FedEx has warned the world that the global recession could be approaching as the demand for packages around the world declines.
Shares of the company declined by 21 percent on Friday, which was the greatest one-day drop in its history. The company has already warned Last Thursday that a shortfall in the global economy may cause it to be short of 500 million USD of the revenue target.
The global economy has already weakened in most parts including Asia and Europe. The recession has started hurting FedEx’s express delivery businesses.
The company has further revealed that the demand for packages has declined in the final weeks of the quarter.
FedEx has started predicting its fate. It expects the business conditions to further weaken in the current second quarter during November.
In addition, the global revenue in the following month will continue to be flat compared to a year earlier. Data speculates that FedEx’s earnings will take a plunge of 40 percent. Analysts have been predicting a gain in profit.
When the company’s CEO was questioned during an interview if the slowdown in his business could be a symptom of the global recession, he affirmed stating that the numbers do not portend very well.
He further added saying that FedEx is experiencing a decline in the volume of freight it is handing in every region of the world. While the US customers are preventing themselves from falling into the trenches because of the strength of the dollar, this is increasing their purchase power.
He said the company has experienced a slowdown in business in America as well.
The warning resulted in a broad sell-off in US stocks. The Dow Transportation Index decreased by 5 percent followed by the shares of FedEx’s rival UPS declined by 5 percent lower.
The 21 percent single-day loss for FedEx shares has risen more than the 16 percent plunge on the day of the stock market crash in 1987. Further, it has reached a 15 percent mark in the stock sell-off in March 2020 during the initial days of the pandemic. Now, the shares of the company have gone down by 38 percent so far this year.
How is FedEx overcoming the crisis?
The company has resorted to measures to tackle the situation. The company has stated that it is lowering the costs by reducing the flights and temporarily parking the aircraft, cutting hours for its staff, delaying the hiring process, and closing 90 percent of the FedEx office locations followed by five corporate offices.
Moreover, FedEx has cut down the costs by 500 million USD from its capital expenditure budget for its fiscal year. This will be continued till May 2023, cutting down the spending to 6.3 billion USD.
The CEO opened up in the interview stating the company is undergoing some cost-management plans.
Reports state that FedEx has adjusted its earnings for the quarter ending on August 31 will fall by 260 million USD or 17 percent from the previous year. Despite missing the company’s earlier target, the revenue increased by 1.2 billion USD or 5 percent.
They will be withdrawing the full-year guidance issued in June for the current quarter due to the extremely volatile environment.
FedEx Ground service, which is responsible for the deliveries handled by the company of online purchases has missed its sales target by 400 million USD.
The company appoints independent contractors, not employees to make deliveries, and many of the contractors are complaining about the increasing costs of fuel, labor, and new vehicles that have made their business miss the target revenue.
Some of the contractors are even threatening to halt operations on Black Friday, the start of the holiday shopping season until FedEx decides to increase their compensation.
FedEx has insisted that it will continue to work with the contractors who are currently facing problems.
In addition, FedEx has sued the contractor who criticized the company.
FedEx has revealed that they have recognized that the current global economic condition is imposing a threat to the economy. They are committed to working with the service provider businesses individually to address the current problems in the economy.
The company is emphasizing providing profits for both the company and the service providers.
Around 1000 contractors providing services to FedEx have joined an organization demanding an increase in compensation to the FedEx company. The association carried out a survey, and 54 percent stated that FedEx is currently losing money. Only 11 percent have stated that the company is earning profits.
The association revealed that around 1200 contractors working for the company have left for the last twelve months.