FedEx at Forty: Fred Smith's Million Dollar Dream Machine

Excerpts from Memphis magazine's 1978 cover story on FedEx.



(page 2 of 2)

 

August 1978

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.”

 

FLYING HIGH

By the end of that year [1973] 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.’”

Reader Comments:
Jun 24, 2013 03:48 pm
 Posted by  davos

..hi..dave oliver here from virginia....good article, yet misleading...was an employee for 19.5 years with fedex exp with great reviews every year.....been trying to contact mr. smith since being shown the door in 02/2012..my crime...had three minor accidents in one year. and was honest enough to admit to them....had one other within those 19 years..this too minor... was forced to work first overnights while also doing my reg. route..( 0430-5pm average ). worked at ptba. in petersburg,va.23803..reason why i believe these minor accidents even happened...normally worked 0730 to 1700.. if you can contact mr. smith or if office please inform him there is serious management problems at this station...both managers are young and not expirenced...along with the past upper management.. ( R.C. ), they will know who that is.thx for the past 20 years mr. smith....see you in court.....164036

Jun 24, 2013 03:57 pm
 Posted by  davos

fedex apparently no longer a people company...sfa...gft...just on paper to make management look better..

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