FedEx at Forty: Fred Smith's Million Dollar Dream Machine
Excerpts from Memphis magazine's 1978 cover story on FedEx.
(page 2 of 2)
WHAT ABOUT THE COST?
The inception of such a nation- wide operation required more capital than even a millionaire could provide. Money was needed to purchase airplanes and support equipment, and to maintain employees, as well as pickup and delivery facilities at several dozen airports. Smith was assisted by New Court Securities Corporation, a New York investment firm which specializes in getting new businesses off the ground. There were many skeptics, but a fair share of converts. By the end of the year, Smith and New Court had managed to pull off what one local broker called “the greatest sales feat of all time.”
WHY WAS IT SO GREAT?
A total of $72 million worth of investments was secured, including contributions from General Dynamics, the Prudential and Allstate Insurance Companies, and megabanks such as Chase Manhattan and Citibank of New York. Never in American business history had a newly formed corporation raised such an enormous amount of venture capital.”
OKAY, BUT WOULD IT WORK?
Smith had more going for him than zeal. Long before Federal Express had gone into operation, he had asked two separate research organizations to study his air freight idea to determine whether or not it was economically feasible. Both surveys gave us the same answer: Federal Express could and should work.”
A ROUSING START? Well ...
Federal Express actually com- menced operations on April 17, 1973, carrying a grand total of 186 packages. ‘It was a pretty grim night,’ Smith recalled.”
By the end of that year  the company was serving more than 50 cities with its fleet of French-made Falcon jets, converted from passenger to cargo according to design plans drawn up by Smith himself.”
BUT HARDLY A NAME BRAND — YET
By mid-1974, the steady growth in revenue was unable to match the increased operational costs. ‘What we were really up against,’ Smith recalls, ‘was the problem of recognition. We had to make our name a household word, to convince air-freight users that Federal Express could and would give them the overnight service it promised.’”
THE IMPORTANCE OF TEAMWORK
Smith is quick to point out how important employee esprit de corps was during the dark days of 1973 and 1974, when paychecks were sometimes postdated, and pilots occasionally used their own personal credit cards to purchase fuel for their aircraft. ‘Fred may have been carrying the ball,’ recalls public relations director Bill Carroll, ‘but the rest of us were blocking like hell.’”
MEANWHILE, THE COMPETITION
Perhaps the greatest danger during this period was that one of the better-known air-freight forwarders such as Emery or Air Express would decide to launch its own rapid-delivery, small-parcel service, with a similar hub-and-spokes network. ‘At that stage, we could have gotten our brains blown out,’ concedes Smith today.”
BIG PLANES = BIG PROFITS, BUT …
By early 1976, demand for FedEx services was beginning to outstrip the capacity of its small planes. The company petitioned the Civil Aeronautics Board for permission to use larger aircraft. But the CAB, citing regulations dating back to 1958, prohibited air-taxi services [which was how FedEx was classified] from operating with plane payloads of more than 7,500 pounds .
MR. SMITH GOES TO WASHINGTON
Undaunted, Fred Smith took his case to Capitol Hill. Dozens of congressmen were wined and dined in Memphis, where they could see for themselves the efficiency and effectiveness of the Federal Express operation. ‘I have seen free enterprise,’ commented Rep. Dale Milford of Texas, ‘and it is alive and well in Memphis, Tennessee.’”
WINNING THE BATTLE
In 1977, the Federal Express Bill, which gave air-taxi services the right to fly bigger planes, breezed though Congress. Federal Express bought seven Boeing 727s, with a cargo capacity five times that of the old Falcons. Profits soared. By 1980, Federal Express is expected to gross more than $300 million — 20 times more than its first year of operations.
AND BEYOND 1980?
Although a few competitors for its small-parcel business have appeared on the economic horizon, the future seems extraordinarily bright. ‘It would take at least $300 million to take a shot at blowing Fred out of the water,’ notes one local economist, ‘and even then the bullet would probably miss.’”