Photo: The Canadian Press. All rights reserved.

FedEx trucks dock at their Middletown, Pa., facility, Sept. 22, 2004. THE CANADIAN PRESS/AP, Carolyn Kaster

FedEx Corp. says the global economy is worsening and it's cutting its forecast for the fiscal year ending in May.

The world's second largest package delivery company also said Tuesday that net income for the current quarter ending in November should fall well below last year's quarter. The stock lost about 2 per cent in premarket trading.

The Memphis, Tenn. company now expects to earn between $6.20 and $6.60 per share for the full fiscal year, compared with a previous forecast of $6.90 to $7.40 per share.

FedEx is seeing a drop in demand for more expensive priority services. As the global economy has slowed, FedEx customers have switched to cheaper deferred delivery services. FedEx hasn't been able to cut costs fast enough to match the decline in demand.

This trend is most prominent in the Express unit, where FedEx has already made cuts but plans to make more. It's reducing flights, taking planes out of service, and last month it offered buyouts to employees. Operating income in that unit, which is about double the size of any other, fell 28 per cent in the first quarter.