FedEx's boom and slump is partly just a COVID distortion, says CEO Raj Subramaniam
FedEx shareholders got a rude awakening just over a year ago after the company warned of a sharp drop in package deliveries and yanked its profit guidance. CEO Raj Subramaniam didn’t help matters by going on TV at the time to warn that “economic conditions are not going to be good.” Investors, spooked by the sudden post-COVID cooling of the logistics sector, drove the company’s shares down by 20% in just one day, the largest one-day drop in price.
The logistics company has since managed to turn things around, with shares up over 70% from its lows in September 2022. At the Fortune Global Forum in Abu Dhabi on Wednesday, Subramaniam tried to explain what people are missing about the boom-and-bust shipping business. “If there was no pandemic… the trend would be kind of OK,” he said. He noted that e-commerce represented about 16% of retail pre-pandemic, surged to 22% during COVID, then stabilized back to 19%.
“We’re normalizing to levels where we would have been had there been no pandemic, especially on e-commerce,” he said.
The logistics sector boomed during the pandemic as stay-at-home consumers, flush with stimulus money, flocked to e-commerce platforms to buy the latest home appliances, consumer electronics, and other big ticket items. The surge in demand helped boost revenues at logistics companies that carried goods from factories to retailers and people’s homes.
FedEx was no exception. The firm reported revenue of $93.5 billion in its fiscal 2022 (which spans from June 1, 2021 to May 31 2022), a more than 30% increase from the $69.2 billion reported in FedEx’s fiscal 2020. The company went on a hiring spree during the pandemic to keep goods flowing.
But after its profit warning last year, FedEx announced a series of cost-cutting measures, including store closures and service consolidations, and pledged to become a leaner, more focused company.
The belt-tightening may have worked. In its most recent quarter, ending Aug. 31, FedEx beat analyst estimates and reported a rise in profit despite a drop in revenue. It also revised its forecast for its fiscal 2024, raising the lower end of its adjusted earnings per share to $17 from the previous forecast of $16.50. The company left the top end of its outlook unchanged at $18.50.
FedEx’s push to use new technology was part of that turnaround, Subramaniam explained Wednesday.
“We have gotten going from reactive to predictive,” Subramaniam said, referring to the use of AI models to better predict estimated delivery times. “We’re able to now use some of those modern technologies and the new learning models on some of our data to see how we can create more value for our customers.”
Shipping and logistics have traditionally been slow to adopt new technologies, but the supply chain disruptions of the past few years have forced companies to start transforming their operations. Eighty percent of logistics professionals surveyed by CargoWise, which helps companies streamline their logistics operations, are increasing their investments in new technologies like supply chain management systems and digital documentation.
Subramaniam knows that people are paying close attention to his industry and its hiccups—symbolized best, perhaps, by the bottlenecks of ships waiting off the U.S. West Coast to unload cargo in overloaded ports.
“Before 2019, if I had mentioned supply chains in polite conversation, I would have been escorted out the door,” he said Wednesday. “And now it seems to be talk show subjects.”
