FedEx paints a worrying picture of the job market

Read FedEx’s disappointing earnings report on Tuesday night and you get a feeling that the nonfarm wage reports for the remainder of 2021 may surprise economists on the downside.

The problem (a problem that could get worse, according to FedEx)? Finding humans to take jobs in a very tight labor market, even at higher rates than what the specific job would have paid for months ago.

“The impact of constrained labor markets remains the biggest issue facing our business as it is with many other businesses around the world and has been the main driver of our below expectations in the first quarter,” Raj told analysts. Subramaniam, COO of FedEx, on a earnings conference call.

FedEx (FDX) said its quarterly results were hit by $ 450 million due to labor shortages alone, especially in its ground segment. The company has estimated that a staggering 600,000 packages on the FedEx network are rerouted due to the inability to find manpower.

These processing bottlenecks are likely to wreak havoc during the holiday season if FedEx is unable to address the labor shortage, which looks increasingly unlikely.

To illustrate the point on its workforce issues, FedEx shared the current state of affairs at one of its facilities in Portland, Oregon.

A FedEx driver delivers a parcel cart Thursday, May 6, 2021, in New York City. FedEx suffers from the tightening labor market. The parcel delivery company said Tuesday, September 21, its costs increased by $ 450 million in the last quarter as it paid higher wages as it became more difficult to find new workers and demand shipping was increasing. (AP Photo / Mark Lennihan)

Subramaniam explained, “Our Portland Oregon hub operates with approximately 65% ​​of the staff needed to handle its normal volume. This staff shortage has a pronounced impact on operations, forcing our teams to divert 25% of the volume that should normally circulate. through this hub because it simply cannot be processed effectively to meet our service standards. And in this case, the diverted volume must be rerouted and processed, resulting in inefficiencies in our operations and in turn higher costs. These inefficiencies included the addition of additional transportation and delivery routes, which means more miles driven and greater use of third-party transportation to allow us to bypass Portland entirely. This is just one example. “

One example, which clearly preoccupies the street, risks turning into a litany of examples in the peak holiday season.

FedEx shares plunged 9% in Wednesday’s trading as investors digested the lackluster earnings day. Rival UPS also lost 2% sympathy as traders braced for a similar warning from the company on its upcoming earnings day.

Not only has FedEx sniffed at earnings estimates, it also slashed its earnings outlook for the full year. FedEx now posts annual earnings of $ 19.75 to $ 21 per share, down from $ 20.50 to $ 21.50. FedEx also warned it was seeing a slowdown in e-commerce demand as people return to shopping in physical stores.

“Although we were calibrated for higher ground expenses due to labor availability issues, the magnitude and associated volume impact was greater than expected,” said the KeyBanc analyst Todd Fowler, who maintained an overweight rating (equivalent to the buy rating) on ​​FedEx stocks.

The September jobs report will be released on October 8. If he disappoints, remember FedEx telegraphed him in mid-September.

Brian Sozzi is an editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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