Yesterday, FedEx warned that its August ending quarter will fall short of expectations because of revenue shortfalls within its largest FedEx Express division. The carrier expects per-share earnings of $1.37 to $1.43 in the latest August quarter compared to its June forecast range of $1.45 to $1.60. Stockholders responded with a selloff of both FedEx and UPS stock. As we pen this posting FedEx stock is down slightly over 2 percent from the level prior to this unexpected warning.
In its reporting, The Wall Street Journal noted that air freight volumes fell 3.2 percent in July from a year earlier and also pointed to the August HSBC China PMI index reading of 47.6, the lowest reading of manufacturing activity since 2009.
In late July, Supply Chain Matters noted again noted industry acknowledgements that structural change was occurring in the air freight sector. In June, FedEx had indicated that the airport-to-airport transport model is in decline, that suppliers, manufacturers and retailers are opting for less costly methods of transportation for movement of components and finished goods. That trend was confirmed by a further volume slowdown reported by UPS. Both carriers have responded to these developments through cutbacks in capacity airlift out of Asia, and given this latest FedEx warning, our view is that more cutbacks in capacity and/or manpower are likely.
While logistics and transportation teams are very cognizant of these structural transportation trends, S&OP and product management teams need to factor these developments in ascertaining abilities of supply chains to respond quickly to any upside product demand opportunities for products, especially during the upcoming holiday buying season. Lead times will more than likely increase as global supply chains opt for surface transportation options while air freight lift capability may be constrained.