Are we going into a recession? FedEx CEO Raj Subramaniam warns slowing business is a sign of a global recession

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FedEx has warned that a global recession could be coming as global parcel demand plummets.

FedEx shares plunged 21% on Friday – the biggest one-day drop in its history – after the company warned Thursday night that a slowing economy would send it down $500 million from its their revenue goal.

A weaker global economy, particularly in Asia and Europe, hurt FedEx’s express delivery business. The company said demand for packages weakened significantly in the final weeks of the quarter, CNN reported.

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Additionally, FedEx said it expects business conditions to weaken further in the current second quarter, which runs through November. While global revenue this quarter is expected to be flat from a year earlier, FedEx earnings are expected to fall more than 40%. Analysts had expected a gain in profit.

During a Thursday interview on CNBC, FedEx CEO Raj Subramaniam was asked if he thought the slowdown in business was a sign of the start of a global recession.

“I think so,” he replied. “These numbers, they don’t bode well.”

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He said FedEx is seeing a decline in the volume of freight it handles in all regions of the world. While he said American consumers are somewhat shielded by the strength of the dollar, which is increasing their purchasing power, he added that FedEx is also seeing a slowdown in spending by Americans.

The warning triggered a broad sell-off in US stocks. Additionally, the Dow Transportation index fell 5%, while shares of FedEx rival UPS closed down about 5%.

The 21% single-day loss for FedEx stocks easily outpaces their 16% plunge on the day of the 1987 stock market crash and a 15% drop when the stock sold off in March 2020 at the start of the pandemic. FedEx shares are now down 38% year-to-date.

The company said it was responding by cutting flights and temporarily parking planes, cutting staff hours, delaying some hiring plans and closing 90 FedEx offices and five corporate headquarters. It is also cutting $500 million from its capital spending budget for its fiscal year, which runs through May 2023, bringing that spending down to $6.3 billion.

“We are going fully into cost management mode,” he told CNBC.

FedEx said its adjusted profit for the quarter that ended Aug. 31 would be down $260 million, or 17%, from a year earlier. Revenue increased by $1.2 billion, or 5%, despite the company not meeting its original target.

Although it gave a sharply lowered guidance for the current quarter, FedEx announced that it was withdrawing its full-year guidance issued in June due to the “still volatile operating environment.”

FedEx Ground service, which is the company’s primary means of handling deliveries of online purchases made by U.S. consumers, missed its $300 million sales target.

The company uses independent contractors, not employees, to make deliveries, and many of these contractors complain that rising costs for fuel, labor and new vehicles have made their unprofitable business. Some are threatening to shut down operations on Black Friday, just at the start of the holiday shopping season, unless FedEx agrees to change their compensation.

FedEx insists it will work with contractors who have problems. He sued the former entrepreneur who was the firm’s most vocal critic.

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“We recognize that current economic conditions pose new challenges,” FedEx Ground said in a statement last month. “We remain committed to working one-on-one with service providers to address challenges specific to their circumstances. Our goal is to enable the success of FedEx Ground and service providers.

About 1,000 of the 6,000 contractors who work for FedEx have joined a trade association to lobby the company for better pay.

A survey by the association released this week found that 54% of respondents said their business with FedEx was losing money, 35% said it broke even, and only 11% said it was profitable. The association said the survey reached 1,200 contractors working for the company or who had left the company in the past 12 months.

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