FedEx (NYSE: FDX - News) said on Thursday that it would cut executive salaries and freeze hiring in 2009 as it expects economic conditions to worsen.

The base salary for Frederick Smith, chief executive of the US-based shipping company, will be slashed by 20 per cent, while other top executives will see pay cuts of between 7.5 per cent and 10 per cent.

FedEx will also cut pay for US salaried employees by 5 per cent, freeze hiring and suspend contributions to 401(k) employee retirement accounts for at least a year.

"Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," Mr Smith said.

In spite of falling oil prices, shipping volume has fallen off substantially during the recent economic downturn. FedEx said daily package volume in its express and ground businesses was down 2 per cent on the year. Express package volume in the US dropped by 8 per cent in the second quarter, worsening from a 5 per cent decline in the first quarter.

"We experienced continued softening in demand for our services," Alan Graf, FedEx's finance chief, said on a conference call, blaming declines in industrial production and consumer spending.

The Memphis-based group reported second-quarter earnings of $493m, or $1.58 a share, a 3 per cent increase from the same period a year ago. Revenue was up by 1 per cent to $9.54bn.

FedEx maintained its prediction from earlier this month that it would earn $3.50-$4.75 a share in fiscal 2009, down from a previous range of $4.75-$5.25. It will not offer earnings guidance for the third quarter due to "significant economic uncertainty."

The world's largest overnight delivery company said previously that it would reduce 2009 expenses by more than $1bn. FedEx said earlier this month that it would trim its 2009 capital spending budget to $2.5bn, down from $2.6bn in September and $3bn at the start of the fiscal year in June.

Express delivery companies such as FedEx and its arch-rival, United Parcel Service, have passed on the costs of higher fuel prices to their customers through surcharges. FedEx has said that it will increase rates on domestic express delivery, ground and freight shipments, starting in January.

Shares in FedEx were 19 cents higher at $64.16 in early Wall Street trading.