Memphis-based FedEx Corp. on Thursday said it’s instituting a new fuel surcharge effective April 4 as the war in Ukraine and other factors impact the global economy.
The company said the surcharge will apply to FedEx Express, Ground and Freight. The surcharges rates are complex, and the company posted details online at fedex.com/en-us/shipping/fuel-surcharge.html.
The news came during the company’s earnings report for its third fiscal quarter, which ended Feb. 28.
The company said its holiday peak season went well, with higher shipping prices and other factors helping the company hit record operating income in December. But company leaders said FedEx had faced setbacks in January and February related to factors including the spread of the omicron variant of COVID-19.
The omicron variant caused employees to miss work, including pilots, and also reduced demand for FedEx products, executives said in a conference call. The economic impact of the virus was about $350 million, said Michael Lenz, executive vice president and chief financial officer.
Problems with labor, including higher wages and higher contract labor costs, cost the company another $350 million, he said, though executives said these problems are improving.
Raj Subramaniam, FedEx Corp. president and chief operating officer, said the company faced two big challenges with labor beginning last year: one was lack of labor, the other was the cost of labor going up.
“We have unwound inefficiencies. The network is back to normal,” he said.
The company is now accounting for the recent growth in labor costs, he said.
“We’ve dealt with it head on. It’s now in our numbers. And I think it gives us a competitive advantage as we look in the future.”
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The company reported quarterly revenue of $23.6 billion and adjusted net income of $1.2 billion, or $4.59 per share.
The revenue was in line with analysts’ expectations, but the earnings per share was slightly lower than expected.
On average, analysts had predicted revenue of $23.6 billion and earnings per share of $4.69, according to investment research company Zacks.
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“FedEx is supporting our team members and others affected by the ongoing conflict in Ukraine as we hope to soon see a return to peace,” FedEx chairman and chief operating officer Fred Smith said in a news release.
Subramaniam offered more commentary in a conference call, saying the company is offering financial aid and other support to its employees in Ukraine.
“Additionally, we are helping to move relief to Ukraine, and we have provided more than $1.5 million in humanitarian aid,” he said.
The company has suspended operations in Ukraine, Belarus and Russia. FedEx has relatively small operations in the region. Subramaniam didn’t go into detail, but said the “profit impact from that is immaterial.”
He called the war “tragic,” though he said the impact on the economy is still uncertain.
“I mean, it starts with the cost of fuel. As the fuel cost goes up around the world, inflation goes up, and then because of that the potential economic slowdown.
“How long this lasts is anybody’s guess. I’m not going to project that forward. So we’ll have to be very flexible and nimble in dealing with that situation.
“We’re watching the China situation very carefully,” he said. Subramaniam didn’t spell it out, but U.S. officials have expressed concern that the Chinese government might support the Russian government militarily or economically. Such a move might even lead to sanctions against China.
“Our operations are close to normal as we speak and the demand is still very strong,” Subramaniam continued.
“But again, it’s a very dynamic situation.”
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FedEx recently reduced its economic growth estimates due to several factors, said Brie Carere, the company’s executive vice president and chief marketing and communications officer.
She mentioned the war in Ukraine, uncertainty around the pandemic, a tight labor market, supply chain disruptions, high energy prices and inflationary pressures.
The company had previously predicted U.S. gross domestic product growth of 3.7%. It now predicts a 3.4% increase in U.S. gross domestic product in 2022. The company predicts a 2.3% increase in U.S. GDP in 2023.
The company revised down its expectation for global GDP growth from 4.1% to 3.5%. The company predicts a 3.1% increase in global GDP growth in calendar year 2023.
Earnings by segment
FedEx operates several companies within the larger FedEx umbrella and released numbers on their performance.
Its FedEx Express segment focuses primarily on transporting items by plane.
Operating income in this segment rose to $520 million, a 12% increase compared to $463 million in the year-earlier quarter. The company said factors including higher income per package and lower bonuses contributed to the increase, along with fuel surcharges which outpaced the cost of fuel.
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The FedEx Ground segment focuses primarily on transporting items by truck. Operating income in this segment dropped to $641 million, a 9% decrease compared to $702 million in the year-earlier quarter.
The company said several factors led to the decrease, including higher costs for hiring third-party transportation, higher employee wages, network inefficiencies, and expansion-related costs.
The FedEx Freight segment focuses primarily on bulk shipping. Operating income in this segment rose to $337 million. That’s more than double the $119 million this segment had posted in the year-earlier quarter. The company said factors including higher revenue per shipment led to the increase.
Investigative reporter Daniel Connolly welcomes tips and comments from the public. Reach him at 529-5296, [email protected], or on Twitter at @danielconnolly.
This article originally appeared on Memphis Commercial Appeal: FedEx says holiday peak season went well, omicron caused disruptions