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VOL. 127 | NO. 157 | Monday, August 13, 2012

FedEx to Begin Voluntary Buyouts

By Bill Dries

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Memphis-based FedEx Corp. is preparing for a voluntary employee buyout that will likely target workers in the company’s Express and Service units.

A statement from the company Monday, Aug. 13, said the “vast majority” of those eligible will probably be “non-operational staff” employees of both divisions.

The precise eligibility guidelines were still being worked out Monday as well as the participation levels by different areas of the company.

The shipping giant is expected to talk more about the buyouts and related moves this fall, either during a September quarterly earnings call or an October investors conference – or both.

The Express buyouts were telegraphed by FedEx’s decision to permanently park 24 Express aircraft and replace them with newer and more efficient aircraft.

In a June earnings call where company leaders first used the term “cost reduction program,” FedEx chief financial officer Alan B. Graf Jr. said the decisions with the aircraft were a response to what he termed a “demand shift” by consumers.

FedEx founder and CEO Fred Smith said the shift away from airfreight has been apparent for some time.

“In a larger perspective over several years now, it’s very clear that the door-to-door Express segment is growing,” Smith said in June. “The movement of goods on the water is growing. And traditional airport to airport commodity air freight is not growing.”

That means changes at Express – the oldest of the FedEx divisions when it started in the early 1970s in Little Rock and then moved to Memphis. The changes there have meant benefits for one of the newest FedEx divisions, FedEx Trade Networks, which has handled a modal shift to the increasing movement of goods by water.

Express is still the company’s biggest segment by far. The speedy shipping division, which moves 3.5 million packages on an average day, has been hit hard as people shift to slower delivery methods to conserve cash. The unit is also being dragged down slowing Asian growth and a reduction in demand for Asian goods from the U.S. and Europe. The unit reported revenue of $26.5 billion in the latest fiscal year and has more than 146,000 employees worldwide — 102,000 of those in the U.S.

Services is FedEx’s behind-the-scenes logistics division, but it also includes FedEx Office, formerly Kinko’s. It was formed in 2000 and with annual revenue of $1.7 billion in 2012, is one of FedEx’s smallest units. It has 13,000 employees, all of whom are U.S. based.

Second-quarter results released in late July by larger rival United Parcel Service Inc. suggested that the global economic slowdown may be even worse than FedEx anticipated.

UPS lowered its forecast for all of 2012 and said its third-quarter earnings will fall below last year’s results, with many customers fearing what’s in store for the second half of the year. Their skittishness was also felt in the second quarter, where UPS missed analysts’ expectations for both earnings and revenue.

UPS also said it’s making cuts in its business to make up for the shortfall. It predicts global trade will grow even slower than the world’s economies – a trend not seen since the recession.

The Associated Press contributed to this story.

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