Gas Price Break: United Parcel Service (UPS)
True, UPS (UPS) trucks mostly use diesel fuel, but diesel and gas prices move together directionally. Diesel’s prices are forecast to follow gas prices lower, and that will save the package-delivery giant a lot money.
UPS operates a fleet of nearly 100,000 vehicles. That makes fuel one of its single biggest costs. It’s also why UPS is looking to save 24 million gallons of fuel annually by purchasing 700 natural gas vehicles this year.
At the same time, tepid economic growth in the U.S. and abroad has customers eschewing faster but higher-priced air shipping in favor of cheaper ground alternatives. That helps UPS grab business partly at the expense of FedEx (FDX), which uses more air cargo. More ground shipping at lower fuel prices is a recipe for margin expansion, and margin expansion leads to higher profits.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.