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FedEx Has Dropped $25 Billion Market Value

FedEx Corp. has shed about $25 billion in market value over the past year as its stock plunged roughly 40%. However, the losses will not be over. FedEx’s stock is likely to slide even additional amid strong headwinds including the ongoing U.S.–China trade conflict, a slowing global and U.S. economy, and the current severing of ties with e-commerce giant Amazon.com Inc.

The most rapid information creating the gloomy outlook is FedEx’s recent decreasing of its annual profit forecast, citing various factors, based on the news story on the company’s challenges as detailed. The company is dealing with higher costs and lower revenues amid a struggling global economy negatively impacted by a trade war between the world’s two largest economies. Industrial production in China, a significant market for FedEx, grew at its slowest pace in 17 years in August. The U.S. economy is dealing with its own set of headwinds, forcing FedEx to take steps to reduce capacity.

The weakness in the global economy seems to be exacerbating FedEx’s cold turkey breakup of its relationship with Amazon. As of June, FedEx was only planning on severing the air-delivery portion of its business, FedEx Express, from its ties with the world’s largest online retailer. However, the delivery company let its contract expire with Amazon at the end of August and decided not to renew it.

While Amazon wasn’t the most profitable client and represented merely over 1% of gross revenue last year, analysts point out that the breakup means FedEx is missing out on a huge potential growth market: Amazon still spends more than $31 billion on shipping costs every year. That’s a giant client to lose. The ending of the contract doesn’t mean FedEx won’t deliver for Amazon ever again; however, it does highlight the fact that Amazon is being perceived much less and less like just another customer and more and more as a formidable rival.

In just the past two years, Amazon has expanded the number of its delivery facilities in the U.S. from 258 to 426, based on consulting firm MWPVL, as reported by the Journal. A lot of its facilities have been strategically built near city centers to be as close to customers as potential. That allows Amazon the ability to cater to the demand of online consumers for ever-faster delivery times.