Global Trade: FedEx (NYSE:FDX) Slashes Profits; US and China File Cases Against Each Other With WTO

By Alex Brokaw  SEP 20, 2012 4:35 PM

Plus, reported trade statistics from across the globe, and more.

 


FedEx Earnings Dip Signals Weaker Global Trade

On Tuesday, FedEx (NYSE:FDX) -- the world’s second largest package delivery company behind United Parcel Service (NYSE:UPS) -- slashed its profit outlook for the current quarter.  

From FedEx CEO Frederick Smith:

As we announced on September 4, weakness in the global economy constrained revenue growth at FedEx Express during our first quarter earnings...Meanwhile, our FedEx Ground and FedEx freight segments performed well, with both improving their year-over-year operating margins. We are taking further actions to reduce costs and adjust our networks to match current and anticipated shipment volumes.

Net income fell 1% year-over-year, and the Memphis, Tennessee-based company projects its earning will fall between $1.30 and $1.45 per share in the second quarter, and $6.20 to $6.60 per share for fiscal 2013.

The company previously expected earnings from $1.45 to $1.60 per share, while analysts originally expected earnings to be $1.56 per share, according to Thomson Reuters I/B/E/S. Full year guidance was down from $6.90-$7.40 projected in June.

The hit to FedEx’s international air freight business, which accounts for more than 60% of the company’s revenue, is being acknowledged as an indicator of a larger global economic slowdown. FedEx gets a lot of attention from more than just FedEx investors, namely, as a bellwether for economic activity, as Business Insider points out. Joe Weisenthal, writing for the site, highlights some interesting comments made by Fred Smith on this week’s company call. A few include:

On global trade output...

...fundamentally, what’s happening is that exports around the world have contracted, and the policy choices in Europe and the United States and China are having an effect on global trade...what’s really going on, is that exports and trade have gone down at a faster rate than GDP has.

On the shift from air freight to ship freight...

...as the Fed puts more money out there, people put more money into commodities and drive the price up. So you have products that are getting lower in value per pound, which is the key correlation for goods being moved by air. And so they’re going on the water to an improved container liner system that’s been developed over the last few few years.

On China...

I can tell you this on China. The locomotive that has driven China’s growth is its export industry. And with the situation in Europe and, to a lesser degree, in North America, that is a significant issue for the Chinese economy...I’ve been somewhat amused watching some of the China observers, I think, completely underestimate the effects of the slower exports on the overall China economy.

US, China File Trade Cases Against Each Other With WTO

Trade tensions between the world’s first and second largest economies have strained as the United States has accused China of illegally subsidizing auto exports, and China has challenged the anti-dumping duties amounting to $7.2 billion of Chinese goods put in place by the United States. The Obama administration authorized the US to file a complaint  -- its ninth against China -- with the WTO this Monday.

However, on Monday as well, China beat the US to the punch, officially submitting their complaint against US tariffs on over 30 different types of Chinese-made goods, which include steel, paper, and kitchen appliances.

As NBC News’ The Bottom Line points out:

China and the US began squabbling over trade – and backing up the dispute with tit-for-tat sanctions – earlier this year.  But the debate has been heating up for a number of years, especially over concerns about China’s lackadaisical attitude towards American intellectual property.

In regards to intellectual property, this summer, Ford (NYSE:F) successfully blocked China’s JAC 4R3 pickup truck, a near-identical clone of Ford’s iconic F-150, from rolling off production lines. Speaking with Autoline, a dedicated source for auto industry and product news, Ford’s CEO of Global Technology and Intellectual Property Chief Bill Coughlin said that because patents are country specific, Ford has had to build a large “portfolio” of patents in China.

Recently, China has been revving up its auto exports to the US, as domestic auto sales in China have slumped. The dependence on global sales for one of China’s most crucial industries is higher than ever.

In related news, Japan and China’s row over over the sovereignty of islands in the East China Sea has taken a toll on Japanese automakers Toyota (NYSE:TM), Honda (NYSE:HMC), and Nissan (PINK:NSANY), who have been forced to shut down plants and suspend production in China due to protests.

(See also: For Japanese Automakers, China Dispute Might Be Worse Than Tsunami.) Reported Trade Numbers From Across the Globe

In the second quarter, the United States’ current account trade deficit fell 12.1% to $117.4 billion, from $133.6 billion in the previous quarter, which had been the biggest US trade deficit in the past three years. Deficit in goods narrowed to $185.5 billion from $194.3 billion in the first quarter. Exports jumped 1.4% to $394.1 billion. Surplus in services rose 1.3% to $46.5 billion. Imports shrunk by dropped 0.5%, thanks in part to lower petroleum imports.

The current account is the broadest available measure of trade, accounting not only for the sale of merchandise and services between nations, but for investment flows as well. (Read more US trade statistics from the US Department of Commerce here.)

Meanwhile, disappointing export data was released for Pakistan and India over the past week.

According to WTO statistics, Pakistan has fallen behind as its share of total global trade has dropped from .20% in 1990 to .18% in 2011. Pakistan’s $25.3 billion in exports in 2011 was overshadowed by its $44 billion in imports. As pointed out by Pakistan’s The New International, many people in Pakistan believe that the government’s textile centric policies have hindered Pakistan’s overall economy.

In India, whose global market share has tripled since 1995, exports were reportedly down 9.7% for August, at $22.3 billion versus $24.7 billion from the same month last year. Imports in India declined as well, over 5%, which drove India’s trade deficit up to $15.7 billion from $15.3 billion last year.

This is the fourth month in a row that India’s exports have declined. However, exports have recovered from a steep 15% dive in July. India's Commerce Secretary has attributed the recovery to government backed incentives.

The only positive trade data this week comes out of Europe:The European Union’s statistics agency Eurostat has released July data boasting a $20.5 billion trade surplus, nearly $7 billion greater than the EU’s trade surplus in June. However, the rise in trade surplus can be credited in-part to a drop in imports. Imports were $189.5 billion in July, down from $191.5 billion in June.    

Italy reported its global trade balance improved to $5.8 billion in July. More Global Trade News From the Past Week
Two Links Worth a Click

Is Unilateral Free Trade a Good Thing? - Forbes

Global Carbon Trading System Has 'Essentially Collapsed’ - Climate Central


Twitter: @brokawbrokaw
No positions in stocks mentioned.

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