FedEx Corp. (FDX) is finding itself pulled into the middle of the Sino-American trade war following what the company said was an "inadvertent" misrouting of packages destined for Huawei Technologies.
Huawei told Reuters in an exclusive that FedEx diverted two packages from Japan and addressed to Huawei in China to the United States and tried to do the same with two more packages sent from Vietnam to Huawei offices elsewhere in Asia, all without Huawei's consent.
"The recent experiences where important commercial documents sent via FedEx were not delivered to their destination, and instead were either diverted to, or were requested to be diverted to, FedEx in the United States, undermines our confidence," a Huawei spokesman told the outlet.
FedEx shares were down less than 1% on the news in trading before Tuesday's opening bell after already falling nearly 6% in the last week.
Huawei recently was placed on the Bureau of Industry and Security's entity list, suggesting governmental interference in the relationship.
"The U.S. Government has determined that there is reasonable cause to believe that Huawei has been involved in activities contrary to the national security or foreign policy interests of the United States," a recent federal register stated. "BIS is also adding non-U.S. affiliates of Huawei to the Entity List because those affiliates pose a significant risk of involvement in activities contrary to the national security or foreign policy interests of the United States."
The Chinese telecom giant said it has lodged a formal complaint with China's postal regulator and is reviewing its relationship with the company amid such suspicion.
FedEx confirmed the error, but said the company was not directed by any outside entity to divert the packages.
"We regret that this isolated number of Huawei packages were inadvertently misrouted, and confirm that we were not requested by any external party to divert these packages which are in the process of being returned to the shippers," the company said in a post in Mandarin through its China-based social media account.
Nonetheless, the Chinese market has been a sore spot of late for FedEx.
"We have seen the overall China economy slow down further, and this has impacted other Asian economies," CEO Fred Smith told investors on March 19. "Given the size of China, no markets will be able to absorb more than a fraction of what China produces, but customers continue to look to diversify from China."
It is not easy to move supply chains and relationships that have been built up over the course of years in short order.
"In truth, there are only a handful of companies that have yet to see their bottom lines hurt by the tariffs, FedEx being one of them," Action Alerts PLUS portfolio manager Jim Cramer said the company's earnings call in March. "I believe that when word gets out about how serious the president is about NOT taking down the current tariffs, we are going to get another leg down."
Since the influx of hawkish tweets and actions from the Trump administration to kick off May brought this scenario to bear, FedEx shares have fallen precipitously, losing about 15% of their value in the past month.
