The Issues Facing The Airfreight Carriers Commerce Essay

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FedEx founder, Fredrick W. Smith, wrote a term paper on what he felt was an issue of airfreight carriers inefficiencies at the time in the routes they took to fly. He was able to start, as the solution to the problem he saw, the Federal Express Company in 1971, using $4 million from his father's savings as well as $80 million from investors. FedEx began operations on April 17, 1973 with 14 aircraft out the Memphis Airport with both overnight and two day service. On the first day of service, Federal Express shipped only shipped 186 packages overnight (FedEx Corp). However the demand grew rapidly, until rising fuel prices and costs exceeding revenue, Federal Express was loving over $1 million per month (Hoover Co. Records). At that point Fred Smith look to get more money from his investors, but they refused.

When Fred Smith was waiting for a flight home from Chicago to Memphis he decided to hop on a flight to Las Vegas where he won $27,000. For Smith it was a signal that things were looking up. "The $27,000 wasn't decisive, but it was an omen that things would get better," said Smith. He was then able to raise $11 million. Federal Express lost $13.4 million in its first two years of operation, and did not show a profit until 1976. There were several factors that helped launch FedEx into profitability. Airlines were moving from shipping packages to moving people. United Parcel Service had a labor strike in 1977 affect its operations. Lastly, one of its competitors, REA Express went out of business. Also the US government loosened airline regulations which allowed FedEx to operate bigger airplanes as well as being able to use flight routes outside of the existing passenger ones . In 1978 the company went public and by 1980, Federal Express gained $415.4 million in revenue with $38.7 million in profit (Fred Smith: An Overnight Success). Federal Express was shipping over65,000 parcels a day at this point. In 1981, Federal Express started its Overnight Letter service, and began its international operations by offering service to Canada. [1] 

Federal Express was able to achieve the large growth it experienced over Federal Express' first decade of operations, without any mergers or acquisitions. This changed in the 1980s when Federal Express acquired Gelco Express in 1984. Gelco was a package courier that operated in over 84 countries, and it helped open the door for Federal Express to expand internationally. In 1989, Federal Express paid $889 million for Tiger International Inc. This acquisition gave Federal Express routes to 21 countries, aircraft such as the Boeing 747, and facilities throughout the world. The acquisition also brought knowledgeable people in the area of international shipping (FedEx Corp). While the acquisition strengthened Federal Express' airfreight services, it also brought increased government safety regulations and $2 billion in debt. The resulting increase in debt caused Federal Express to lose $194 million in its international operations. Federal Express also acquired some smaller firms along the way, such as Cansica and Island Courier Companies, and Italian based SAMIMA (Fedex Corp - Early History).

Federal Express also began to offer new services over this time period. It launched its ZapMail service in 1984. ZapMail allowed customers to send up to 5 pages for $35 with $1 per page after 5 (Fedex Corp - Early History). The service used a satellite system to send and receive the documents electronically. The service floundered. The price of $35 was high compared to its $14 overnight rate. Even a reduction to $25 did not spur much more demand, as businesses found that overnight delivery was acceptable. The service required that customers lease hardware to use it and while there were hundreds of customers who leased monthly, FedEx was purchasing thousands from NEC (Coopersmith). They assumed that only DHL and UPS were going to be their main competitors. They were in actuality competing against similar services that the telephone industry was providing and their own customers were also competition (Shirky). Companies were installing their own fax machines which lessened the need for a service like this. The service lost FedEx $317 million during the time it operated. In 1986 the company discontinued the service (Coopersmith).

Federal Express changed its name to FedEx in 1994. In 1998 the company aquired Caliber Systems Inc and started to offer other services than express shipping. The company was then transformed to the FDX Corporation that year, with Fedex operating as one of its subsidiaries. Caliber brought their subsidiaries such as RPS, a small package ground service, Viking Freight a "less than a truck load" freight carrier and Caribbean Transportation, which provided airfreight transportation between the US and Puerto Rico. In January 200, FDX renamed itself to the Fedex Corporation and rebranded its subsidiaries. In 2004, the company purchased Kinkos which is now known as FedEx Office. FedEx continues to be one of the largest shipping operators in the world.

FedEx has a simple philosophy for operating its business. It aligns it's priorities as People - Service - Profit. People are placed first in the list because Fred Smith believes that if people are placed a head of profits then "they will provide the highest possible service and profits will follow." The people priority places and emphasis on employee satisfaction and empowerment. FedEx feels that by creating an environment like this, that employees will "take risks and become innovative in pursing quality, service and customer satisfaction." The service priority is a reference to FedEx's service goal, "100% customer satisfaction, 100% of the time." Lastly, the profit goal is put last, because the company believes that if the two other priorities are met first, than the company should expect a profit.

The company has multiple programs than ensure it remains a people first company. It gives employees a survey which forms the foundation for where they can improve. The survey allows employees to rate the management's performance. The company also looks to promote from within, and not look first for people externally. There is also a computerized system for hourly employees to post for available jobs or looking to move to different location. Any employee wishing to move to a management position must go through the Leadership Evaluation and Awareness Process to determine if they meet the leadership criteria to successfully make the jump to a management position. There are also numerous awards for employees. One program known as Bravo Zulu is a spot award program for managers to give employees for their efforts. There is also the Golden Falcon Award which gives outstanding employees 10 shares of FedEx stock and either a visit or call from a senior executive. Lastly, FedEx has an open door policy which allows employees to submit questions or complaints on corporate policy.

The mission statement of Fedex is:

FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx Corporation will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.

The mission statement of FedEx is a summation of the company's philosophy. It tells investors that the company is going to make a profit by putting the people first, and by carrying out its operations by providing the highest level of customer satisfaction it can. FedEx has also maintained a high level of quality. In 1990 as Federal Express the company received the Malcolm Baldrige Award. Some of the more recent awards it's received was the ICARE trophy in 2007 for its Safety First approach for operations at the Charles De Gaulle hub, placed 6th on Fortune's America's Most Admired Companies list in 2007.

The FedEx Corp has set five long-term goals for itself. The company wants to grow its revenue 10% annually and have a 10% operating margin. It also looks to increase its EPS yearly by 10-15% as well as increase it cash flows and returns. FedEx has five strategies it uses to grow the business in order to meet its goals. It focuses on growing the core package delivery business, and to grow the company internationally. They also focus on growing the supply chain business and to look for grow in e-commerce and in technology as well as growing by offering new services and forging new alliances with other companies.

2Some of FedEx's key strategies not only the CEO of FedEx Corp, Fred Smith but also the CEOs of FedEx's subsidiaries. Fred Smith has been with the company since it began. The foundation of his company began in a term paper at Yale in which he felt he could make air freight service more efficient. As the CEO his role is to provide the strategy for the business units under the FedEx Corp umbrella. In 2004 he was named Chief Executive magazine's 2004 "CEO of the Year." He believes in loyalty to his employees. An example of this would be taking out 11 different full pages ads thanking his employees for working extra to handle an extra 800,000 packages during a UPS strike in 1997. He also gave his employees special bonuses.

Alan B Graf Jr. is FedEx Corp's CFO and Executive Vice President. He started working with the company back in 1980 as a financial analyst until 1987 when he became the Vice President and Treasurer. In 1991, Graf was promoted to CEO of FedEx Express. After the company acquired Caliber Systems, and became the FedEx Corp he was promoted into his current role in the company. His responsibilities include handling FedEx Corp's global financial functions such as "financial planning, treasury, tax, accounting and controls, internal audit and corporate development."