FedEx Downgrades Long-Term E-Commerce Outlook Through 2026

The “big period” of consumer e-commerce growth “is now behind us,” conceded FedEx President-Chief Operating Officer Raj Subramaniam on an earnings call Thursday for fiscal Q3 ended Feb. 28. “We are not counting on huge consumer spend in our numbers,” he said.

FedEx is forecasting U.S. e-commerce growth in the mid- to high-single digits for each of the next three to four years, said Chief Marketing and Communications Officer Brie Carere. FedEx is “confident,” even amid the modest e-commerce growth projections, “that we are able to generate positive returns going forward,” said Subramaniam.

Several “macroeconomic forces,” including the war in Ukraine, uncertainty about the pandemic, a tight labor market, supply chain disruptions, high energy prices and inflationary pressures “have dampened the current GDP outlook globally,” and for the U.S., said Carere. The change in economic outlook has only partially reduced “our confidence that e-commerce will continue to drive strong parcel market growth,” she said.

“We have modified our long-term outlook” on consumer e-commerce spending, said Carere. FedEx is now projecting consumer e-commerce revenue will rise by an 8.3% compound annual growth rate through calendar 2026, she said. “Over the last couple of years, we had actually projected above 10%,” she said, so “we think consumer demand will be down.” FedEx still thinks “we can continue to take market share and have some profitable growth, despite sort of a softer economic outlook,” she said.

FedEx estimates it took a $350 million revenue hit in fiscal Q3 ended Feb. 28 from January’s rapid spread of COVID-19's omicron variant, said Subramaniam. Omicron drove daily flight crew absentee rates to higher than 15% in January, disrupting air freight operations, and omicron-driven staff shortages among FedEx customers “reduced demand for our services,” he said.

FedEx successfully handled increased e-commerce volume during the peak holiday season, setting “a new precedent for peak seasons moving forward,” said Subramaniam. “Our ability to handle the influx of packages was years in the making,” resulting in the most profitable December in FedEx history, he said.

The company experienced substantial improvement in “labor availability post-peak” compared with fiscal Q1 ended Aug. 31, said Subramaniam. He reported in September that FedEx Ground was forced to reroute more than 600,000 packages a day because some of its hubs had only 65% of the staffing required to handle their normal volume (see 2109220023).

The “stabilization in the labor environment” means FedEx “successfully unwound network adjustments that were necessary to provide service,” but brought with them “cost inefficiencies,” said Subramaniam. “Staffing levels and the rapid acceleration in labor costs have stabilized and our network is operating at normal levels.”