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Reuters/Mike Blake
Not an overnight decision.
IMPOSSIBLE BURDEN

US trade restrictions have gone from being a headache to a migraine for FedEx

By Jane Li

Imagine you ship 15 million packages a day—and face heavy fines if you don’t weed out mail from a minuscule number of senders among them.

FedEx says that’s exactly its predicament from US export bans—such as the one placed on Chinese telecom giant Huawei last month. Earlier Google also raised concerns about adverse unintended consequences from being barred from licensing its Android OS to Huawei, but the US logistics giant has gone further: It sued the US government for violating its constitutional rights over having to unfairly “police the content of its packages in a manner it is not able to do.”

The suit draws attention to the day-to-day ways the blacklist is creating major headaches for firms with multinational operations.

The US in May barred American firms from doing any business with Huawei citing national security issues, with the US commerce department placing it on its “entity list,” effectively cutting the company off from large parts of its supply chain. China responded by saying it would draw up a list of “Unreliable Entities List,” consisting of foreign firms recently. Beijing has yet to announce any names for the list, but Chinese state-run newspaper Global Times said FedEx is a likely target.

The lawsuit follows the courier’s apology to Chinese telecommunications giant Huawei over diverting two of the Chinese company’s packages from Japan that were bound for its offices in China, but were instead redirected to the US. FedEx said the packages were “misrouted in error.” In a separate incident last week, the Tennessee-based courier rejected sending a Huawei P30 Pro phone from a PCMag writer in the UK to the tech news outlet’s offices in the US, citing “a US government issue.” FedEx later said the episode was “an operational error,” according to PCMag.

FedEx said in a statement Monday (June 24) that the US Export Administration Regulations (EAR), which govern the entity list, “essentially deputize FedEx to police the contents of the millions of packages it ships daily even though doing so is a virtually impossible task, logistically, economically, and in many cases, legally.” The company said under the EAR, it, and other couriers in a similar situation, are expected to conduct “considerably more screening than possible” to decide whether a package contains  “items,” a broad term encompassing commodities, software, and technology, subject to US export controls that require licenses in order to be sent to jurisdictions outside of the US.

The lawsuit doesn’t name Huawei (pdf), and FedEx’s chief has said the move isn’t about Huawei alone, citing the addition of five more companies last Friday (June 21) as the final straw.

“The increasing use of restrictions on exports and imports by the Commerce Department in various geopolitical and trade disputes creates just an impossible burden on FedEx and common carriers,” FedEx CEO Fred Smith said on Fox News. “Huawei is just emblematic of this problem.”

Package deliveries between the US and China represent about 2% of FedEx’s total sales, or about $1.3 billion, according to Bloomberg.

The commerce department said yesterday (June 25) of the suit that they “have not yet reviewed the complaint, but nevertheless look forward to defending Commerce’s role in protecting US national security.”

Many American companies with cross-border operations are increasingly caught between the rising trade tensions between China and the US. The world’s two largest economies have been engaged in a trade fight for nearly a year on issues such as tariffs, technology, regulations, and cyber security, among others. The US President Donald Trump and China’s Xi Jinping are scheduled to talk later this week at the G-20 summit in Japan.

Some other American companies that also count Chinese firms including Huawei as some of their most important clients, have also appeared to be pushing back the US Government’s tech ban.  Huawei spent some $11 billion, around one-seventh of its total expenditure on components in 2018, on buying products from American chip makers including Qualcomm and Intel, which have been lobbying the US commerce department to ease its ban on Huawei. Micron Technology, the largest computer memory chip maker in the US, said it resumed some shipments to Huawei recently.

Despite lobbying by US companies and the Chinese government, the ban remains in place and is already taking a toll. Ren Zhengfei, the founder and CEO of Huawei, said the company expects revenues drop by $30 billion over the next two years in the face of “so strong and so pervasive” attacks.