History Of Fed Ex Essay Research Paper

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Patrick Perry

Webb

BA-410

04/01/2001

How “Absolutely, Positively Overnight!” Came To Be

Mark Twain once said, “The man with a new idea is a crank until the idea succeeds”. This phrase could be applied to Fred Smith and Federal Express. From their beginnings in Little Rock, Arkansas in the early 70’s delivering 186 packages overnight to 25 U.S. cities, to three decades later parlaying it’s $20 billion dollar corporation into no less than five major operation companies. FedEx has become the world’s leader in global express transportation, providing fast delivery of documents, packages and freight shipments worldwide. As a result, the name “Fed Ex” is used in much the same manner as name “Band Aid” has today. Many use this term generically meaning all forms of overnight or rapid delivery systems. The powerful FedEx brand and the ever-familiar purple, orange and white colored letters are a welcome sight as deadlines near.

History of Moving Freight – The mail actually saved the future of passenger flight, but ironically outgrew it and needed its own logistical changes.

Fledging airmail service started in the U.S in 1918. The Post Office began regular delivery service between New York and Washington D.C., totaling a distance of 218

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miles, using four U.S. Army Curtiss Jenny’s in which about 140 pounds of mail could be loaded into the front cockpits. Although before that, Aeromarine Airways flew passengers, airmail, and freight between Key West and Havana in November 1919 (Air Trans 95,105,319). The regular handling of larger packages did not occur until later on in the 1920’s. In those days, and for obvious reasons, air mail was considered pretty much a “suicide club” due to the lack of proper equipment, established airways and related equipment. Thus, the pioneers of early airmail routes must be credited for their efforts, as they established through their sacrifices, the foundation upon which commercial air transportation was built.

The honor of being the first air freight operator would probably have to go to Henry Ford, who at the time owned Ford Air Transport and was just as well known in aviation as in the automobile industry. The first original all-cargo air carriers were Slick Airways, United States Airlines, the Flying Tiger Line, and Air News. All were certified in 1949, but most were gone within a 5-year period (Air Trans 323).

Commercial passenger airlines were struggling into existence in the U.S. in the mid 1920’s when much of Europe was already covered by a network of air routes. Only one minor American passenger line had flourished for any length of time – Aeromarine Airways. After a number of widely publicized accidents in the ocean off of Florida, Aeromarine was in decline, and was also turning the financial community against investments in airline enterprises. Americans remained skeptical about air travel, and while not as fast as planes, ground transportation was much safer. There were no strong

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objections however to improving an existing government service. So it happened that organized air transport in the U.S. started with flying the mail. And the way the early airmail service developed provided the springboard that would enable American commercial aviation, by the late 1920s, to catch up with the Europeans and then to surpass them (Air Mail 158).

The air freight industry was a dull and unpromising business until the 1960’s when commercial airlines jumped into the competition in an all-out effort to attract business from the nation’s industrial firms. Commercial airlines struggled to make a profit. They were convinced that putting cargo in the extensive belly space below the passenger deck could be a lucrative profit center. Delta, Eastern and United and others continued their all-cargo service during the remainder of that decade despite questions about the profitability of such service. Most of the carriers lost money continuously from 1961 through 1973 and largely abandoned their all-cargo carriers (APO 114).

The large jumbo jets purchased to compete in the passenger market did not contribute much revenue from hauling freight in their underbellies. The capacity in the bellies was so adequate that management of these airlines felt this was an efficient replacement for the space foregone by the abandonment of the all-cargo planes. Deep down, management was discounting freight and treating it as a by-product or appendage.

These wide-body jets were designed first and foremost to serve passengers. Ironically, the enormous increase in size the jumbos represented had exactly the opposite

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effect management sought. They made freight handling more difficult, not less (APO 125).

Most airlines finally discouraged the small package business in the early 1970’s. They were not equipped to handle small packages. In fact, small packages were a headache, they were an unprofitably “dead weight” because the cost of shipments was considered high. What the airlines thought they wanted was freight weighing over 100 pounds, so they left the responsibility for handling small items to Emery and all of the other freight forwarders.

The airlines had their troubles in the early 1970’s and the small package problem was not a particularly urgent one with most of them. Hundreds of flights were being canceled. Service as it had been known in the 1960’s had changed for a number of compelling reasons. First, the huge wide-bodied jets increased seating capacities so that flights were consolidated to increase economic efficiently, additionally, many flights were cut back to save money. Then the Arab oil embargo, and rising fuel costs, put a real scare in airlines in so far as their expense structures were concerned. In fact, during the fall 1973, the Federal Government began allocating fuel to airlines in order to protect domestic supplies (APO 155).

The decline in off-peak-hours service also hit the air freight forwarders hard. The veterans in that industry were fond of saying, “Air freight is basically a night animal; passengers are day animals.” Most air freight items were picked up from shippers in the

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late afternoon or early evening and taken to the airport for flights leaving after 10 p.m. for overnight delivery to the consignee. Freight forwarders could not use much of the belly space in 747s or DC-10s leaving O’Hare Airport in Chicago at 5 p.m. or Los Angeles International Airport at 6:15 p.m. Service was also cut to many of the smaller regional cities. Some small cities lost half or more of their scheduled flights as airlines made decisions to concentrate their attention on the major metropolitan hubs (APO136).

This was the state of the freight industry when Fred Smith took over Arkansas Aviation Sales. With the elimination of passenger service by the major trunk carriers, the difficulty of getting packages and air freight delivered within a day or two after being picked up was escalated. Smith’s Arkansas Aviation Sales was one of the victims of this deteriorating air service. It was causing him problems in operating his firm, so he decided to become an activist to do something about this inefficient distribution system.

Smith reflects, “ I became frustrated that I could not receive on any timely and reliable basis, air freight shipments from places around the United States. Sometimes, it might be two days, and sometimes five days, before you could get a part delivered in Little Rock. It was unpredictable.” From that point on he stepped up his research to find a way to close what he called the most classical gap in the transportation systems. He considered what he was experiencing as a perfect example of the American high-tech industrial base not being able to find solutions to the most obvious economic problems.

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Conceptually, Smith had identified an opportunity. The great unknown to him was how he would work out the mechanics of implementing his idea. Since he was both optimistic and na?ve, there was no chance that he was going to worry himself to death over a lot of details. Over all, he thought of himself as an idea man, not a detail man. He seemed to believe things would work out (OS 102).

History of FE

Fred Smith was raised by his mother in Memphis, Tennessee. Very interested in military history and aviation, he learned to fly at age 15. He went on to attend Yale University. Feeling pre-ordained and also with a sense of duty, Smith joined the Marine Corps reserve and would later serve tours in Vietnam. Vietnam was an awakening for Smith. Unlike his childhood where he associated with the youth of privilege, in Vietnam, he associated with the less privileged men, watched their courage, and shared their agony and death. He credits an African American platoon sergeant for helping him to understand what enlisted men think and want. Reminiscing about Vietnam, Smith credits the lessons he learned from this sergeant with enabling him to understand the concerns of rank-and-file employees in the early years of Federal Express (OS 87).

In 1965, as a Yale graduate, Smith wrote a term paper about the passenger route systems used by most airfreight shippers, which he viewed as economically inadequate. Smith stated that what was needed was a system designed specifically for air freight that could accommodate time-sensitive shipments such as medicines, computer parts and

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electronics. He identified the tremendous difficulty in getting packages and other air freight delivered within a day or two. This problem motivated him to do the necessary research for resolving the inefficient distribution system. Thus, the idea for Federal Express was conceived.

The company began operations in September 1971with the launch of 14 small aircraft from Memphis International Airport. Its first night, it delivered 186 packages to 25 U.S. cities from Rochester to Miami (Internet). Memphis was chosen as the headquarters since it was the geographical center of the original target market cities for small packages. In addition, the weather in Memphis was excellent, in that the airport rarely closed due to poor conditions. Memphis International Airport was also willing to make the necessary improvements for the operation and had additional hanger space readily available (Internet).

Four short years later, profiting began in 1975. Federal Express was quickly becoming the premier carrier of high priority goods in the marketplace and has been the standard setter for the industry it established. The company’s growth gained rapidly following air cargo deregulation in 1977, which allowed FedEx to use larger aircraft, such as the Boeing 727’s and McDonnell-Douglas DC-10s. In the recent years, it has acquired McDonnell-Douglas MD-11s and Airbus A-300s and A-310s for use in its operations (Internet).

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Theory behind FedEx

“It was just a term paper. You know how it is in your undergraduate days. You leave everything to the last minute. That’s the way this paper was written. But I sure had the right idea in pointing out that the air freight industry’s future was by no means assured. The passenger route systems used by most air freight shippers were totally wrong for freight distribution. The costs would not come down with volume. It was a technical and economic impossibility. Airfreight would only work in a system designed specifically for it”(APO 35). Unfortunately, Smith’s professor found the idea of the paper was good, but put together in a sloppy manner.

The professor’s main criticism is that it did not have a chance due to heavy regulation of air tranpsortation by the Civil Aeronautics Board and intense competition. Fed Ex volume was also capped in 1975 and 1976 when the Civil Aeronautics Board refused to allow the company to fly larger and more efficient aircraft. The regulatory laws, backed up by a hostile commercial airline industry, were there to block Smith’s “irrefutable logic” from being proven outright (APO 31).

The General jist was, there was a huge market out there and the economy to support it. The American public was not being well served. He observed an inefficient deliver system where he said packages were “hippity-hopping around the country from city to city and from airline to airline before reaching their destination.”

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And he also observed that there were no control systems in place to track packages by the airlines before reaching their ultimate destination (APO 32).

Corporate Timeline

1971 – Federal Express Corporation is founded in Little Rock, Arkansas

1973- Begins operations, delivering 186 packages overnight to 25 U.S. cities. The modern air/ground express industry is born.

1979- FedEx launches COSMOS, a centralized computer system to manage vehicles, people, packages, routes and weather scenarios on a real-time basis.

1981- FedEx letter is introduced.

1984- FedEx launches express operations in Europe and Asia/Pacific after acquiring Gelco Express International.

1986- FedEx introduces the Super Tracker, a hand-held bar code scanner system that captures detailed packages information.

1989- FedEx purchases Flying Tigers, greatly expanding its international service

1994- Federal Express officially changes it name to FedEx for recognition as the world standard for fast and reliable service.

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1994- The FedeX website debuts at- www.fedex.com- the first to offer online packages status tracking, so that customers can actually conduct business via the Internet.

1995- FedEx acquires routes from Evergreen International, with the authority to serve China, FedEx also opens the Asia Pacific Hub in Subic Bay, Philippines and launches the FedEx Asia One network.

1996- FedEx achieves 100% coverage of North America.

2001- FedEx Express and United States Postal Service forge public-private alliance.

How company is divided

FedEx Corporation provides strategic direction for the five major operating companies including FedEx Express, FedEx Freight, FedEx Ground, FedEx Custom Critical, and FedEx Trade Networks.

FE Freight

Founded in 2001, FE Freight is compromised of two independent operating companies, American Freightways and Viking Freight. Through a comprehensive network of service centers and real-time information systems, the two companies provide freight services to virtually all U.S. zip codes. Together they deliver approximately 60,000 daily shipments domestically and internationally (Internet).

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FE Ground

Operates over 9000 vehicles and more than 35,000 employees and independent contractors. They are North America’s second largest ground carrier for business-to-business small package delivery. Pioneer in applying advanced information technology such as bar code scanning, en route tracking, and automated package sortation, to meet customer needs (Internet).

FE Custom Critical

When customer need it now, FECC delivers – whether its parts of keep a vital production line running, emergency generators to restore power, or a priceless piece of art that needs special handling. As NA’s largest time-specific, critical shipment carrier, FECC provides pickup and delivery services throughout the US and Canada and within Europe – 24hours a day, 365 days a year. About 1,000 daily shipments, More than 2,600 employees and contractors, more than 2,000 trucks (Internet).

FE Trade Networks

Founded in February 2000, FETN ‘s 1600 employees help customers of all sizes solve the intricacies of shipping goods globally by providing full-service customs brokerage, trade consulting, and e-clearance solutions to speed shipments through customs using advance e-commerce programs. Operating companies include Tower Group International, Inc., Worldtariff, Limited, Caribbean Transportation Services (Internet).

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How air express works

The FE Express global transportation technology network enables information-rich service offerings. More than 2.5 million customers are connected electronically with FedEx Express – through its web site for its customers automation systems – and about two-thirds of U.S. domestic transactions are processed electronically every business day. 662 aircraft provide a global lift capacity of about 26.5 million pounds daily. The world’s second largest air fleet includes:

Air bus A300, 36

Airbus A310: 44

MD-11: 31

McDonnell-Douglas DC10-10: 73

McDonnell-Douglas DC10-30: 22

Boeing 727: 152

Cessna 208: 261

Fokker F27: 32

Shorts SD3-60: 11

Ayers LM 200: 0

FE aircraft, which comprise the world’s largest all-cargo fleet, have a combined lift capacity of more than 26.5 million pounds daily. In a 24-hour period, FE planes travel nearly one-half million miles. Also, FE plans to acquire the A380-800F long range, high

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capacity aircraft in 2008. It will have twice the payload capacity as the MD-11, the company’s current intercontinental aircraft.

Internet affect

Where information seems to be moving faster and faster, FedEx Express seems to be keeping up by moving packages almost as fast. Recently, FE launched several wireless services that extend online capabilities to cell phones, two-way pagers, and other web-enabled wireless devices. Customers can wirelessly track their shipments the same way they do now via FE web site. The applications are likely to keep customers happy. These new services are just one piece of a ramped up wireless strategy. They pioneered data services some 20 years ago with its digital assistant dispatch system. Future tech includes an updated version that will include an infrared port, bar scanner, splash screen, and mobile printer. Couriers will be able to download daily schedules, get detailed information on pick-ups, and plan the most efficient routes for pick-ups (Internet).

Current Company Modifications

FE, which has been at odds with the U.S. Postal Service ever since it expanded into overnight shipping, is teaming up with with the post office on overnight deliveries. Beginning in August 2001, FE will help transport the Postal Service’s expedited deliveries on its jets. The $6.3 billion deal should help the Postal Service shrink it own air fleet and gives FE the right to place more than 10,000 of its drop boxes in post offices

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across the country. But this does little to address the Memphis-based carrier’s bigger problems: UPS, which has been winning market share from FE in e-commerce shipments (Internet).

The Future

What customers and companies are looking for already, is a way to ship packages without going through several steps, and be able to track “real-time” the shipping data. Fed Ex’s new data tracking network rolling out soon, should do the trick. The bottom line is that FedEx continues to deliver. They gave birth to the modern air/ground express industry with hard work and ingenuity, and they will continue to lead the way into the future.

Bibliography

Work Cited

About FedEX. http://www .fedex.com/us/about/express (4/29/01).

Holmes, Robert B. Air Mail. New York: Clarkson N. Potter, Inc./Publishers, 1981.

Kane, Robert M. Air Transportation. Kendall/Hunt Publishing. Debuque, Iowa, 1999.

Sigafoos, Robert A. and Roger R. Easson. Absolutely Positively Overnight. St Lukes Press, Memphis, 1988.

Trimble, Vance, and Sam Walton. Overnight Success. Crown Publishers, Inc. New York, 1993.