Industrials continue to garner a high concentration of ESG coverage, ranking third on our ESG Safeguard platform over the past 7 days. Looking specifically at environmental mentions, FedEx (FDX) is in the top 5 based on recent commitments to reduce the environmental impact of their operations. We explore the potential risks involved with fleet electrification as well as other major fleet upgrades among peers.
Over the past 7 days our ESG Safeguard platform picked up on FedEx (FDX) as the latest Industrial to embrace a major overhaul of their fleet with a $2b commitment to be carbon neutral by 2040. The investment will span three major areas of focus as they prepare to change their operations in the next two decades. The primary area of focus will be converting their ground fleet to electric vehicles. A more immediate goal by the company is to have 50% of delivery vehicles electric by 2025. As of the beginning of 2020 FedEx had 3,000 electric vehicles in their fleet of 180,000. Electrification will have the added benefit of reducing operating costs as renewable electricity is becoming cheaper than diesel.
The company also plans to invest in aircraft modernization and increasing the use of more sustainable fuels like biofuel. Another component of FedEx’s initiative is a research and academic partnership with Yale University. The logistics giant is contributing $100m to launch the Yale Center for Natural Carbon Capture.
FedEx may be the most recent company to announce fleet modernization, but they are far from the first.
The other significant fleet overhaul receiving coverage in recent weeks has been regarding the deal between the United States Postal Service and Oshkosh (OSK) to upgrade the postal fleet. The deal is now under scrutiny since it would electrify only 10% of the fleet. This potentially opens the door for another manufacturer like Workhorse Group (WKHS), who originally competed for the contract, to fill a major order.
Less recently, Amazon (AMZN) ordered 100,000 Rivian electric vans in 2019 that began running test routes in Los Angeles last month. United Parcel Service (UPS) ordered 10,000 electric vehicles from Arrival in April 2020. Both companies provide logistics services and delivery while competing in a similar space to FedEx. Both companies also got a jump-start on FedEx with regard to fleet modernization.
FedEx should be lauded for taking steps to modernize their fleet in an energy-efficient fashion. However, competitors like Amazon and UPS maintain a first mover advantage. FedEx has 180,000 vehicles in their fleet including aircraft. Currently, of the 180,000 only 3,000 are electric. Two decades is certainly not a short period of time, but it will be difficult for FedEx to make ground with competitors who already made major investments in fleet electrification. In addition to fleet electrification, becoming carbon-neutral for FedEx will require addressing aircraft emissions. This likely requires a mix of fuel efficiency, carbon capture, and carbon offset to make those operations net-zero by 2040.
This is a first step in a major undertaking for FedEx. We will see how quickly they are able to grow their electric fleet, and phase out combustion engine vehicles.
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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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