FedEx Freight preps for December furloughs

Various reports issued this week indicated that FedEx Freight, the less-than-truckload (LTL) subsidiary of Memphis-based global freight transportation and logistics services provider FedEx, will begin furloughing employees early next month, in order to be in line with lower-than-expected levels of demand.

“In response to current business conditions impacting volumes, FedEx Freight is enacting a temporary furlough in some U.S. markets to align our workforce with operational requirements,” read a statement from FedEx freight provided to LM. “Some eligible employees will be offered permanent transfer opportunities to other markets that have hiring needs. FedEx Freight will maintain health benefits and provide other financial incentives for furloughed employees and anticipates that many employees will volunteer to participate in the program. The company will continue to evaluate the environment and bring back furloughed employees as business circumstances allow.”

This development comes at a time when freight volumes continue to see moderation, as many consumers continue to shift spending preferences to more services-based categories, rather than on physical goods, which was prevalent throughout the course of the pandemic.

This development follows comments recently made by FedEx Chief Financial Officer Michael Lenz at the Baird Global Industrial Conference, noted a Reuters report.

“In the U.S., you're seeing again, as anticipated, a bit of a reset from the e-commerce boom and the volume surges that accompany that,” said Lenz. “We projected to have lower volume in our fiscal first and second quarter already. It just came in lower than our initial projections were.”

In its recent fiscal first quarter earnings announcement, FedEx said that quarterly results were adversely impacted by global volume softness that accelerated over the final weeks of the quarter due to weakening economic conditions.

But FedEx Freight had a strong quarter FedEx Freight, seeing operating income rise 67% annually, to $651 million, with revenue—at $2.7 billion—up 17%. The company pointed to yield management actions, including higher fuel surcharges, partially offset by higher salaries and employee benefits and lower shipments.

And in its fiscal first quarter earnings pre-announcement, the company said it is taking various cost actions through the end of fiscal 2023, with a focus on mitigating the effects of reduced demand, including:

• Reduction in flight frequencies and temporarily parking aircraft;
• Volume-related reductions in labor hours and other linehaul expenses;
• Consolidation of certain sort operations to drive productivity;
• Reduction of Sunday operations at a number of FedEx Ground locations;
• Cancellation of certain planned network capacity and other projects;
• Deferral of staff hiring;
• Closure of over 90 FedEx Office locations; and
• Identification of five corporate office facilities to be closed, with additional real estate rationalization planning under way

Addressing the company’s plans to reduce costs, Raj Subramaniam, FedEx Corp. president and CEO, said on the company’s earnings call that for fiscal year 2023, it is prioritizing cost actions to generate $2.2 billion to $2.7 billion of savings, of which about $1 billion will be permanent.