Some companies report bad quarterly results and the market, as a whole, shrugs. But when FedEx stumbles, investors run for cover. On Wednesday, FedEx reporteda $241 million fourth-quarter loss and predicted even tougher times were ahead. As of 11 a.m. EDT, the Dow Jones industrial average had dropped 134 points.
FedEx is seen as a bellwether company, the idea being that when the U.S. economy slows, businesses start sending fewer packages. But the truth is a little more complex. The real problem, again, is high fuel prices. FedEx has the largest private fleet of planes in the world, and fuel costs rose 54 percent, to $1.39 billion, in the fourth quarter. FedEx recovers those costs by piling surcharges on its fees for various delivery options. In response, businesses are opting out of the more expensive choices, or not bothering to send their packages at all. Overall, domestic package volume in the U.S. fell 3 percent in the fourth quarter.
Suddenly, speed is not of the essence.
As discussed here before, the so-called core inflation rate that the Federal Reserve prefers to focus its attention on excludes food and energy prices, which are thought to be more volatile and thus less indicative of what's really happening to the general economy. But it's hard to see higher prices for delivering packages at FedEx as anything other than inflation -- and those higher costs are directly attributable to the rise in energy prices.
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