FedEx loses $2bn amid warnings of further Chinese uncertainty

Date: Tuesday, July 9, 2019
Source: Nikkei Asian Review

Company reports huge quarterly drop as Asia slowdown slams international business

PALO ALTO, U.S. -- Parcel delivery company FedEx reported on Tuesday a net loss of $1.97 billion for the March-May quarter, as the U.S. company's international business slumped, most notably in the Asia-Pacific region amid trade tensions that continue to weigh on the Chinese economy.

China has been key to FedEx's regional growth but the U.S.-China trade spat is making markets nervous about the company's prospects.

FedEx has built its largest logistics center outside the U.S. in the southern city of Guangzhou, China's export hub. Although the company said it does not expect operations in the country to be disrupted, the trade war has slowed Chinese exports, with a consequent drop in demand for shipping services.

The latest data on Chinese exports showed year-on-year growth of just 0.5% in May.

"China's exports grew more than 10% in 2018 but there is barely any growth this year," said Brie Carere, FedEx's chief marketing and communications officer. "The Chinese economic slowdown has also affected other Asian countries."

The company warned that trade uncertainties and macroeconomic weakness will further weigh on its business.

FedEx's current fiscal year ending May 2020 "is being negatively affected by continued weakness in global trade and industrial production, especially at FedEx Express," said Chief Financial Officer Alan Graf.

The company sued the U.S. government on Monday, saying it should not be held liable if it inadvertently shipped products that violated a Trump administration's ban on exports to Chinese companies, including the embattled telecom gear giant Huawei Technologies.

The lawsuit follows FedEx's failure to deliver several packages containing Huawei products to the proper addresses, which FedEx attributed to "an operational error."

The incidents prompted an investigation into the U.S. delivery company by Chinese authorities.

FedEx again apologized for the mix up during Tuesday's earnings call, saying they were fully cooperating with the investigation by China State Postal Department. Although the company has been facing increased Chinese audits -- likely due to trade tensions -- it does not expect any operational disruption in the country for the time being, management said in the earnings call.

FedEx CEO Frederick Smith said repeatedly that the lawsuit filed on Monday is separate from the delivery incidents, and is a culmination of an unfair burden spanning years in which FedEx has been asked to inspect the millions of packages it ships daily.

Management declined to answer questions regarding the lawsuit on Tuesday, after stating that FedEx's lawsuit is not against the Trump administration's Export Administration Regulations. Instead, the company wants a "safe harbor," essentially requesting to be exempt from policing shipments.

Shares of FedEx fluctuated in after-hours trading on Tuesday. The company's stock has fallen nearly 40% in the past year.

 

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