A lot is happening to FedEx at present. The express market is becoming more intensive as Amazon attempts to move to ‘one-day delivery’ and supposedly, of delivery by drone.
However, becoming caught up in the deteriorating relationship between China and the US may be its most significant long-term problem.
On June 1, the official Chinese news agency, Xinhua reported that “China’s relevant government department has decided to file a case for investigation of FedEx on suspicion of undermining the legitimate rights and interests of Chinese clients”. It continued that “the U.S. company has recently failed to deliver express packages to designated addresses in China, seriously damaging the lawful rights and interests of its clients and violating laws and regulations governing the express industry in China.” The packages concerned belonged to Huawei, the controversial Chinese technology company.
These allegations appear to have some substance. Reports in the media state that FedEx acknowledges that four packages of documents found their way to the hub at Memphis rather than being delivered to an unknown location in Asia.
FedEx has not been very forthcoming in public about the incident, issuing a statement to the effect that “FedEx values our business in China. Our relationship with Huawei Technologies Co. Ltd. and our relationships with all of our customers in China are important to us. FedEx holds itself to a very high standard of service. FedEx will fully cooperate with any regulatory investigation into how we serve our customers”.
However, it appears that what may have been a rather clumsy mistake has given the Chinese Government an opportunity to strike at an American company at a time of tension. It is not the first time that Western companies have been under pressure in China. Both car and pharmaceutical manufacturers have suffered from what appeared to be politically motivated attacks in the past. These issues generally faded over time.
Yet if the worst happens there could be serious implications for FedEx. Such an incident may provide an excuse for China to curb the operations of FedEx within China. FedEx opened a large hub in Guangzhou in 2009. However, like its competitors UPS and DHL, it has not been able to penetrate into the domestic express market in China. Although DHL has a strong capability in areas such as the Yangtze valley, the three western express companies are really focussed on international traffic in and out of China. The danger is that they may face constraints on how far their presence in this segment will be allowed to grow, with the Chinese State favouring the international expansion of China’s already large domestic express companies. This would not be wholly out of character for the Chinese approach to ‘industrial policy’.
FedEx must hope that it can extract itself from the centre of global politics quickly, otherwise it could face a significant deterioration in its strategic environment.
Source: Transport Intelligence, June 6, 2019
Author: Thomas Cullen