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U.S. delivery firm FedEx Corp posted a 7 per cent drop in quarterly profit and cut its full-year forecast on Tuesday, after labour shortages crimped earnings and shipping speeds ahead of the all-important holiday peak season.

Shares in the Memphis, Tennessee-based company fell 4.5 per cent to $240.75 in extended trading after FedEx said staffing problems resulted in a $450-million year-over-year increase in costs due to higher wage rates and overtime, increased spending on third-party transportation services and shipping hiccups.

“The impact of constrained labour markets remains the biggest issue facing our business” and was a key driver for the first quarter underperformance, FedEx Chief Operating Officer Raj Subramaniam said on a conference call with analysts.

Most of the excess labour expense hit the company’s Ground network, which now is rerouting 600,000 packages per day to work around woes stemming from the labour shortfall, executives said.

As an example, Subramaniam said its hub in Portland, Oregon, is just 65 per cent staffed. That requires FedEx to pay higher wages and send packages to other hubs – adding time, package miles and spending on outside help.

“We anticipate the cost pressures from network inefficiencies, such as the one I just illustrated, to persist through peak,” Subramaniam said. “Overcoming staffing and retention challenges is our utmost priority.”

FedEx company said adjusted net income fell to $1.19-billion, or $4.37 per share, for the fiscal first quarter ended Aug. 31, from $1.28-billion, or $4.87 per share, a year earlier.

Revenue increased 14 per cent to $22-billion.

On the heels of the report, FedEx lowered its full-year forecast for earnings, excluding items, to $19.75 to $21.00 per share. FedEx previously forecast 2022 earnings per share, excluding items, of $20.50 to $21.50.

FedEx and competitor United Parcel Service Inc are sprinting to hire holiday workers as the resurgence of Delta variant-driven COVID-19 infections threatens to increase e-commerce delivery demand during the holiday season, when package volume can easily double.

FedEx aims to hire 90,000 workers to handle the year-end holiday shipping spike. It hired 70,000 last year and 55,000 in 2019.

Up-and-coming rival Inc is touting average pay of $18 per hour as it races to expand its own delivery network. Amazon’s non-union delivery contractors compete with FedEx and its delivery partners for workers.

Shares in UPS shed 2.5 per cent after the FedEx report.

At the market close on Tuesday, shares in FedEx were down 10 per cent over the past six months, underperforming UPS shares’ gain of 19 per cent.

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