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FedEx announces rate hikes as delivery services experience lack of demand

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In response to disappointing quarterly financial numbers, FedEx announced it will institute rate hikes along with cost-cutting measures. The company’s revenue and net income per share for the first quarter of fiscal year 2023 both missed Wall Street expectations.

“First quarter consolidated operating results were adversely impacted by global volume softness that accelerated in the final weeks of the quarter due to weakening economic conditions,” FedEx said in a news release announcing its first quarter results. “In addition, results were negatively affected by service challenges at FedEx Express.”

Along with announcing the results, FedEx said it will hike its Express, Ground and Home Delivery rates will increase by an average of 6.9%. Its FedEx Freight rates will increase by an average of 6.9%-7.9%. The company also said it will save the following amounts of money by instituting the following cost-cutting measures:

  • Parking planes, reducing flights ($1.5-1.7 billion).
  • Closing locations, suspending some Sunday operations, other expense actions ($350-500 million).
  • Reducing vendor use, deferring projects, closing office locations ($350-500 million).

“We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial, and capacity levers to adjust to the impacts of reduced demand,” FedEx Corp. President and Chief Executive Officer Raj Subramaniam said in a statement. “As our team continues to work aggressively to address near-term headwinds, we’re meaningfully strengthening our business and customer experience, including delivering an outstanding peak.”

Reduced demand may be a problem experienced by more than just FedEx as the holiday season approaches. Last year, FedEx, UPS and the U.S. Postal Service had to add staff and facilities to keep up with a pandemic-fueled surge in demand during the peak delivery season from Thanksgiving weekend through the end of the year.

Those delivery firms now can handle 110 million holiday packages per day. According to Satish Jindel, a consultant whose holiday peak volume forecasts are closely watched by delivery firms, that could outpace peak season demand by 18 million packages per day.

The Associated Press, Reuters and CNBC contributed to this report.

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THE BUSIEST TIME OF YEAR FOR PACKAGE DELIVERY SERVICES WILL BE HERE BEFORE YOU KNOW IT.
KEEP IN MIND IF YOU’RE SENDING HOLIDAY GIFTS — WE MAY HAVE ANOTHER TRICKY YEAR AHEAD OF US.
WE START WITH FEDEX — WHICH POSTED QUARTERLY NET INCOME AND REVENUE NUMBERS THAT MISSED WALL STREET PROJECTIONS YESTERDAY.
SEEMINGLY IN RESPONSE — THE COMPANY ANNOUNCED RATE HIKES AND COST-CUTTING MEASURES.
THESE INCLUDE REDUCING VENDOR USE — DEFERRING PROJECTS AND CLOSING OFFICE LOCATIONS.
FEDEX CITED A WEAKENING IN GLOBAL DEMAND AS A FACTOR IN THE DISAPPOINTING NUMBERS.
THIS IS IN CONTRAST TO LAST YEAR — WHEN FEDEX — U-P-S AND THE U-S POSTAL SERVICE HAD TO ADD FACILITIES AND STAFF TO HANDLE A PANDEMIC-FUELED SPIKE IN DEMAND.
NOW — THOSE DELIVERY FIRMS HAVE THE CAPACITY TO OUTPACE PEAK SEASON DEMAND BY 18 MILLION PACKAGES PER DAY.