As If China Weren’t a Big Enough Headache, FedEx Picks a Fight With the US Government

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Package shipper FedEx Corp. (NYSE: FDX) on Monday filed a lawsuit in U.S. District Court seeking an injunction against the U.S. Department of Commerce related to the department’s requirement that FedEx enforce the prohibitions included in the Export Administration Regulations.

The company said it “believes that the [regulations] violate common carriers’ rights to due process under the Fifth Amendment of the U.S. Constitution as they unreasonably hold common carriers strictly liable for shipments that may violate the [regulations] without requiring evidence that the carriers had knowledge of any violations.”

The export regulations likely have played a role in recent disputes with China for FedEx’s failure to deliver packages from Huawei, the Chinese firm currently banned from doing business in the United States. In early June, FedEx was charged with failing to deliver express packages to certain Chinese addresses, and on Sunday FedEx returned a package containing a Huawei smartphone shipped from London to the United States.

The second incident led to calls from “Chinese netizens” for FedEx to be blacklisted in the Chinese market, according to China’s state-run Global Times. If that were to happen, FedEx would feel some real pain. Just the threat of a blacklisting in China sent the company’s shares down about 2.7% on Monday.

In its lawsuit against the Commerce Department, FedEx said it complies with U.S. export controls by screening the names and addresses of shippers and designated recipients to determine if either party is on the department’s “Entity List [of] persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States.”

FedEx noted in its filing that the Commerce Department’s regulations requiring common carriers to ensure that packages containing any items subject to the department’s prohibitions are not exported to places requiring an export license. FedEx said this requirement is “virtually impossible for common carriers to comply with.”

The company goes one step further: “[T]he [regulations] 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 regulations leave FedEx with two options, it claims: “[C]ontinue to operate under threat of imminent enforcement actions, or cease operations that may conceivably lead to enforcement and face possible legal consequences from customers and foreign governments.” In other words, the Commerce Department is putting FedEx between the proverbial rock and a hard place in violation of the due process clause of the Fifth Amendment to the U.S. Constitution.

FedEx seeks a permanent injunction prohibiting the Commerce Department from enforcing the regulations, a declaration that the regulations are “unlawful as applied” to the company, costs and expenses including legal fees, and other relief “as is just and proper.”

The company’s stock traded down about 1% early Tuesday, at $159.45 in a 52-week range of $150.68 to $259.25. The consensus price target on the stock is $205.21.

After markets close Tuesday, FedEx is scheduled to report its fiscal fourth-quarter results. The consensus forecast calls for $4.93 per share in earnings and $17.88 billion in revenue, compared with a profit of $5.91 per share and revenue of $17.31 billion last year.

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