Global slowdown prompts mass retirement of FedEx freighters

US integrator says all major exporting economies impacted by the slowdown in trade, especially Asian economies with high exposure to China, announcing plans to trim around 5% of its global fleet.

US parcel delivery giant FedEx is retiring some of its older freighter aircraft in response to a slowdown in the global economy.

In an analyst call after issuing its first quarter results, company founder and chairman Fred Smith that global trade disputes began adversely affecting manufacturing in Europe and Asia from the autumn of 2018.

In addition, FedEx’s integration of the TNT acquisition in Europe is entering its most important phase. while the US company also builds up its domestic capability for the surging e-commerce sector.

Said Smith: “We expect to grow in the United States from 50m to 100m packages per day by 2026. These shipments will be destined increasingly to residences, and one in four packages will be short distance deliveries.”

Smith said that the summer saw two increased challenges as FedEx decided not to renew its largest Amazon US domestic delivery contract and then the world’s deepening trade disputes.

While the Amazon contract represented “only a small proportion” of FedEx revenues, the company has taken out “significant costs which were unique to Amazon’s requirements”.

In what Smith described as a softening of the global macro economy, the parcel company has acted to reduce the older aircraft in its freighter fleet as it brings in new, more efficient aircraft.

It will retire 20 MD-10 aircraft over the current and next fiscal year, eliminating that fleet type from its air operations.

Smith added: “We are highly likely to also retire the remaining 10 A310 aircraft this year. In addition, we are parking the equivalent capacity of seven MD-11 aircraft this fiscal year.”

FedEx currently operates the world’s largest air cargo fleet with more than 650 aircraft.

Brie Carere, chief marketing and communications officer, said that FedEx’s sights are set on a transportation market totalling $550bn worldwide, most of which lies outside the US.

Carere added that economic growth has decreased in the developed world outside of the US, with an “ongoing decline” in Germany’s industrial sector and uncertainty in the UK over Brexit which is also impacting the country’s major trading partners.

Momentum in the TNT integration programme has been offset by a reduction in industry airfreight volumes between Europe and the US.

Carere said that FedEx was creating new pricing and improving its value proposition between Asia and Europe.

“This is the largest trade lane in the world. Prior to the TNT acquisition, we did not have the European buyer base to pull this volume from Asia, as European payers make the majority of buying decisions in this lane.”

Carere said that in Asia, Chinese industrial production growth had a 10-year low in July and “exports remain week”, with all major exporting economies impacted by the slowdown in trade, especially Asian economies with high exposure to China.

Source: Lloyd’s