FedEx CEO warned of global recession year ago. Here’s what he sees now

In September 2022, amid weak results that punished its stock, FedEx Raj Subramaniam warned that a “worldwide recession” was in the cards. That hasn’t happened, but the FedEx CEO isn’t exactly backtracking, and says several of the underlying reasons for his pessimistic call remain in place.

“We felt that the industrial economy around the world and global trade were in a slowing environment and that continues to be correct,” Subramaniam told CNBC’s Frank Holland at the CNBC Global Evolve virtual summit on Thursday.

That’s one of three trends he cited in the Evolve interview. Second, consumers were spending more on services than goods after the pandemic boom and that changed the business outlook for shippers, though he said the big shift to services spending is now beginning to normalize and returning to “pre-pandemic” 2019 levels.

Finally, there was an “e-commerce reset” versus the level of online orders pre-pandemic, which also has now begun to normalize.

“Those are three things negative to our industry and that’s what I said,” Subramaniam told CNBC’s Holland.

He also cited the inventory destocking that was taking place among big retailers as the goods boom ended and companies like Walmart and Target had forecast demand wrong. Now, he says, the destock period is over, but retailers have not begun restocking yet.

Target CEO Brian Cornell said in an Evolve interview to air later on Thursday that consumers are pulling back, even on groceries.

The FedEx CEO stressed that he made his call “early” so the company could get “significantly more efficient” and come out of a slowing global economy in better shape. In the past year, despite a volume decline, FedEx operating profits are up, the first time that has occurred during a demand downturn in the company’s history, he said.

FedEx shares have outperformed the market and its chief competitor UPS, which is down nearly 20% this year.

U.S. GDP and Chinese GDP have outperformed expectations, but the FedEx CEO remains cautious.

“The global trade environment is soft and we are waiting for some kind of inventory restocking to take place and we will see how that goes in the next few months,” he said.

Other logistics CEOs are worried about the outlook for both demand and freight business models which have been under extreme stress. There has been a clear recession is in the freight market itself, with shipping container rates plummeting this year amid weak demand and firms that have gone under, such as Convoy, citing the “massive freight recession.”

Uber Freight’s CEO told CNBC on Thursday that there is a “new tipping point” in the market related to the risk of more fuel price shocks in a market where profitability is already challenged for many smaller companies.

At the halfway mark of earnings this week, the number of warnings from C-suite executives across the economy about “weak demand” from within the S&P 500 and the Stoxx Europe 600 universes of companies are on pace for the most ever recorded, according to data compiled by Bloomberg going back to 2000.

Subramaniam avoided directly making another recession call.

“I will leave it to economists to figure out the economy,” he said. “But what we are seeing is the industrial economy is relatively slow in many parts of the world and the consumer spending, while it’s high on services and now starting to reset, hopefully comes back in a positive way in 2024.”

“The short-term is hard to predict the next quarter or quarter after that,” he said, adding that from the turn of the century to now FedEx has grown at a 6% compound annual growth rate — and before the pandemic at a 6% equilibrium growth rate. “We will get to that, but any particular quarter I can’t tell you.”

Sign up to watch all of CNBC’s Evolve Global Summit exclusively on-demand. Hear how CEOs from Target, FedEx, Kraft Heinz, FanDuel and more are adapting, innovating and transforming in this new era of business. Access now.