor, United Parcel Services, Inc. (NYSE:UPS), has turned to natural gas as their alternative to oil. In a partnership with Westport Innovations, UPS was able to turn some of their trucks into natural gas-ran trucks which save a lot of money on fuel and so far it appears to be working because the company announced they will be turning more trucks into natural gas trucks.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
Fedex is using 1.5 billion gallons of oil a year which is a hefty price tag and a chunk of your profits gone. As of right now, Mr. Smith has said that delivery vans will be either electric of hybrids with the preference being electric because vans could get 75% less per mile cost which is significant savings for the company. For Fedex’s planes, the CEO has shown some interest in biofuels and natural gas however there has not been a breakthrough yet to have planes run on those alternative fuels and on that scale. As for the trucks, the CEO has a similar vision to UPS. He wants to partner with Navistar and Cummins to produce a truck engine that could run on LNG which is much cheaper than diesel.
The main hurdle here is that most of these technologies are not that wide spread. For instance, the LNG engine sounds good in theory but there are only very few natural gas stations around. The innovation sounds great in theory but the fact of the matter is that it could cause a lot of stress knowing that fuel and fuel stations are scarce. Regardless, the rising oil prices are hurting your brand and its profitability and as the CEO you need to adapt to a changing marketplace and that is exactly what Fred Smith is doing. Ultimately, it has to be done but most of the CEO’s plan to fuel his fleet of vehicles is going to be tough