How Fedex plans to cut $3 billion in costs for 2023
Fedex Corp. has announced multiple cost-cutting measures since September as the logistics giant seeks to save billions of dollars in fiscal year 2023.
In the past week, Fedex has announced two more significant costcutting moves. On Feb. 1, Fedex CEO Raj Subramaniam confirmed more than 10% of the officer and director team would be cut. The second move came two days later when the company announced a second round of Fedex Freight furloughs. Fedex Freight had announced an initial round of furloughs in November due to slowing demand.
“As you know, we have embarked on a transformation effort to create the world’s most flexible, efficient, and intelligent supply chain for our customers,” Subramaniam said at the beginning of a memo announcing the management cuts. “This process is critical to ensure we remain competitive in a rapidly changing environment, and it requires some difficult decisions.”
Dean Maciuba, managing partner for Crossroads Parcel Consulting and former longtime Fedex sales executive, attributes the recent cuts to activist hedge fund D.E. Shaw’s growing role in important decisions. The New York-based hedge fund has multiple representatives on Fedex’s board of directors.
“Every time they announce a costsavings initiative, the stock goes up because Wall Street realizes that Fedex is not going to improve its financial position by growing their business because they’re shrinking the business,” Maciuba said about the cuts. “So the only way to drive improved financial performance is to reduce operat
ing cost. Whenever they announce that they’re reducing cost in some way or another, the stock reacts favorably.”
Fedex attributes the need for continued cuts to low demand and higher operating costs. The company hopes the recent cost-cutting measurements will save more than $3.7 billion this year.
Here’s a breakdown of all the cuts Fedex has announced since September.
Fedex announces up to $2.7 billion in cuts after first quarter earnings
In the midst of a disappointing first quarter earnings report for fiscal year 2023, Fedex announced plans to cut at least $2.2 billion and potentially up to $2.7 billion across all areas of the company.
The largest cuts were to Fedex Express, where the company hoped to save as much as $1.7 billion. The company announced plans to adjust and reduce the company’s flight network to combat failing volumes.
Fedex planned to cut up to $500 million in expenses at Fedex Ground to consolidate operations and another $350 million to $500 million in other overhead expenses.
In December, Fedex said it identified another $1 billion in potential cuts following a disappointing second quarter earnings report. In a news release at the time, Michael C. Lenz, Fedex executive vice president and chief financial officer, said the company had “an unwavering focus” on cost cutting.
“As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness,” he said.
John Gnuschke, retired professor of economics and director of the Sparks Bureau of Business at the University of Memphis, said there will be some local impact to Memphis, which comes with good and bad. The bad: job losses. The good: Fedex will emerge stronger after the cuts.
“I think they’re in good shape anyway, but they will be in much better shape once they cut the costs,” he said. “And if the economy remains, their demand remains strong, then in fact we’ll see gains in both sides. Increased revenue and reduced costs means more profits.”
Two rounds of furloughs at Fedex Freight
Fedex announced in November plans to furlough an unspecified number of Fedex Freight workers due to low demand. Fedex Freight, the company’s less-than-truckload (LTL) division, has an estimated 46,000 workers, according to the company’s website.
The move occurred shortly before the company’s peak holiday season as it expected lower demand compared to previous years.
On Feb. 3, Fedex confirmed a second round of furloughing additional workers, though it did not clarify how many workers would be impacted as was also the case in November.
Fedex said some employees would be offered the chance to transfer to other markets and the furloughed employees will maintain health benefits and be provided other financial incentives.
While the company did not say how many will be furloughed, it said the furlough period is “just under 90 days.”
“The company will continue to evaluate the environment and bring back furloughed employees as business circumstances allow,” the company said in a statement.
Fedex cuts management positions
As part of the decision to cut its officer and director team, Fedex plans to consolidate “some teams and functions.”
Fedex declined to tell The Commercial Appeal how many employees would be impacted by Feb. 1’s news and offered the following statement in addition to Subramaniam’s memo.
“Since the start of our fiscal year in June 2022, our U.S. headcount has been reduced by more than 12,000 positions through attrition and headcount management initiatives,” Fedex said in a statement Feb. 1. “We will continue responsible headcount management throughout our transformation.”
Fedex has an estimated 600,000 team members worldwide, according to the company’s website.
Maciuba said the handling of management cuts is different to how Fedex has operated in the past.
“In the past, they always compensated professional people for leaving and it was voluntary,” he said. “The difference right now, it’s not voluntary.”
Subramaniam said in his Feb. 1 memo that Fedex’s human resources team would be in touch with those who have lost their jobs and provide information related to next steps including outplacement services, benefits, and severance compensation.
Omer Yusuf covers the Ford project in Haywood County, Fedex, tourism and banking for The Commercial Appeal. He can be reached via email Omer.yusuf@commercialappeal.com.