Federal Express 2009 Annual Report Download - page 38

FEDEX CORPORATION
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general public for high standards of social and environmental
responsibility and corporate governance and ethics. The FedEx
brand name and our corporate reputation are powerful sales
and marketing tools, and we devote signifi cant resources to pro-
moting and protecting them. Adverse publicity (whether or not
justifi ed) relating to activities by our employees, contractors or
agents could tarnish our reputation and reduce the value of our
brand. Damage to our reputation and loss of brand equity could
reduce demand for our services and thus have an adverse effect
on our fi nancial condition, liquidity and results of operations, as
well as require additional resources to rebuild our reputation and
restore the value of our brand.
Labor organizations attempt to organize groups of our employees
from time to time, and potential changes in labor laws could make
it easier for them to do so. If we are unable to continue to maintain
good relationships with our employees and prevent labor organi-
zations from organizing groups of our employees, our operating
costs could signifi cantly increase and our operational fl exibil-
ity could be signifi cantly reduced. Despite continual organizing
attempts by labor unions, besides the pilots of FedEx Express,
all of our U.S. employees have thus far chosen not to unionize.
The U.S. Congress is considering adopting changes in labor laws,
however, that would make it easier for unions to organize small
units of our employees. For example, in May 2009, the U.S. House
of Representatives passed the FAA Reauthorization Act, which
includes a provision that would remove most FedEx Express
employees from the purview of the Railway Labor Act of 1926,
as amended (the “ RLA”). Should the House version of the FAA
Reauthorization Act (or a similar bill removing FedEx Express from
RLA jurisdiction) be passed by the entire Congress and signed
into law by the President, it could expose our customers to the
type of service disruptions that the RLA was designed to prevent
— local work stoppages in key areas that interrupt the timely fl ow
of shipments of time-sensitive, high-value goods throughout our
global network. Such disruptions could threaten our ability to pro-
vide competitively priced shipping options and ready access to
global markets. There is also the possibility that the U.S. Congress
could pass other labor legislation, such as the currently proposed
Employee Free Choice Act (the “ EFCA” ) (also called “card-check
legislation”), that could adversely affect our companies, such
as FedEx Ground and FedEx Freight, whose employees are gov-
erned by the National Labor Relations Act of 1935, as amended
(the “ NLRA” ). The EFCA would amend the NLRA to substantially
liberalize the procedures for union organization — for example,
by eliminating employees’ absolute right to a secret ballot vote
in union elections. The EFCA could also require imposition of an
arbitrated initial contract that could include pay, benefi t and work
rules that could adversely impact employers.
We rely heavily on technology to operate our transportation
and business networks, and any disruption to our technology
infrastructure or the Internet could harm our operations and our
reputation among customers. Our ability to attract and retain
customers and to compete effectively depends in part upon the
sophistication and reliability of our technology network, includ-
ing our ability to provide features of service that are important to
our customers. Any disruption to the Internet or our technology
infrastructure, including those impacting our computer systems
and Web site, could adversely impact our customer service and
our volumes and revenues and result in increased costs. While
we have invested and continue to invest in technology security
initiatives and disaster recovery plans, these measures cannot
fully insulate us from technology disruptions and the resulting
adverse effect on our operations and fi nancial results.
Our transportation businesses may be impacted by the price and
availability of fuel. We must purchase large quantities of fuel to
operate our aircraft and vehicles, and the price and availability
of fuel can be unpredictable and beyond our control. To date, we
have been mostly successful in mitigating the expense impact
of higher fuel costs through our indexed fuel surcharges, as the
amount of the surcharges is closely linked to the market prices for
fuel. If we are unable to maintain or increase our fuel surcharges
because of competitive pricing pressures or some other reason,
fuel costs could adversely impact our operating results. Even if
we are able to offset the cost of fuel with our surcharges, high
fuel surcharges could move our customers, especially in the U.S.
domestic market, away from our higher-yielding express services
to our lower-yielding ground services or even reduce customer
demand for our services altogether. These effects were evident
in the fi rst quarter of 2009, as fuel prices reached all-time highs.
In addition, disruptions in the supply of fuel could have a negative
impact on our ability to operate our transportation networks.
Our businesses are capital intensive, and we must make capi-
tal expenditures based upon projected volume levels. We make
signifi cant investments in aircraft, vehicles, technology, package
handling facilities, sort equipment, copy equipment and other
assets to support our transportation and business networks. We
also make signifi cant investments to rebrand, integrate and grow
the companies that we acquire. The amount and timing of capital
investments depend on various factors, including our anticipated
volume growth. For example, we must make commitments to
purchase or modify aircraft years before the aircraft are actually
needed. We must predict volume levels and fl eet requirements
and make commitments for aircraft based on those projections.
Missing our projections could result in too much or too little capac-
ity relative to our shipping volumes. Overcapacity could lead to
asset dispositions or write-downs and undercapacity could nega-
tively impact service levels. For example, recent and current weak
economic conditions and the delivery of newer, more fuel-effi cient
aircraft have led to excess aircraft capacity at FedEx Express.
As a result, during the fourth quarter of 2009, we decided to per-
manently remove 14 aircraft and certain excess aircraft engines
from service and thus recorded a charge of $191 million. A limited
number of other aircraft remain temporarily grounded because
of network overcapacity, and any future decisions to further alter
our networks by eliminating additional aircraft or other assets may
lead to additional asset impairment charges.
We face intense competition, especially during the current global
recession. The transportation and business services markets are
both highly competitive and sensitive to price and service, espe-
cially in periods of little or no macro-economic growth. Some of
our competitors have more fi nancial resources than we do, or
they are controlled or subsidized by foreign governments, which
enables them to raise capital more easily. We believe we compete
effectively with these companies — for example, by providing
more reliable service at compensatory prices. However, our com-
petitors determine the charges for their services, and the current
global recession has led to a very competitive pricing environ-
ment within our industries. If the pricing environment becomes