Analysing Fedex’s Historical Performance

FedEx stands for Federal Express Corporation, was founded by 28-year-old Memphis, Tennessee, native Frederick W. Smith in 1971. Smith, who was a former Marine pilot, developed his idea for an overnight delivery service through a term paper that he wrote for Yale University in an economics class. Smith felt that air freight would provide another form of employment opportunity in the aviation sector of the economy instead of making it an added service to the passengers. In his views, a company should specialize in air freight rather than making it an add-on to passenger service which would make it a more lucrative business niche. Speed was more important than cost, in Smith’s view, and access to smaller cities was essential. His strategies included shipping all packages through a single hub and building a private fleet of aircraft. Company-owned planes would free the service from commercial-airline schedules and shipping regulations, while a single hub would permit the tight control that got packages to their destinations overnight. In making his dream a reality, Smith selected Memphis as his hub: it was centrally located and despite inclement weather its modern airport rarely closed.

FedEx began its operation in 1973 with a $4 million inheritance that Smith got from his father and with a $91 million in venture capital. Service was provided in 25 cities with a fleet of 14 small Dassault Falcon aircraft and 389 employees. At this time, FedEx’s operations basically involved collection of packages from airports every night and taking them to Memphis, where they were immediately sorted. They were then flown to airports close to their destination and delivered by FedEx trucks the following morning. Like every normal start-up ventures, FedEx had a lot to contend with ranking from the high cost of operation and the expensive advertisement that Smith proposed. This led to a financial loss of $29 million in its first 26 months of operation thereby prompting Smith’s investors to consider removing him from the helm of the fledgling company, which was rejected by the company’s president Arthur Bass. Bass helped the company to improve its delivery schedules thereby made FedEx’s delivery volume to climb up to a point where it was profitable. Company’s profit hit $8 million on sales of $110 million by 1977. This was due to the fact that FedEx had 31,000 regular customers, including giants such as IBM and the U.S. Air Force, which used it to ship spare parts. It also shipped blood, organs for transplant, drugs, and other items requiring swift transport. Expanding FedEx’s operation to 75 airports and 130 small cities was the major strategy effected by Smith and Bass that sparked up the company’s growth. While the major airlines gave the company stiff competition on heavily traveled passenger routes, there was virtually no competition on routes between smaller cities. Its principal competitor, Emery Air Freight, used commercial airlines to ship packages, giving FedEx an important time advantage.

Airline deregulation gave FedEx the much needed growth in its operations which resulted from the Smith’s led legislative fight to end regulation, and a bill doing so was passed in 1977. Deregulation meant the company could fly anywhere in the United States anytime, and use larger aircraft like 727s, and using its Falcons to expand into small- and medium-sized markets. Prior to the enactment of this bill, FedEx had to fly up to eight small Falcon jets side-by-side to bigger markets when as the use of one larger jet would have saved money. Because payloads for airline operators were less than 7,500 pounds which was a major set-back for FedEx at that time but with the deregulation FedEx’s operational cost would reduce. The enactment of the bill prompted FedEx to go Public through the New York Stock Exchange. This move raised needed capital and gave FedEx the chance to gain back a portion of their initial investment. The raised capital was used to acquire its fleet 32 Falcons, 15 727s, and five 737s and operations was expanded. Profits for 1979 were $21.4 million on sales of $258.5 million. By late 1980 FedEx was well established and growing at about 40 percent a year. It had 6,700 employees and flew 65,000 packages a night to 89 cities across the United States.

During 1980, FedEx gain more market share based on the fact that there was a decline in the reliability of the U.S. Postal Service that caused even more companies to switch to FedEx for important packages. This prompted FedEx to announce a new product that would bring it into direct competition with the U.S. Postal Service (USPS) which was the introduction of the overnight letter. This document-size cardboard envelope, which could contain up to two ounces, would be delivered overnight for $9.50 at that time. This further resulted to FedEx having the largest sales of any U.S. air freight company, unseating competitors like Emery, Airborne Freight, and Purolator Courier, which had gone into business about two decades earlier. Most companies shipped packages of all sizes using regularly scheduled airlines, and their services was not speed oriented which was the bargain power for FedEx. FedEx offered speed-oriented service and thereby won over many of the market’s customers. This self led action forced other operations in the industry to copy FedEx operational strategy. Emery copied FedEx’s strategy, buying its own planes, opening a small-package sorting center, and pushing overnight delivery. Airborne also entered the small-package air express business. United Parcel Service of America (UPS), the leading package-shipper by truck, moved into the air-express business in 1981. The USPS began heavily marketing its own overnight-mail service after FedEx’s Courier-Pak began eating into its revenues. FedEx, the market leader in the America overnight package-delivery industry would be strict competitor of DHL Worldwide Courier Express Network with its entry into overseas services. To this effect FedEx made its first acquisition, Gelco Express, a Minneapolis-based package courier that served 84 countries in 1984. Hoping to recreate its U.S. market dominance overseas, the company made further acquisitions in Britain, the Netherlands, and the United Arab Emirates. Also UPS also began building a competing overseas system.

Price control was the major strategic interplay in the 1990’s between key industrial players.UPS are key player in the U.S. market introduce volume discount, a strategy that its previously resisted. In response to this, FedEx began company-wide cost-containment policies to reduce waste and overhead, as well as gain increased efficiency in meeting the needs of its customers.. Even with its cost-cutting measures, employee-related expenses rose when FedEx became mired in over two years of contract negotiations with the Air Line Pilots Association (ALPA). The huge salaries and benefit packages were not enough to keep the threat of unionization at bay, which ultimately resulted in the 1996 unionization of FedEx’s 3,100 pilots. National Labor Mediation Board resolves this because leading analysts doubted ALPA’s continued influence over FedEx budgetary policy.

Aggressive international expansion was deployed by FedEx through acquisition of some companies in the same line of business operations. This aggressive expansion was witnessed throughout 1999 till date.

2.2 FEDEX’S PROFILE

2.2.1 FEDEX’S ORGANIZATIONAL STRUCTURE

The above diagram shows the top management position within the FedEx Corporation. Each of this above list management position functions as a separate entity based on the fact that FedEx corporation has three different basic line of businesses and in that regard the presidents of FedEx freight, FedEx ground and FedEx express have additional personals in charge various operations. A more detail descriptions of these lines of businesses shall be covered in the following sections.

2.2.2 MAJOR LINES OF BUSINESS.

FedEx Corporation has undergone different stage of development which involves change of name, acquisitions of different companies before finally being name as FedEx. It was through these developmental stages with strategic acquisition that actually helped FedEx to develop it lines of businesses. FedEx Corporation includes the following business segments which functions as a separate entity of its own; FedEx Express, FedEx Ground, FedEx Freight, FedEx Office, FedEx Custom Critical, FedEx Trade Networks and FedEx Services But all these business segments function as a whole under the FedEx Corporation.

FedEx Express was the first and solely lines of business operation that FedEx Corporation ventured into when it started operations. FedEx Express was then over seeing all the operation of the corporation as whole. In order to function as a market leader in the globe market, FedEx Express acquired various companies. Some of FedEx Express acquired companies from 1999 are as follows [2] ,

1999

FedEx Marketplace launches on fedex.com, providing easy access to online merchants that offer fast, reliable FedEx express shipping.

Federal Express launches its EuroOne Network, opening a hub at Roissy-Charles de Gaulle airport.

FedEx Corp. acquires Caribbean Transportation Services.

2001

FedEx Express and the U.S. Postal Service forge a public-private alliance. FedEx Express provides air transportation of some U.S. mail and places FedEx Drop Boxes at post offices nationwide.

2007

FedEx Express builds its service capabilities in Europe by acquiring UK domestic express company ANC (later re-branded FedEx UK) and Flying-Cargo Hungary Kft, now a wholly-owned operation in one of Eastern Europe’s most dynamic markets.

FedEx Express expands its presence in India with the acquisition of Prakash Air Freight Pvt. Ltd. (PAFEX).

FedEx Ground began operation in 1985 which was then registered with the name Roadway Package System (RPS). This later became Caliber System Incorporation in 1996. The company was the first in the ground shipping business to use bar coding and automated sorting system and tracking system to help customers get relevant information about their packages. FedEx ground was formed as a subsidiary company to handle the ground delivery operation of FedEx Corporation which became effective through launching of FedEx Home delivery and a business-to-consumer service which was designed to help catalog and online retailers meet their markets [3] .

FedEx Freight is the leading U.S. provider of next- and second-day regional, less-than-truckload (LTL) freight services. FedEx Freight is known for exceptional service, reliability and on-time performance.

In 1966, Viking Freight opened its doors in 1966 as a courier service within selected areas of California and rapidly grew to be the state’s leading intrastate trucking carrier. By 1986, Viking’s service area covered 10 western states, including Alaska and Hawaii. 

In 1988, Viking became a subsidiary of Caliber System Inc. During the next ten years, Viking solidified its position as the market leader in the West and periodically expanded its reach beyond its western regional territory. In January 1998, Federal Express Corp. acquired Caliber System and created FedEx Corporation, a global provider of transportation, e-commerce and supply chain management services.

Meanwhile, American Freightways (AF) was founded in 1982 by Sheridan Garrison. Despite regulatory and economic obstacles, AF quickly became the fastest-growing, independently-owned regional LTL carrier in the nation. In 1989, AF became a publicly-held corporation and by 2001 had developed a wide network of customer centers – providing 100 percent direct coverage to 40 contiguous U.S. states. 

American Freightways was acquired by FedEx Corporation in 2001. By combining Viking and AF, FedEx Corp. created FedEx Freight to offer one-stop shopping for LTL customers who require top-quality, highly reliable regional freight service. In June 2002, FedEx re-branded AF and Viking as FedEx Freight to accelerate growth of regional LTL freight business through a common branding system. Through a comprehensive network of service centers and with timely, accurate information systems, FedEx Freight is committed to delivering reliable, responsive LTL service throughout the U.S. and beyond. 

In 2003, Caribbean Transportation Services-acquired by FedEx Corp. in 1999 and aligned to FedEx Trade Networks in 2001-was realigned as a freight-forwarding subsidiary of FedEx Freight. Caribbean Transportation Services is the leading provider of airfreight forwarding services between the United States and Puerto Rico. It provides door-to-door and airport-to-airport shipping with services ranging from next-day delivery to four-to-five-day delivery.

Today, these companies make FedEx Freight the less-than-truckload shipping industry leader in the U.S.

In 2006, FedEx Corp. acquired Watkins Motor Lines, a leading provider of long-haul LTL services.  Watkins was rebranded FedEx National LTL and now operates as a seperate network within the FedEx Freight segment.