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It's hard to remember a world without overnight package delivery. But back in the '60s, the concept was as fantastic as taking a photo with your phone. Frederick Smith saw the potential as business technology blossomed. He launched Federal Express in Little Rock, Ark., in 1971 with 389 employes and 14 jets. Today, FedEx is the world's largest express transportation company, with 290,000 employees moving an average of more than 8.5 million shipments for express, ground, freight and expedited delivery a day. The company operates a fleet of 687 aircraft and more than 90,00 vehicles.
Smith, 67, still serves as CEO and chairman of the board. He was in Tampa Bay last week to receive the Tony Jannus Award for achievement in commercial aviation. Smith talked with the Times about how FedEx got started, flying jets on biofuel and the state of the U.S. economy. Here is an edited version of the interview.
Where did the your idea for FedEx come from?
I wrote an economics paper when I was at Yale. But it wasn't about Federal Express. It was about the automation of society and how it was going to take a completely different logistics system to support it.
Why?
I'll bet you've got an iPhone or a Droid or something where you've got most of your institutional memory. Or you use a laptop. If those devices don't work, your ability to function is not just impaired — it goes to zero. What was beginning to be apparent in the middle 1960s was that trend was beginning to take over all kinds of functions in society.
For instance, banks that canceled checks with legions of clerks making debits and credits were moving to computers. Airplane cockpits were equipped with electromechanical and computerized devices to help them navigate and land in low-visibility situations. Society was going away from being much more manually based to one which was much more automated and computer based.
So, what was the problem?
If you wanted to sell an IBM 360 computer to the Bank of San Angelo in Texas, it didn't make any difference to them that you made the computer in Armonk, N.Y., and it was easy to supply parts and pieces to the Chase Manhattan. They'd say: You have to keep my computer operating all the time.
So, you had to have a different logistics system that allowed you to ship things from any point to any point as quickly as possible. The idea of how to do it was FedEx.
Was there an "aha moment" where you figured it out?
When I was studying economics at Yale, I flew as a charter pilot on the side out of the New Haven (Conn.) airport. A lot of times, I would fly down to Westchester County (N.Y.) and pick up a part or a piece for IBM or Sperry Univac or Burroughs or Xerox — a little bitty box.
I used to think to myself, "My goodness, they're paying hundreds of dollars (to fly) just a box and me." I'd pick it up in Westchester County and take it to, say, Pittsburgh. And I thought: Why would they be paying all his money?
It was because the consequences of that part not being in Pittsburgh to keep the bank running or the hospital running so far overwhelmed the cost of flying it. If you wanted to sell these devices you had to convince the buyer you could keep them up and operating.
What did you do to make that possible on a national scale?
In the early days, we set up a hub and we integrated the air and ground operations. Those were the innovations FedEx put in place that allowed you to ship from any point on the network to any point on the network. Or as we said back then, "absolutely, positively overnight.''
There weren't (airline) hubs in those days. Air freight moved on passenger flights or freighters going between two major markets. They were basically point-to-point networks. It wasn't a network at all.
You're a vocal proponent of developing biofuels for aviation. How soon before they become commercially viable?
There's has been a lot of progress in the sense that commercial airplanes and military airplanes have been flown with "drop-in'' biofuel that can be intermixed with (jet fuel) with no degradation in performance.
The issue is scale and cost. And there are some people today saying that at $80 a barrel or thereabouts for petroleum, they can be cost competitive.
How well FedEx performs is widely seen as a leading economic indicator. What do you see ahead for the economy?
Our view of the U.S. at the moment is there's slow growth but not contraction. We essentially have been saying that over the last three or four months, which I think surprises people.
We think retailers are probably going to see 3 to 31/2 percent retail sales growth year over year.
Some of them are saying that it's a little bit stronger at the moment. We'll just have to wait and see. We're certainly not in a second dip, which is what everybody was so concerned about a few months ago.
Contact Steve Huettel at huette@sptimes.com or (813) 226-3384.
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