FedEx drops as China opens probe amid escalating spat with US

China said on Saturday it is investigating logistics firm for alleged “wrongful” deliveries

Fedex is under investigation by the Chinese government for alleged "wrongful deliveries", China said on Saturday. AP photo

FedEx shares dropped as investors assessed the impact of a Chinese probe that puts the delivery company in the middle of an escalating trade conflict with the US.

China said on Saturday that it is investigating FedEx for “wrongful” deliveries, a move framed by the state news agency as a warning by Beijing after the Trump administration declared a ban on business with telecommunications giant Huawei Technologies Co.

“It is reasonable to anticipate pressure on FDX’s business with a portion of its China outbound customers which adds to the current backdrop of weak international airfreight activity,” UBS Group analyst Thomas Wadewitz said in a note to clients. He cut his price target to $136, the lowest on Wall Street.

FedEx traded as low as $148.45 ahead of regular trading in New York, 3.8 per cent below the close on May 31. The shares last closed below that level in June 2016.

Additional companies are at risk of getting caught up in the escalating spat. China said it was drawing up a list of “unreliable entities” that harm the interests of local companies. That opens the door to targeting a broad swath of the global tech industry, from US giants like Alphabet’s Google, Qualcomm and Intel to non-American suppliers that have cut off Huawei, such as Toshiba and SoftBank Group’s ARM Holdings.

A Chinese official said on Sunday that the government is firmly against the US’s “long-arm” jurisdiction on Huawei, while downplaying concerns that the planned list of unreliable entities will be used to target foreign companies as a retaliation tool in the trade war.

The Memphis Tennessee-based courier, which had already felt the impact of China’s slowing economy due to trade tensions, apologised for errors involving Huawei packages following reports that parcels were returned to senders. China’s biggest tech company said it is reviewing its relationship with the US delivery service. Two packages containing documents being shipped to Huawei in China from Japan were diverted to the US without authorisation, Reuters reported.

China opened a probe because FedEx violated Chinese laws and regulations and harmed customers by misdirecting packages, China’s Xinhua news agency said. Vice-commerce minister Wang Shouwen said on Sunday that “there are no grounds to blame China” for starting the investigation into FedEx. China Central Television said in a commentary the probe will be a warning to other foreign companies and individuals “that violate Chinese laws and regulations”.

FedEx said it values its business in China and its relationship with Chinese clients, including Huawei. “FedEx will fully cooperate with any regulatory investigation,” the company said in a statement on Saturday.

With markets roiled by the threats and rhetoric on trade, the S&P 500 had its worst month of May in seven years. Investors are now looking to a meeting between Trump and Chinese President Xi Jinping at the end of the month at the Group of 20 Summit in Osaka for a possible rapprochement and easing of trade tensions.