FedEx cuts back as volumes, forecasts continue to concern
Logistics giant prepares to weather a coming economic storm.
By Dave Hannon -- Purchasing, 12/18/2008 2:37:00 PM
Employees at logistics giant FedEx are going to see a pay cut next year and the cuts are starting at the top.
CEO Fred Smith said in a statement on the company’s blog he will take a 20% pay cut next year as the company prepares itself for a year of lower volumes. Other FedEx senior executives will have their salaries 
reduced 7.5-10% and the rest of FedEx’s salaried-exempt workforce will take 5% reductions. FedEx will also cut its contributions to employees’ 401(K) plans for at least a year.
FedEx hopes to reduce overall spending by more than $1 billion through fiscal 2009 and another $600 million through fiscal 2010 in an effort to manage its way through what it sees as the worst economic environment in 35 years. In the quarter ended Nov. 30, package volume in the FedEx Express and FedEx Ground segments was down 2% year over year, as the weak economy reduced demand for shipping services.
CFO Alan Graf said that in the wake of DHL’s departure from the market, “We are taking market share across the board even in a declining economy…While the departure of DHL from the U.S. domestic package market presents a rare opportunity, significant uncertainty exists in the global economy.”
Market watchers mostly applauded FedEx’s cost-reduction plans.“FedEx has been taking action for some time to offset the effects of a downturn,” said Sandeep Kar, a transportation analyst at consulting company Frost & Sullivan. “They have done the right things to navigate them through these troubled waters.”
In a report on CNBC, Art Hatfield, transportation analyst for Morgan Keegan, said “They’re doing this so they don’t have to lay people off and they have the right people in the right places to handle volumes when they start to grow again. While they’re doing a lot of good things on the cost side, the problem they have is the economy is slowing faster than they can take costs out of the company.”
Keegan said volumes have “gotten bad” for FedEx but points out that FedEx is a premium provider and as companies look to cut costs, FedEx volumes could be shifted to lower-cost providers and service levels.
Keegan doesn’t expect any economic growth until 2010 and that “2009 is shot.”
See also: Hempstead: Small parcel rates will increase with DHL’s departure
FedEx cuts back capacity
04/14/2009DHL to exit U.S. express shipping market
12/11/2008FedEx scraps Airbus order, raises rates
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