FedEx Corp. said Wednesday that it will cut the size of its global officer and director workforce by at least 10% and will consolidate certain teams and functions as it grapples with volume slowdowns and a cost structure that left it behind the curve in managing through the downturn.
In an internal memo to employees, CEO Raj Subramaniam said the move is “critical” to ensure that Memphis, Tennessee-based FedEx (NYSE: FDX) remains competitive in what has become a highly dynamic environment. Macroeconomic weakness in the U.S. and abroad has forced the company to examine “closely our leadership team and [the] functions that could be consolidated,” Subramaniam said.
The memo did not specify what teams or functions will be consolidated.
The move will not affect a large number of employees because FedEx only has about 100 global officers and directors, according to an industry source. The main issue, the source said, is that the cuts are affecting executives very high up within FedEx who never thought their jobs were at risk.
“It’s not the number. It’s the titles,” the source said.
The announcement is likely to have a ripple effect because underlings one or multiple steps below the affected executives may begin to wonder how their roles could change because they are no longer tethered to the executives being let go, the source said.
Wednesday’s announced cutbacks are part of a reduction of 12,000 jobs since the June 1 start of FedEx’s 2023 fiscal year, according to a company spokesperson. In September, FedEx reported subpar fiscal 2023 first-quarter earnings, which it blamed mostly on a sudden and dramatic drop-off in trans-Pacific volumes and an inability to cut costs fast enough at its FedEx Express air and international unit to align with the lower demand.
Indeed, many of the cuts since June have been focused at the FedEx Express unit, the source said.
Lack of clarity
Satish Jindel, the president of consultancy ShipMatrix, has been closely involved with FedEx for years and applauded the continued moves to streamline the company’s operations. However, the lack of clarity and specifics in the memo as to which operating units will be affected may cause concern among managers and other employees who are below the officer and director levels, he said.
Jindel said he is worried that an elevated level of uncertainty will have an impact on productivity on employees who have worked for those executives whose jobs are being eliminated.
Jindel, who has worked with FedEx for 25 years, said the cumulative cuts since June are unprecedented at the company. Jindel said he doesn’t recall any round of layoffs at FedEx that exceeded 2,000 employees.
In the first quarter, FedEx unveiled a program called DRIVE, with the objective to save $4 billion in annual costs by fiscal year 2025, which begins in June 2024. Most of those cost savings would be permanent, the company said.
On its fiscal second-quarter earnings call, FedEx said it had identified $1 billion in additional savings since September. Those savings were not related to the DRIVE program.
FedEx also cut its FY 2023 capital spending levels to $5.9 billion, a $400 million reduction from recent levels and $900 million below its original projections for the fiscal year.
Whatever turmoil is going on in Memphis, it appears to be sitting well on Wall Street. FedEx shares soared nearly 4.3% in Wednesday trading to close at $202.11 per share.