A “small number” of employees at FedEx Freight, the company’s less-than-truckload (LTL) division, are being furloughed.
FedEx confirmed reports that the furloughs will be “to align our workforce with current operational and business needs.” In its statement, FedEx said the furloughs are “a temporary action that affects a very small percentage of our overall workforce, and we will continue to evaluate the environment and bring back furloughed employees as business circumstances allow.”
In its 10-K filing with the Securities and Exchange Commission for the fiscal year that ended in May 2019, FedEx said FedEx Freight had approximately 49,000 employees.
In its statement, FedEx said the furloughed employees would continue to receive health benefits for four months but would still be eligible for expanded state and federal unemployment benefits provided for in the CARES Act.
In the quarter ended February 29 – the third quarter of its fiscal year – FedEx Freight reported revenue of $1.738 billion, down from $1.75 billion in the third quarter of the prior fiscal year. In the quarterly earnings call, Brie Carere, the company’s executive vice president and chief marketing officer, said FedEx Freight and the LTL industry in general “have experienced a reduction in volumes over the past year due to the slowing economy. Despite pressure on volume growth, the team has done an amazing job driving revenue quality.”
LTL carriers often give market status updates one or two months into a quarter. For example, in early March, Old Dominion Freight Lines reported that its February revenue per day was down 1% from the prior year while LTL tons per day were down 5.2%. But that means little in the current environment that FedEx Freight was facing; February was before the full brunt of COVID-19 kicked in, and the first quarter of FedEx Freight’s current fiscal year is March, not February.
In the morning report from the transportation team at Deutsche Bank, the team led by Amit Mehrotra said of the FedEx furloughs that they “speak to the likely significant reduction in LTL-rated freight on the back of weaker industrial end markets.”
The report added, “Key for the LTL sector is for it to keep its long-held pricing discipline, which will be tested in the coming months in light of likely unprecedented volume declines.”
In an 8-K filing April 3 with the SEC, when the company announced a huge cut to founder and CEO Fred Smith’s salary, FedEx did not mention FedEx Freight specifically. It summed up the market scenario it was facing by noting “The COVID-19 pandemic and the efforts to contain it have negatively impacted the global economy, disrupted manufacturing operations and global supply chains and created significant volatility and disruption of financial markets.”