Economic woes hit shippers

Repercussions from the weakened economy continue to work their way through major shipping companies.

FedEx released its second-quarter earnings results, which show revenue up 1% over last year, yet, the Memphis-based shipper outlined pay cuts for senior executives and other steps it said would help mitigate a worsening business climate.

And, in a ripple effect from another major shipper, layoffs will take place at ABX Air, where 1,900 jobs will be cut after its principal customer DHL said in November that it would discontinue its domestic shipping operations.

In enacting its pay cuts and other actions, FedEx projects it will reduce spending by more than $200 million through fiscal year 2009 and another $600 million through fiscal 2010.

Company president and CEO Frederick Smith will take a 20% pay cut in his base salary, while other FedEx senior executives will have their salaries reduced 7.5% to 10%, FedEx said. Remaining US salaried exempt personnel will see their earnings trimmed 5%, and also will forgo 2009 merit increases.

The company also is suspending 401(k) company match contributions effective February 1, for a minimum of one year. The latest measures follow earlier actions, including a hiring freeze and discretionary spending cuts.

“Our financial performance is increasingly being challenged by some of the worst economic conditions in the company’s 35-year operating history,” Smith said in a statement. “However, with the decline in shipping trends during our second quarter and the expectation that economic conditions will remain very difficult through calendar 2009, we are taking additional actions necessary to help offset weak demand, protect our business and minimize the loss of jobs.”

The company reported revenue of $9.54 billion, compared to $9.45 billion during the same period last year. It reported operating income of $784 million, up from $783 million a year ago; an operating margin of 8.2%, down from 8.3% the previous year; and a total net income of $493 million, up 3% from last year’s $479 million.

Total combined average daily package volume in the FedEx Express and FedEx Ground segments was down 2% year over year, the company said, as the weak economy reduced demand for shipping services.

Fellow shipper DHL, facing financial troubles of its own, said it would discontinue a substantial amount of its US-based domestic express package operations with ABX Air as of January 4, which will result in ABX losing about 1,900 jobs.

DHL intends to close its sorting operations at its US regional hubs and all domestic daytime package sorting operations, except for a Sunday day-sort operation. The job cuts include about 1,000 positions in Wilmington, OH, and will affect every department of the company.

DHL also notified ABX Air that it will no longer require the use of ABX Air’s DC-9 aircraft after January.

In November, Deutsche Post World Net, parent company of DHL Express, announced that it would discontinue domestic operations, resulting in the loss of 9,500 jobs in order to meet its financial goals.  The company said it would retain 3,000 to 4,000 US Express employees, tailored to the needs of international express customers. The company said the measures would allow DHL’s U.S. Express business to reduce its operating costs from $5.4 billion to under $1 billion, a decrease of over 80%. 

DHL is still negotiating with UPS on a proposal for UPS to ship DHL’s interna-tional shipments from their US landing points to their final US destinations.

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