FedEx CEO Fred Smith told CNBC on Tuesday it will be a tough year for the company if U.S.-China trade and Brexit issues are not solved.
The shipping giant has made adjustments to mitigate the effects of tariffs and the U.K.’s withdrawal standoff, including integration of its international delivery company TNT Express and bolstering programs in Asia, but the firm is too levered to dodge world trade affairs, he said.
“If there’s not some solution to Brexit and some resolution of the China-U.S. trade dispute, it’s unlikely to see much global growth in our fiscal ’20 or the remainder of calendar 2019,” Smith told Jim Cramer on “Mad Money.”
Although companies and customers have made moves to migrate operations out of China to other nations in the region, such as Vietnam, Thailand, Indonesia and Malaysia, Smith said, he highlighted China’s “incredible infrastructure” and called it the “manufacturing bastion of the world.”
“It’s going to be a very, very big part of the world economy in terms of manufactured goods for years to come,” Smith said. “Any change is going to be on the margin, and that’s why China and the United States need to come to a deal, because it’s a good thing for both parties.”
On Wednesday, President Donald Trump floated the idea that tariffs on Chinese goods could remain for an undetermined amount of time to ensure that Beijing complies with the terms of a pending deal. In a string of moves, the U.S. has slapped duties on $250 billion worth of Chinese imports and China placed taxes on $110 billion worth of American goods.
Smith reiterated in the interview Tuesday that he does not agree with Trump’s use of tariffs to address trade relations between the world’s largest economies. FedEx handles 14.5 million shipments a day and there is a lot of pressure on China’s economy, he said.
“Having also made that point, let me say again that the terms of trade between China and the United States need to be changed,” he said. “They have to be changed, and in that regard he’s doing exactly the right thing.”
FedEx disappointed Wall Street in its quarterly report on Tuesday, delivering earnings and revenue misses in addition to a lower full-year guidance. Smith told Cramer domestic business was “pretty good” but international revenues were “not quite what we hoped.” That’s a signal of easing global growth.
FedEx is expecting $4.5 billion in increased revenues for the fiscal year ending May 31, a decrease from $6 billion, the chief said.
“But we are seeing some green sprouts in the international side, and we are optimistic as we go into FY2020,” Smith said.