By Lisa Baertlein and Abhinav Parmar
LOS ANGELES (Reuters) -FedEx will report a quarterly profit hit from President Donald Trump’s decision to end tariff-exempt treatment for popular direct-to-consumer shipments when the global delivery firm reports results on Thursday, analysts said.
FedEx’s fiscal first quarter, which ended on August 31, captures the impact from the May 2 end of “de minimis” exemptions for packages from China and Hong Kong. They accounted for roughly three-quarters of the roughly 1.4 billion annual packages that had been admitted to the U.S. under the exemption that let shipments valued at less than $800 enter duty free.
The U.S. also removed de minimis exemptions for the rest of the world on August 29, with full financial effects yet to come.
“The key focus for investors is likely to be the end of the de minimis exemption globally and potential quantification of this, which could be a negative surprise,” Morgan Stanley analysts said in a recent note.
Analysts’ profit targets drifted lower ahead of Memphis-based FedEx’s quarterly report. Late on Tuesday, the average estimate called for a profit of $3.62 per share, above $3.60 per share a year earlier, according to data compiled by LSEG. Analysts do not expect FedEx to issue forecasts for the full year.
John Dietrich, the parcel delivery giant’s chief financial officer, said in August the company expected a roughly $170 million hit from U.S. tariffs, largely from goods from China, during the latest quarter.
That would represent about 0.8% of overall revenue during that period, Deutsche Bank analysts said.
“Extending the exemption’s elimination to the remaining 25% of such shipments is, understandably, not ideal,” Deutsche Bank analysts said.
FedEx rival United Parcel Service in July warned the end of de minimis treatment on purchases from China-linked e-retailers like Temu and Shein contributed to a 34.8% drop in average daily volume during May and June.
FedEx shares over the last year have traded between $194 and $308, reflecting the economic uncertainty from ever-changing U.S. tariff policies. Shares closed up 0.9% at nearly $228 on Tuesday.
FedEx and UPS handle de minimis differently, analysts at J.P. Morgan said. FedEx has focused on shipping parcels from China to the United States, largely by air. UPS is more exposed to e-commerce firms and handles bulk shipments of de minimis packages once they arrive in the country.
Air freight demand tumbled with the end of the U.S. de minimis exemptions. That is likely to continue through the end of the year – when holiday gift purchases typically flood the air freight industry with packages.
Goods purchases at the higher end of the former de minimis value threshold of $800 could hold up better since wealthy shoppers have continued spending. FedEx and UPS could pick up packages formerly shipped by global postal services, which are rushing to add robust tariff collection capabilities.
The loss of de minimis comes as the transportation industry battles stubbornly soft demand from manufacturers and other industrial customers that are a key driver of freight volume.
(Reporting by Lisa Baertlein in Los Angeles; Additional reporting by Abhinav Parmar in Bengaluru; Editing by Jamie Freed)
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