Fred Smith, the chief executive of FedEx, the logistics giant, has warned that global growth will not be enough to counter a US slowdown, raising doubts over corporate America’s ability to export its way out of a sluggish domestic economy.
The warning from Mr Smith, a respected business leader whose company is both a gauge and a beneficiary of globalisation, will deepen investor pessimism over the prospect that the world economy could “decouple” and survive a US downturn unscathed.
In an interview with the Financial Times in which he also indicated he would like his successor to come from within FedEx, Mr Smith dismissed suggestions that the rapid pace of economic development in emerging markets would offset a US slowdown.
“Growth elsewhere helps cushion the shock but nothing can displace a slowdown in the US,” he said. “I don’t care how optimistic people are about China or anything else, [the US] is still 25 per cent of the world’s economic activity so when it slows down it is going to have an effect.”
Three weeks ago, FedEx issued the second profit warning in a month, citing flagging demand for US freight and escalating fuel costs. The announcement confounded investors’ predictions that a weak dollar and resilient economies in the rest of the world could help multinationals buck a domestic downturn.
In the interview, which took place before the second profit warning, Mr Smith said that although the company’s international operations were expanding more rapidly than the domestic business, the US still accounted for most of its revenues.
Mr Smith said his long-held belief that a rise in oil prices usually led to global economic downturns was likely to be proved right this time too. However, he said, unlike previous oil shocks, which were caused by supply restrictions, this one required different responses because it had been triggered by demand in developing countries and widespread use of complex financial instruments.
Asked about succession, the 63-year-old Mr Smith said he was still nine years away from FedEx’s retirement age. But he added that under the company’s rules he was required to pick two potential replacements and have them reviewed by the board each year.
Mr Smith declined to name his choices but he is believed to have selected from among his top lieutenants – Alan Graf, chief financial officer; Mike Glenn, executive vice-president of market development; Robert Carter, chief information officer; and Christine Richards, general counsel.