FedEx Corp reported a worse-than-expected third quarter profit due to weakness in its air express business, and said it would step up its cost-cutting programme – including cutting capacity to and from Asia – as customers shift to cheaper forms of freight transportation.
FedEx Express has been hit by falling demand for air express shipments and overcapacity in the industry that has squeezed margins. The express unit is FedEx’s single biggest source of revenue.
Figures showed that FedEx Corp revenue grew four per cent to US $11 billion for the quarter ended 28 February. Operating income fell 28 per cent year-on-year to $589 million, while net income dropped 31 per cent to $361 million for the quarter.
FedEx saw its margins coming under pressure thanks to the shift of customers towards less profitable economy services, with operating margins falling more than two percentage points to 5.4 per cent. International revenues came in $100 million below expectations during the quarter, FedEx said.
Frederick W Smith, the Fedex Corp chairman, president and CEO, said the third quarter had been “very challenging”. “In response, beginning April 1, FedEx Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yielding traffic in lower-cost networks. We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft. We remain focused on our strategic cost reduction programs, which are ramping up and on track.”