A major canary in the economic coal mine

 

For those unfamiliar with the use of a canary in a coal mine as a safety device, you can read more about it here.  The practice (now discontinued) has become an idiom for an early indicator of potentially serious or dangerous problems.

FedEx has just emerged as a major canary in the coal mine of the world's economy.

FedEx (FDX) withdrew its full year earnings guidance and reported preliminary first quarter results that fell short of Wall Street estimates, sending shares tumbling in extended trading on Thursday.

"Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S." FedEx CEO Raj Subramaniam warned in the release. "We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations."

. . .

Cost-cutting measures outlined by FedEx include reducing flights, temporarily parking aircraft, closing more than 90 FedEx office locations, and deferring hiring plans.

“We are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives," Subramaniam added.

There's more at the link.

That's a very serious indicator of economic hard times.  Goods have to get from manufacturer to customer;  and air cargo/courier service is the preferred route to get high-value goods to their destination.  If it shows such a major slow-down, it's pretty certain that lower-value goods and mass-market materials are also in lower demand.  The high end is an indicator of the low end, to coin a phrase.

The CEO of FedEx went further in an interview with CNBC.

FedEx CEO Raj Subramaniam told CNBC’s Jim Cramer on Thursday that he believes a recession is impending for the global economy.

. . .

The chief executive, who assumed the position earlier this year, said that weakening global shipment volumes drove FedEx’s disappointing results. While the company anticipated demand to increase after factories shuttered in China due to Covid opened back up, it actually fell, he said.

“Week over week over week, that came down,” Subramaniam said.

The chief executive also said that the loss in volume is wide-reaching, and that the company has seen weekly declines since around its investor day in June.

“We’re seeing that volume decline in every segment around the world, and so you know, we’ve just started our second quarter,” he said. “The weekly numbers are not looking so good, so we just assume at this point that the economic conditions are not really good.”

“We are a reflection of everybody else’s business, especially the high-value economy in the world,” he later added.

Again, more at the link.

We've spoken a lot in these pages about economic hard times.  Well, this is a really big indicator that they're suddenly getting a lot worse.  FedEx gave its earnings guidance only a few months ago, and already it's publicly abandoned it.  That's a heck of a red flag to investors - and you can be sure FedEx wouldn't have done it unless it deemed it absolutely necessary.  It's very bad for the company's image, and will doubtless encourage competitors with excess capacity (read:  Amazon) to try to snaffle more of FedEx's business by discounting rates.  When there's blood in the water, sharks are attracted, after all:  and in the courier/transport water, FedEx is one of the more widely recognized and important names.  If it's hurting, it might become a takeover target.

I guess we've already said just about everything we can say about the economy.  This is merely confirmation of what we've seen coming for a long time.  Stock up on essentials, get rid of debt as far as possible, and batten down the hatches.  It's going to be a rough ride.

Peter