What FedEx Just Said About Europe and China

“Asia volume weakness, which we experienced during peak season, deepened post Chinese New Year.”

When FedEx, a corporate barometer for the global goods-based economy, reported earnings this evening, it missed lowered earnings and revenue expectations, and it cut its guidance for the rest of the year, below already lowered expectations, and its shares tanked 5.7% in afterhours trading. The US holiday-shipping season had been fairly decent for FedEx, largely due to the continued shift of retail sales from brick-and-mortar to booming e-commerce. Quarterly revenues in the FedEx Express segment in the US rose 4.0% year-over-year to $4.19 billion, and shipping volume rose 6%. The stunner was in its international business.

In the FedEx Express segment – “macroeconomic environment lately has presented challenges relative to our prior expectations, particularly at FedEx Express,” is how CEO Fred Smith put it during the earnings call – quarterly revenues for all international sub-segments combined fell 4.5% year-over-year, to $4.67 billion. This includes:

  • International export, package: -3.4% ($2.54 billion)
  • International domestic (intra-country) package: -5.4% ($1.08 billion)
  • International priority freight: -10.3% ($477 million)
  • International economy freight: +0.6% (495 million)
  • International airfreight: -18.3% ($76 million)

This 4.5% decline in its international revenues overpowered the 4% growth in US revenues, and so overall FedEx Express revenues fell by 1.0% to $9.0 billion.

“Slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue,” it said in the earnings release.

And cost cutting has started by trimming the workforce via a “voluntary employee buyout program,” constraining hiring, and tamping down on “discretionary spending,” the statement said. And it’s “reviewing additional actions to mitigate the lower-than-expected revenue trends.”

During the earnings call with analysts (transcript via Seeking Alpha), CFO Alan Graf put a little more flesh on the statement : “Next month, we will know which US employees will be leaving the Company via the voluntary buyout program. They will begin exiting starting at the end of May.”

These “business realignment activities,” he said in perfect corporate-speak, will cost $450 million to $575 million. And they’re expected “to drive savings of $225 million to $275 million in fiscal year 2020.”

But that’s just the workforce reduction in the US: “Similar programs are likely for employees in international regions,” he said.

The lowered guidance for earnings and revenues for its fourth quarter (current quarter) was in part based, as the statement said, on “slowing global economic conditions, particularly in Asia and Europe.”

And this disappointing guidance is “dependent on key external factors, including fuel prices, moderate U.S. domestic economic growth, and no further weakening in international economic conditions from our current forecast.”

In other words, if things weaken further globally, results could be even more disappointing down the road.

During the earnings call, a few more nuggets about the slowdown in Asia and Europe came to light:

Chief Marketing Officer Brie Carere: “Since our last earnings call, we have seen the overall China economy slow down further, and this has impacted other Asian economies. Given the size of China, no markets will be able to absorb more than a fraction of what China produces, but customers continue to look to diversify from China.”

CFO Alan Graf: “Asia volume weakness, which we experienced during peak season, deepened post Chinese New Year.”

And CEO Fred Smith offered an explanation for the boom in shipping last year and the slowdown since then:

“Prior to January 1st, there was a significant amount of traffic that was put on the water beginning in late summer and in the fall, based on the deadline of January 1st for the imposition of new tariffs. Now, the President decided to delay those, but there was a lot of inventory that was moved into the US.”

In other words, these efforts to front-run the tariffs were then met by delays of those tariffs, and now everyone in the US is sitting on a historic inventory pileup. Once those inventories are whittled back down, and once the trade disputes are resolved — “hopefully” — “maybe we’ll go back into a more normal cycle,” Smith said.

And in the US, the services sector better hang in there. Read…  US Freight Volume Drops

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  52 comments for “What FedEx Just Said About Europe and China

  1. james wordsworth says:

    The insanity of Trump’s approach to trade from two examples from our company. We buy a part made in China from a US distributor. To avoid the 25% tariff we had to get it shipped direct from the factory to Canada instead of going through the US. Cost us more (time to arrange it and cost to ship), but did not change the nature of the transaction. So we upped our price to the end user (90% in the US). Second we have part made in Canada using imported steel. Our supplier upped their cost to us based on the 10% steel tariff. So this gave us the excuse to up our list price even more – again 90% of our product goes to the US. So essentially US customers are paying extra for Trump’s brilliance.

    • EB says:

      and I ask why we shouldn’t pay more? The message Trump is sending to corporate America is to reinvest manufacturing HERE. Will is cost the same as now with tariffs? Probably, but we will be taking care of our own people, families and communities. WE, the consumer need to readjust out priorites beyond cheap.

      • wkevinw says:

        It’s not just the consumers; the big corporations and Chamber of Commerce promote this stuff. Yes, if you are lucky enough to be in an industry/occupation that isn’t in the “global tradeable goods” category, you will benefit by the lower prices. If the opposite is true, you lose your job or get reduced pay. If enough of the latter happens, you have economic and political upheaval.

        The US has welfare state and regulatory costs which the “cheap labor” economies do not have (I worked in one for years-have seen it first hand).

        If the leadership and the rest of us don’t recognize this fact, and have the will to take action, nothing will change.

        Actually the “fixes” shouldn’t be that hard. It’s just that the people who would be hurt are the big money.

      • yngso says:

        That math doesn’t work out, and when onshoring happens it’s so automated that it creates very few jobs.

        • Wolf Richter says:


          That’s wrong. It creates all kinds of jobs, from designing, manufacturing, installing, and maintaining robotics — hardware and software — to construction of the buildings and infrastructure needed for these plants. It also creates manufacturing jobs. A big automated vehicle assembly plant today has several thousand manufacturing workers.

          On-shoring automated manufacturing creates high-value jobs. In addition, it creates the secondary and tertiary jobs around it to support this manufacturing activity, from suppliers to restaurants and service organizations.

          When a local plant automates, it loses manufacturing jobs. When a plant that has been off-shored is being on-shored, those lost manufacturing jobs won’t “come back,” that’s true — but it creates a host of new and different high-value jobs along with a lot of secondary and tertiary jobs.

    • 2banana says:

      So you have vastly underpriced your products for the American market for quite some time (with a significant loss of profits)?

      So you basically have no competition in the American market (from either domestic producers or not-from-China foreign producers) and thus price levels have no effect on sales?


      You have found a very short term solution until an American based or domestic manufacturer starts production in America.

    • Bobber says:

      The insanity is to NOT impose tariffs and let America’s working class wealth dwindle to nothing, so we are left with a handful of wealthy globalists at the end of the day, and 400M people collecting welfare because they spent all their money on Chinese goods and now the jobs are in China.

      • Lune says:

        I’m a liberal who can’t stand Trump but I support tariffs. Except Trump did them exactly ass-backwards. You’re supposed to increase tariffs on finished goods and reduce tariffs on raw materials. That way you incentivize the high value add part of the manufacturing process. Trump instead raised tariffs on raw materials like steel, while doing nothing on finished goods. That perversely incentivizes companies to move *even more* jobs out of the country. Would you rather have 100 jobs in a steel mill, or 1000 jobs in a Boeing aircraft factory? Because Trump idiotically chose the steel jobs thereby costing us many, many more jobs in all those factories that use cheap steel to create much more valuable products.

        • Anon says:

          A large wealthy country ends up like China circa 1900 (see Boxer Rebellion) if they do not have a strong military. Heavy industry is a requirement for a world class military. eg Need steel mills.

      • yngso says:

        Too late. That’s already happened.

    • Harrold says:

      Trump’s insanity is that he thinks those extra costs are passed along to US Treasury in the form of taxes.

    • cesqy says:

      How come tariffs are and were needed at the norther border to protect the Canadian dairy industry? Canadian cows must be very important and needed the unbiased government to protect them from the cheaper American bovine and their masters. Trade hypocrisy only works north and south of American borders and overseas…or when Trump does it.

    • nick kelly says:

      For the majority of Chinese exports to US. there is no US industry to protect.
      Largest category: consumer electronics at 27 %.
      The US was out before China was in, taken out by Japan and then S Korea.
      Last US TV Zenith 1995.
      Now Japan almost out with Toshiba gone and Sony in giant screen.

      When the flat screen is supplied to the 32 inch TV assembler, there is less profit than a Starbucks latte.
      At the height of microwave oven wars, the Pearl River was apparently cranking them out for a 50 cent per unit profit.

      This is not a biz to chase.

      Next category at 19%; apparel incl foot ware.

      Sure there are expensive niches but there is no US industry WORKING in the US. Of course US outfits: Lee etc. etc. own the cos but the sewing is done in China. If you tariff China you help India. Pakistan, etc. but you don’t create an affordable US industry,

      So with almost half accounted for, next is what I call Walmart stuff: toys,
      budget housewares, bric-a brac that is too low profit to interest US capital.

      I think the next target is going to be German cars. Whatever the merits, at least it is not illogical. You could force the US to buy US made cars.

      But you couldn’t get most Germans to buy US cars.

      • Bobber says:

        You are talking about a goods deficit of $800B per year. That’s not a bunch of Chinese trinkets. It’s real and significant stuff that people are buying. The fact that some industries have left for cheap labor only strengthens the need for tariffs.

        There’s no reason the US shouldn’t be making more electronics, for example. Apple would be making its cell phones here if there was a big tariff on those imports.

    • Just Some Random Guy says:

      Oh boo hoo.

      The rest of the world has tariffs as high as 250% on American goods and you’re whining because we put 10% on a few items.

      Trump is a monster!!!!!!!

    • bungee says:

      Tarrifs are always paid for by the country that enacts them. That’s how they work. (In theory!) it encourages domestic production that then undercuts the imports. Its a protectionist policy that goes against a pure free-market. You’d think the left would be happy for it.

      • Anon says:

        Not true when the exporters are following a Mercantilism strategy. China is suppressing wages, subsidizing exports. To a lesser degree so are Taiwan, South Korea, Germany, and others. Most of the excessive wealth accumulation in the US and elsewhere has been at the expense of Asian workers. The US middle class has just been collateral damaged in the process. Fannie Mae pun intended.

        • bungee says:

          Not sure i get your point. But it goes to show that solutions are not obvious or easy. take Lunes point above – its a good point and it makes sense. But so does nick kelly’s; we dont have the industry to protect and its suuuuuper competitive. IMO work load is going to be distributed more and people here will need to do crummier jobs. You cant just policy your way to the top forever.

  2. 2banana says:

    How long will this hold up with the recent “going into the red” slowdown of trucker freight traffic as discussed in recent previous Wolf articles?


    “This 4.5% decline in its international revenues overpowered the 4% growth in US revenues, and so overall FedEx Express revenues fell by 1.0% to $9.0 billion…”

  3. Iamafan says:

    Fred Smith supports GOP views. I wonder what he says now considering that Trump didn’t do good for international trade volumes other than he got inventories jacked up in the end of 2018.

    • Harrold says:

      Immigrants are, of course, to blame for the failure of the tariffs.

      • Anon says:

        Tariffs haven’t failed yet. Currently in a stalemate. If President Trump loses the fallout is a massive recession. The President has created his signature situation, “Heads I win, Tails you lose”. Things will work out fine if cooler heads prevail.

  4. Petunia says:

    A lot of Americans are buying consumer goods directly from China with usually free shipping. The postal rates in China are being subsidized by the west and it is killing retailers and shippers here.

    • Iamafan says:

      That is true, Petunia. However, I need to provide an explanation.
      First of all, FedEx has the contract to fly a bunch of US Postal mail. So I would not be surprised if that package flew FedEx Intl.
      Second, cheap products do not usually get shipped “fully” FedEx.
      But if you order a phone from Motorola (a Chinese Lenovo owned Chicago company), you will probably see a just-in-time processing order from China to your doorstep delivered by FedEx.

      It’s really hard to tell which goods are truly American today.

      • Petunia says:

        A lot of the stuff I buy online from stores comes from a shipper with the last leg handed over to the post office, unfortunately. Any time I have a problem with an order, the post office was involved.

      • bungee says:

        Waaaay off topic but speaking of mail contracts…
        The USPS is a corporation contracted to deliver mail for the constitutionally mandated post office. Long story short, a letter is by law to be sent for only 2 cents. Theres a certain way you have to write the address and format it but i sent a letter with a 2 cent stamp last week and it got there!
        anyone intrested to try can just google how to do it.

        • ThePetabyte says:

          I wince every time someone posts misinformation such as this. You may want to read this if you actually believe what you just wrote. What you posted basically amounts to a felony.


        • bungee says:

          Replying to my own comment cuz i cant to yours…
          Look, i dont know the law or history about it. All i know is i tried it and it worked. Im not lying and it has nothing to do with what i believe. Im not going to read your link. I put my return address on the letter so if its a felony a) they know where to find me and b)why deliver the letter?
          As for the ‘constitutionally mandated’ part i admittedly do not know what im talking about.

  5. c smith says:

    ” I wonder what he says now considering that Trump didn’t do good for international trade volumes…”

    Smith said in an interview last night that he supports the administration’s efforts to improve the basic terms of trade with China, despite the short term costs created by tariffs.

  6. JoAnn Leichliter says:

    Revenues are up 4% in the U.S., but they are trimming costs and cutting the work force here? What am I missing? Is this just the wotk force/cost involved in shipping stuff overseas from the U.S.?

    • cesqy says:

      Maybe, retiring baby boomers and expensive staff must be replaced by cheaper workers to increase productivity and profit margin. The business cycle layoffs happen every recession; but this recovery has been going on for so long, companies are losing patience.

  7. Eastwind says:

    These “business realignment activities,” he said in perfect corporate-speak, will cost $450 million to $575 million. And they’re expected “to drive savings of $225 million to $275 million in fiscal year 2020.”

    So assuming the same savings in 2021 as 2020, the breakeven point on his “investment (paying experienced workers to leave)” is the end of 2021 or, worst case, 2022?

    And what are the chances that by then or before then the economy will have turned back up and FedEx will just need to hire and train new people to fill those same roles, and the “cost savings” will evaporate?

    I think it’s more about executives needing to be seen taking action than action needing to be taken.

    • Iamafan says:

      My wife and I worked for FedEx for about a decade in the 80-90s, and many of these folks being offered “buy outs” are our friends and former peers. If fact, many of the executives mentioned in the article are still quite known to us (Memphis is a small town.)

      There were a number of buy out through the years, so this isn’t the first. Last year FedEx moved the retirement plan to MetLife (no longer done internally). That said FedEx has been a people company (we were paid very well), but as the company moved from Express to Ground, then the pay scale reflected lower cost labor. So if the future calls for more “ground” services, then you can expect MORE contractual services and cheaper labor. Those Green and Purple trucks (some plain white) are mostly contractual. The Purple and Orange (original) are the salaried ones. Over the years, FedEx bought other companies and they brought in their employees or continued to contract their outside contractors.

      In my opinion, the future will depend on what large online vendors like Amazon do. FedEx can only respond to the needs of the market.

      • Sporkfed says:

        Amazon is no longer just a vendor but a competitor. Once Amazon has their own delivery network set up they will open it up
        and take business from FedEx,UPS, and USPS.

        • Petunia says:

          Amazon is already delivering in my area with their own small vans. However yesterday we got something from Amazon delivered by UPS. So they haven’t fully switched over.

          Also the local Wholefoods gives Prime members a further 10% discount on sale items.

        • Endeavor says:

          Sporkfed, Yes and the Amazon delivery drivers will be peeing out the window rather take he time to pull over and aim it into plastic bottle.

        • Rowen says:

          Amazon already has the air and ground hub-to-hub network right? And the last mile Flex (independent contractor) network?

          They’re missing the high-margin express delivery though. Given the quality of the Flex contractors I’m seeing, it’ll be a while before any business trusts Flex to deliver mission critical packages.

        • Just Some Random Guy says:

          Amazon has its own airline now. If you look around major airports you will see several Prime planes, right next to FedEx and UPS planes. They still use FedEx/UPS because it takes a while to build a fleet of planes to rival FedEx and UPS. But in a few years, Prime Air will be a direct competitor to UPS/FedEx. And not just for delivering Amazon items. You’ll be able to use Prime Express (or whatever they will call it) just like you use UPS and FedEx today, to ship just about anything to just about anywhere.

          UPS and FedEx have existed as a duopoly for too long and its nice to see a 3rd major competitor join in. I say major since there are other competitors, but nothing on the same size/scale as UPS and FedEx.

  8. Chris Garbor says:

    So when is China going to collapse??? I keep hearing everyday, for years how China’s economy is slowing. No collapse yet….. Getting bored waiting……

    • Petunia says:

      China isn’t going to collapse anytime soon.

    • Bankers says:

      All economies are collapsing continuously, but that gets ignored as long as they are building them faster . Different regions have different ways of going about this, so in some places there are neatly planned controlled demolitions that everyone sort of agrees to, in others there is a sanctioned ransacking to save what might be of worth, and in others the priority is to stay afloat and as long as there is some kind of ballast to throw overboard it seems to work. You can keep watching any of these because it seems they must ultimately fail, but even if you were to come up with a measure that represented that failure (mayhem, chaos, protests, anarchy, revolution, price of cinema tickets increasing etc.) you would probably find that it was just a rearranging of chairs and a dumping of what was already worthless – and it would all just continue by a slightly different method from that new position.

    • Just Some Random Guy says:

      China’s collapse is like global warming….armageddon is always 5-10 years away, but never seems to happen.

  9. akiddy111 says:

    UPS expects revenue growth (4 to 5%) for the upcoming QTR and the full year.

    So AMZN could be taking a little market share from FDX.

    Furthermore (as Petunia mentioned above) people may be buying directly from China.

    I was in Home Depot last week and a store employee told me that customers are beginning to order frm Alibaba. That was the first time i heard this. Maybe true, maybe hearsay. I don’t know.

    • Petunia says:

      It’s not hearsay. I think one of the big reasons Payless Shoes went under is because the low wage working class has discovered Alibaba. You can get brand name sneakers and shoes directly from China for $5 with free shipping. The same or better quality than the discount stores. If the shoes don’t fit or you don’t like them, you can resell them at a consignment store and get your money back.

    • IdahoPotato says:

      I know a couple of people who buy direct through Chinese vendors, so I’ve been buying the stock.

    • MCH says:

      Oh great, so we can have tainted baby formula coming in from China.

  10. Lion says:

    I really don’t think the China / US trade issue is the main discussion point. “Trade Issues” is what is presented to the public. I believe the real discussion is about control of Data and Internet activity. China is building their own global network. The powers running DC are concerned with this competition. Trump is just following instructions.

  11. flowchart says:

    Responding back to james wordsworth. Now getting into the weeds start looking at different arrangement of resourses. Some of the team members are legislated policy, MFG Company products & services, attitude of CEO and the Board along with Trump’s role as the U.S. President. We can work together to find a solution.

  12. Gershon says:

    Ten years of “emergency measures” by the central banks, and the real economy is still circling the drain.

Comments are closed.