FedEx to Rely on Domestic Shipping Amid Tariffs

FedEx plans to focus more on domestic shipping and markets like Europe, as tariffs slow trade with China. In Q1, export volumes declined, particularly from China to the US. FedEx cut capacity in trans-Pacific outbound shipments by 25%.

FedEx Corporation, one of the world's leading package delivery companies, has announced significant adjustments to its operations in response to ongoing tariff pressures and a decline in trade volumes from China to the United States. In the first quarter of 2025, FedEx reported that tariffs have already impacted its bottom line by $150 million, with the company attributing reduced revenue to the end of the de minimis provision for Chinese imports FedEx Expects $1B Tariff Hit as China-to-US Demand Slumps, Domestic Growth Cushions Blow^[1].

The company's CEO, Raj Subramaniam, highlighted the impact of tariffs on the China-to-U.S. route, which generates roughly 2.5% of consolidated revenue at FedEx and is the company’s most profitable intercontinental trade lane. To mitigate the effects of these tariffs, FedEx has reduced its trans-Pacific Asia outbound capacity by 25% year over year and nearly 10% compared to the prior quarter FedEx Expects $1B Tariff Hit as China-to-US Demand Slumps, Domestic Growth Cushions Blow^[1].

In addition to these adjustments, FedEx is also shifting its focus to domestic shipping and markets like Europe. The company expects "low-to-moderate growth" in peak season average daily volumes over the year prior, with a high-single-digit increase in year-over-year total peak volume due to the holiday season having one extra day FedEx Expects $1B Tariff Hit as China-to-US Demand Slumps, Domestic Growth Cushions Blow^[1]. This strategic shift is aimed at diversifying revenue streams and reducing reliance on the China-to-U.S. trade lane.

FedEx's chief customer officer, Brie Carere, expressed cautious optimism about the peak holiday season growth, attributing potential increases in volume to large B2C retailers and brands FedEx Expects $1B Tariff Hit as China-to-US Demand Slumps, Domestic Growth Cushions Blow^[1]. The company is also ramping up its last-mile delivery partnership with Amazon, with the onboarding expected to be complete by the third quarter. This partnership is expected to be profitable and support U.S. domestic revenue growth.

The Memphis, Tenn.-based company has also made progress on its Network 2.0 delivery network consolidation efforts, remodelling 360 facilities and shutting down another 140. According to the CEO, FedEx exited the first quarter with 18% of its U.S. average daily volumes running through the Network 2.0 model FedEx Expects $1B Tariff Hit as China-to-US Demand Slumps, Domestic Growth Cushions Blow^[1].

FedEx's earnings report also included its annual guidance for the 2026 fiscal year, expecting a 4% to 6% revenue growth rate year over year, alongside adjusted earnings from $17.20 to $19 per share FedEx Expects $1B Tariff Hit as China-to-US Demand Slumps, Domestic Growth Cushions Blow^[1]. The company confirmed that the FedEx Freight spinoff remains on track to be completed by July 2026.

The less-than-truckload (LTL) division of FedEx experienced weakness due to continued pressure on the industrial economy and excess capacity, with revenue declining 3% to $2.2 billion and operating income contracting to 18% to $360 million. Daily shipments declined 2% to 90 million, with revenue per shipment declining 1% FedEx Expects $1B Tariff Hit as China-to-US Demand Slumps, Domestic Growth Cushions Blow^[1].

FedEx expects to spend $600 million in spinning off FedEx Freight, primarily to enhance IT infrastructure and systems. Earlier this month, the company announced a 5.9% general rate increase effective January 5, 2026, across FedEx parcel and FedEx Freight LTL FedEx Expects $1B Tariff Hit as China-to-US Demand Slumps, Domestic Growth Cushions Blow^[1].

In summary, FedEx is adapting its operations to navigate the challenges posed by tariffs and declining trade volumes from China. By focusing on domestic shipping and markets like Europe, and through strategic partnerships and network consolidation efforts, the company aims to maintain growth and profitability.