FedEx raises package rates, details cost savings as global demand weakens

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A person walks past a FedEx van in New York City, May 9, 2022.

Andrew Kelly | Reuters

FedEx announced rate hikes Thursday and provided details of cost-cutting efforts after the shipping giant warned last week that its fiscal first quarter results were being hit by weakening global demand.

Shares of FedEx rose about 2% on Thursday afternoon.

Last week, the company’s shares fell after it posted preliminary earnings and gains that fell short of Wall Street expectations. CEO Raj Subramaniam cited a difficult macroeconomic environment and said he expects the economy to enter a “global recession”. The company withdrew its guidance for the year and said it would cut costs.

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The shipping giant struggled with light volumes in the quarter, citing headwinds in its European and Asian markets. The poor results shocked the market as investors tried to differentiate the market’s problems from FedEx’s own internal shortcomings.

Publishing its full first quarter results on Thursday, the company said Express, Ground and Home Delivery rates will rise an average of 6.9%. FedEx Freight rates will rise an average of 6.9%-7.9%, the company said.

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It also said it thinks it will save between $1.5 billion and $1.7 billion by parking planes and reducing the number of flights. The closure of certain locations, the suspension of some Sunday operations and other expense actions will save FedEx Ground between $350 million and $500 million, according to the company.

FedEx said it will save an additional $350 million to $500 million by cutting supplier use, delaying projects and closing office locations.

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“We are moving with speed and agility to navigate a challenging business environment, using cost, commercial and capacity levers to adapt to the impact of reduced demand,” said Subramaniam.

For fiscal year 2023, the company expects total cost savings of $2.2 billion to $2.27 billion.

Despite last week’s dismal warning, FedEx stuck to its 2025 forecasts prepared in June. The company forecasts annual revenue growth of between 4% and 6% and earnings per share growth of between 14% and 19%.

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