Fedex reviews executive order
What Biden’s action on supply chain could mean
President Joe Biden’s vision of a secure U.S. supply chain does not necessarily mean one that stays within its borders whenever possible, experts say, which would be good news for international shipping giant Fedex.
Memphis-based Fedex said it is reviewing the executive order issued by President Joe Biden on Feb. 24 that aims to create more resilient supply chains for critical goods.
“We look forward to working with the administration on this issue and sharing our expertise in global transportation and supply chains,” Fedex said in a statement.
The executive order defines secure and diverse supply chains as those “facilitating greater domestic production, a range of supply, built-in redundancies, adequate stockpiles, safe and secure digital networks, and a world-class American manufacturing base and workforce.”
To accomplish this, the executive order will launch a review of domestic supply chains and direct federal departments and agencies to figure out how to secure them “against a wide range of risks and vulnerabilities,” the White House said in a news release.
Policy recommendations stemming from the order could include “sustainably reshoring supply chains and developing domestic supplies” or “cooperating with allies and partners to identify alternative supply chains,” according to the order.
Fedex heavily invested in global trade
The order was a “no-brainer,” as the U.S. wants to make sure it has the capabilities to respond to critical supply shortages, said José Holguín-veras, director of the Center for Infrastructure, Transportation, and the Environment at Rensselaer Polytechnic Institute.
Any potential changes in the United States' global trade philosophy will always pique the interest of Fedex and its Chairman and CEO Fred Smith, however. Both Fedex and UPS will be key parties for the Biden administration to engage with on this issue, said Glyn Hughes, director general at the International Air Cargo Association.
More than 39% of Fedex Express' package revenue came from international exports in its most recently reported quarter, a larger percentage than the year-before quarter. Smith was also a frequent critic of former President Donald Trump's use of trade barriers during his term.
Holguín-veras doesn't see this order as the start of the U.S. retreating from the global economy, leading to fewer shipments in and out of the country. Rather, he said this order could redefine what globalization means for the U.S. and help it control its supply of critical goods. Hughes agrees.
“No country is an island state,” Hughes said. “No one country can produce and consume 100% without going outside their own borders.”
Why Biden is concerned about supply chain resiliency
The COVID-19 pandemic raised questions about how quickly production of critical goods like personal protective equipment could be established as the U.S. heavily relied on producers in China.
“Last year's shortages of personal protective equipment (PPE) for frontline healthcare workers at the beginning of the COVID-19 pandemic were unacceptable,” the White House said.
Air cargo carriers like Fedex remain crucial in getting the critical goods delivered quickly, Holguín-veras noted.
Although demand for air cargo remained lower than PRE-COVID-19 levels throughout 2020, supply was also constrained as passenger planes stayed grounded. This benefited all-cargo airlines like Fedex Express.
COVID-19 isn't the first event to expose global supply chain weaknesses. One example Hughes recalls of singlesourcing production issues is in 2010, when the Eyjafjallajokull volcano in Iceland erupted. This closed off North Atlantic airspace and grinded automotive production plants in the U.S. reliant on parts from Germany to a halt, he said.
“Multisourcing is probably one of the strongest areas that will come out of this assessment, so you can build-in those needs for resilience by having multiple factories in multiple places,” Hughes said.
Kimball Bullington, a professor who teaches supply chain management at Middle Tennessee State University, said the United States' reliance on China for global trade is a key reason for this order. It could de-risk itself in part by sourcing some inventories closer to home or to friendlier countries with resilient supply chains, he said.
Fedex said in 2019 that the U.s.-china trade lane made up 2% of its revenue. That would equate to nearly $1.4 billion of Fedex's fiscal 2020 revenue.
What products is the Biden administration focusing on?
The order first calls for a 100-day review at federal agencies to address vulnerabilities in the supply chains of four products: active pharmaceutical ingredients (APIS), critical minerals (rare earth elements, carbon fiber), semiconductors and large-capacity batteries.
Fedex did not disclose how often it ships those product types to the U.S. when asked. But all of them were defined by the White House as critical goods, and air cargo is known for carrying high-value items. Hughes said air cargo moves about 1% of global trade volume but about 35% of global trade value — $6 trillion worth.
Pharmaceuticals will be a continued growth area for air cargo and the overall global supply chain, Hughes said. The finished products APIS are often in, like vaccines, are often flown via air express operators like Fedex who are able to abide by strict temperature requirements.
“The health sector has a longer-term growth trajectory as we all tend to live longer and suffer more ailments on the way to living longer,” he said.
Changes to the rare earths supply chain would likely affect the U.s.-china trade lane, as the U.S. imports about 80% of its rare earths from China, according to Nikkei Asia. The U.S.' “big hope” for a new country to import rare earth metals from will be Australia, Bullington said.
Potential air freight slowdowns could hit the electronics sector down the line, as the U.S. receives many of its electronics from China as well, Bullington said.
“I think there's going to be a push to move some of that, but I don't see a quick solution here,” he said. “I don't think much of anything in the next two years is going to happen.”
Future recommendations and policymaking efforts spurred from the order could affect a broad range of industries, according to Covington & Burling LLP, an international law firm.
“Still, given the breadth and strategic significance of these sectors, even this sort of ‘limited' scope would carry the potential for far-reaching effects on the supply chain management strategies of many multinational corporations,” the firm said in a post about the order.
Reach Max Garland at max.garland @commercialappeal.com or 901-5292651 and Twitter @Maxgarlandtypes.