FedEx is planning to reduce its workforce by up to 2,000 back-office jobs in Europe, a move aimed at cutting costs amid declining freight demand. The Memphis-based logistics giant announced this downsizing effort as part of its ongoing strategy to streamline operations and improve profitability.
Cost-Cutting Measures
The job cuts, which will be spread over the next 18 months, are expected to incur pre-tax costs ranging from $250 million to $375 million, primarily related to legal fees and severance benefits. Despite these initial costs, the downsizing is projected to save FedEx between $125 million and $175 million annually starting from fiscal 2027.
"Alongside the work we've done to optimize our networks, we're taking necessary actions to streamline many of our functions to reduce structural costs," the company said in a statement.
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Economic Context
The move comes as FedEx, along with other delivery companies like United Parcel Service (UPS), faces a slump in freight demand following a pandemic-induced boom. During the early days of the pandemic, home-bound consumers significantly increased their online shopping, driving up demand for delivery services. However, as travel and dining resumed, this trend reversed and was further exacerbated by rising inflation.
UPS has also been implementing cost reduction strategies, announcing plans to cut 12,000 jobs and reduce $1 billion in costs this year.
FedEx's Financial Strategy
In March, FedEx raised its profit forecast for fiscal 2024, attributing the improvement to its cost-cutting measures, which helped the company exceed market expectations for earnings per share. FedEx operates in more than 45 countries and territories in Europe and employs over 52,000 people globally. The company has outlined plans to cut $4 billion in costs by the end of 2025, with $1.8 billion in cuts projected for fiscal 2024 alone.
Freight companies have been grappling with reduced transport volumes as consumer spending shifts from goods to services and global shipping delays persist. The challenges are reflected in the performance of other industry players as well. For example, shares of U.S. trucking firms JB Hunt and Knight-Swift fell sharply in April after dismal quarterly results signaled a prolonged recovery for the freight industry.
FedEx's decision to cut up to 2,000 back-office jobs in Europe is a significant step in its broader strategy to reduce costs and navigate weak freight demand. While the initial costs are substantial, the anticipated long-term savings highlight the company's commitment to improving its financial health.
