A Massive US Company is Now Cutting 2,000 Jobs

June 21, 2024

A massive US company is now cutting 2,000 jobs abroad, part of a plan to lower costs as the giant combats a major decline in demand.

FedEx is planning to cut between 1,700 and 2,000 back-office jobs in Europe, in its latest push to cut costs as the parcel delivery giant combats a slump in freight demand.

The cuts will be spread over 18 months and would result in a pre-tax cost of $250 million to $375 million related to legal fees and severance benefits, FedEx said.

The downsizing will help save between $125 million and $175 million a year from fiscal 2027.

Faced with soft freight demand and slow margin growth in the air-based Express unit, its largest segment, the company has embarked on cost cuts to boost profit.

The Memphis-based firm had outlined plans to cut $4 billion in costs by the end of fiscal 2025, including $1.8 billion in fiscal 2024, as part of a plan to restructure delivery networks and tighten capacity.

“I think what it’s telling us is that a broad-based macro recovery remains elusive,” said Stewart Glickman, deputy research director at CFRA Research.

“Both Europe and U.S. are struggling to achieve volume growth and at the moment, cost cuts are the lever available to work with,” Glickman added.

FedEx, rival United Parcel Service (UPS) and other delivery companies saw a boom in demand during the early days of the pandemic when home-bound consumers shopped online.

But as travel and dining resumed that trend reversed and was also exacerbated by higher inflation, reports CNBC.

UPS has also implemented plans to reduce $1 billion in cost this year.

The company said in January that it would cut a total of 12,000 jobs and explore strategic options for its volatile truckload brokerage business Coyote amid weak demand and overcapacity in the trucking industry.

FedEx operates in more than 45 countries and territories in Europe and employs over 52,000 people, according to its website.

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Applications for unemployment benefits now surge to new highs, a sign that the white-hot labor market is starting to cool off.

First-time applications for unemployment benefits rose last week to 231,000, the highest level since August, per CNN.

Thursday’s data also showed that the number of continuing claims, or applications from people who have filed for unemployment for at least one week, was 1.78 million.

That’s an increase of 17,000 from the prior week, according to the Bureau of Labor Statistics.

The latest numbers come less than a week after the monthly jobs report showed the US economy added just 175,000 positions in April, less than economists expected and a steep drop-off from prior months.

US employers have now added an average of 245,500 jobs per month, versus 2023’s 251,000-per-month average.

Still, hiring remains strong. Although the unemployment rate ticked up to 3.9% last month, it’s the 27th consecutive month that the jobless rate has held under 4%, matching a streak last seen in the late 1960s.

Weekly jobless claims data tends to be volatile but, while one week’s worth of data “does not a trend make,” said Chris Rupkey, chief economist at Fwdbonds.

“We can no longer be sure that calm seas lie ahead for the US economy if today’s weekly jobless claims are any indication.”

“Company layoffs are picking up, hinting at caution on the part of companies as they weigh the outlook for the second half of the year,” he wrote in a note Thursday.

The Federal Reserve has been battling inflation by raising its key lending rate in the hopes of slowing the economy.

While the labor market has so far resisted those efforts, remaining white hot for the past 18 months despite 11 rate hikes from the central bank, Fed Chair Jerome Powell said last week that demand has “cooled from its extremely high level of a couple of years ago.”

Ian Shepherdson at Pantheon Economics said in a note Thursday: “We’d need to see at least a month of elevated readings to convince us that the trend really has turned.”

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