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FedEx drops 10%, most in 18 months as labor shortage and higher wage hit earnings

PUBLISHED ON 2021-09-23 00:35:00 EST Arghyadeep

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FedEx Corp dropped on Wednesday, the most intraday in 18 months after it got hit by rising labor costs and supply-chain issues.

The shares slumped more than 9% to $228.98 in New York, the biggest intraday decline since March of last year.

On Tuesday, the company reported its earnings for the first quarter of 2022, posting a 7% drop in quarterly profit.

The packaging giant also said due to labor constraints, it is lowering down its full-year earnings forecast to be between $19.75 to $21 per share, from an earlier forecast of $20.50 and $21.50.

The labor shortage plagued the company so hard that a Ground unit sorting hub in Portland, Oregon, is only staffed at 65%, Chief Operating Officer Raj Subramaniam said on an analysts’ call on Tuesday evening.

The company is now rerouting 25% of the package volume that would typically go through Portland to other facilities, which is ultimately straining the network and pushing up costs to haul packages to other areas.

Overall the Memphis, Tennessee-based company rerouted 600,000 packages a day, or 6.4% of the segment’s average daily volume during the quarter due to the labor shortage.

“The impact of constrained labor markets remains the biggest issue facing our business,” Subramaniam said, forcing the company to turn away some package volume from customers to help keep service levels from deteriorating.

FedEx is also trying to attract more workers by offering higher wages, which have increased more than 25% from a year earlier.

It is also aiming to employ 90,000-holiday workers this year, 20,000 more than the previous year, to move more packages in the current scenario.

“We anticipate the cost pressures from network inefficiencies, such as the one I just illustrated, to persist through peak,” Subramaniam said. “Overcoming staffing and retention challenges is our utmost priority.”

Picture Credit: AP

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