A Look Into FedEx
When you think of FedEx, you probably imagine a company that handles shipping and courier delivery services from almost every corner of the world. There is, however, more than meets the eye when it comes to this market leader.
FedEx has been in business for more than 45 years. This corporation boasts an annual revenue of $84 billion and operations in at least 220 countries.
As of January 2022, Value. Today ranked FedEx at 248 on the World Top 1,000 Companies list, and it stands at 115 among United States firms.
Don’t mistake this giant company for an overnight success. How did FedEx grow to become the multi-billion-dollar corporation that we know today? Stick around to find out.
History
Like every other business, FedEx started as an idea. But unlike every other business, the goal behind this corporation wasn’t profit. Instead, it was to pass an economics term paper.
The story of FedEx begins in 1965 when Frederick W. Smith, the founder, wrote a paper detailing his idea for an overnight delivery service.
Smith believed speed matters more than cost when it comes to shipments, and that couriers should strive to access smaller cities. His solution was to conduct deliveries from one hub and use private aircraft instead of relying on commercial airlines.
Smith probably had no clue that his term paper would turn into a reality. He was an undergraduate at Yale University, and all he wanted was to get a good grade.
Smith received an average grade on the term paper, and his idea remained just that until 1971 when he turned it into a business.
Frederick W. Smith founded FedEx in 1971 as Federal Express Corporation using his inheritance of $4 million and $91 million in venture capital funds.
The concept behind FedEx’s idea was so unique at the time that external funding was easy to obtain. He did, however, struggle to get the startup off the ground.
Like the idea on his term paper, Smith wanted a company that handles shipments from one hub and utilizes its aircraft rather than relying on commercial airlines, as most couriers did at the time.
By having its fleet of planes, FedEx could set its delivery schedule and not have to abide by commercial airline regulations.
The company could have more control over its courier services and ensure customers receive their packages quickly and timely.
Smith chose Little Rock National Airport in Kansas as the company’s first base of operations.
He later realized that this airport was not in a central location and thus moved operations to the Memphis Airport in 1973.
At the time, FedEx had only 389 employees and 14 small Dassault Falcon aircraft. At the time, the company handled deliveries in 25 cities.
Founders
FedEx has only one founder, Frederick W. Smith. Born in 1944, Smith launched FedEx when he was 27 years old. He had just returned from serving as a Marine pilot in Vietnam.
Smith served as the company’s CEO from its launch until March 2022, when he stepped down.
Smith currently serves as the executive chairman of the board of directors. He focuses on board governance, innovations, public policy, and sustainability issues.
Company Setbacks
FedEx faced a couple of setbacks throughout its growth phase. The first hurdle came in its first two years in business when Fred Smith chose Little Rock National Airport as the base of operations.
This airport was not the ideal location for deliveries, and the decision cost the company a lot of money. Fortunately, Smith didn’t take too long to figure this out and relocated FedEx’s operations to Memphis Airport in 1973.
Despite moving to Memphis Airport, FedEx still lost millions of dollars due to the rising fuel and air travel costs. It suffered a $29 million loss between 1973 and 1974 and another $11.5 million in 1975.
The situation was so bad that FedEx investors contemplated removing Smith as the CEO, but Arthur Bass, the company’s president, convinced them otherwise.
The ultimate solution was to improve delivery schedules and increase flight volumes, which FedEx did with the help of Arthur Bass.
This move allowed the company to increase shipping to 19,000 packages daily and make its first-ever profit worth $3.6 million in 1976.
FedEx suffered yet another setback when it launched ZapMail in 1984. At the time, courier Paks were the biggest profit generator in the company, amounting to 40% of total revenue.
Customers used courier Paks to ship envelopes, tubes, and boxes. Smith realized that 15% of the contents would, in the future, be transmitted using telephones and other technologies.
To stay ahead of the curve, FedEx developed and launched its electronic-mail system and named it ZapMail. The company invested $100 million on this project before abandoning it two years later.
ZapMail had a lot of technical problems. It also suffered line disturbances during transmissions, and customers considered it more expensive than fax machines. By 1986, FedEx had lost $340 million to ZapMail.
Company Successes
The first success that FedEx experienced was in 1977 when the government passed a bill to deregulate the airline industry.
From 1971 to 1976, FedEx and other commercial airlines were required to use numerous small Falcon jets when using fewer larger aircraft would have made more financial sense.
Deregulation enabled FedEx to increase volume and keep costs low by purchasing larger planes such as 727s and DC-10s.
This move was evident in the $8 million profit the company generated in 1977 alone.
FedEx went public in 1978, enabling the company to raise $258 million from its IPO.
This money allowed FedEx to expand its operations to more than 89 cities in the United States and put the company in direct competition with one of the big names in logistics, the U.S. Postal Service.
To increase market share, FedEx launched its overnight delivery service. This allowed customers to ship parcels and letters and have them arrive within 12 hours.
The success of overnight delivery gave FedEx the confidence to pursue international markets. While entrance into foreign markets was, by no means, without struggle, the company launched operations in at least 90 countries and tripled its profits by the 1990s.
Business Strategies
FedEx’s business strategy was its biggest advantage over its competitors in all those years.
The company’s focus on speed and timely deliveries made customers prefer it over rivals like Emery Airborne Freight and Purolator Courier, which still relied on commercial airlines to handle shipments.
In 1981, Emery attempted to copy FedEx’s strategy by buying aircraft and launching overnight delivery.
FedEx, however, still had a competitive edge over Emery and others in that it could access smaller cities, yet another of the company’s business strategies.
Lessons Learned
What lessons can we pick up from FedEx’s story? Well, there are many, but here are the most appealing ones.
1. Don’t be afraid to take risks
Frederick W. Smith’s idea required a significant amount of investment. He was willing to take the chance by investing $4 million of his own money to get his idea off the ground.
Many people would have found his venture too risky an investment, considering the millions of dollars it required to start. Launching a business requires a certain proportion of risk. Don’t be afraid to take it, when you have a solid business plan.
2. Persevere
FedEx suffered many losses and hurdles throughout its growth, from ZapMail to stiff competition to enter foreign markets.
Despite these setbacks, the company still soldiered on to become the giant courier service it is today. Don’t let challenges and obstacles holding you back from achieving your goals. Keep moving forward.
3. Innovate
This story of FedEx has many instances where the company innovated and expanded its business. At no point did FedEx stagnate and become comfortable with the way things were.
For example, FedEx bought larger planes to increase volume per flight.
It launched the courier Paks and overnight letter services and expanded into many cities within the United States and eventually into foreign markets. Don’t stop innovating, growing, and expanding your company. Dream bigger.
4. Find your edge over competitors
FedEx’s edge over its competitors was in its business strategy. While most competitors focused on cost, FedEx concentrated on speed and on-time delivery.
The company’s ability to deliver packages quickly and access smaller cities made it the customers’ preferred choice.
Find out what consumers want that your competitors are not offering, then utilize that opportunity to gain a competitive advantage.
1971
Frederick Smith launches Federal Express Corporation.
1973
Federal Express moves operations to Memphis Airport and conducts overnight shipping in 25 cities.
1977
The Airline Deregulation Act allows Federal Express to buy larger aircraft and transport more volumes.
1978
Federal Express goes public on the New York Stock Exchange.
1981
Federal Express launches the overnight delivery service.
1984
Federal Express launches ZapMail (but abandons this program two years later.)
1985
Federal Express opens a European hub in Brussels in an attempt to expand into Europe.
1989
Federal Express acquires Tiger International, Inc. for $883 million to expand into international markets.
1994
Federal Express changes its name to FedEx.
1998
FedEx changes to FDX Corporations and buys Caliber System, Inc.
2000
FDX Corporation reverts its name to FedEx Corporation.
2000