I'm going to ruin your life!
Look at the arrow between the E and the X.
Now you will never look at the fedex logo the same way again.
Posted on 10/2/2004, 2:03:00 AM by cornelis
"Live" with TAE Frederick SmithHe founded one of America’s iconic companies: FedEx. He’s also the self-described Forrest Gump of American politics—wounded in Vietnam after spending his college years as a pal of both George W. Bush and John Kerry. A voracious reader, he’s a businessman who can roam effortlessly over subjects ranging from history to technology.
While attending Yale in the mid 1960s, Fred Smith wrote a paper on the computerized era’s need for reliable overnight delivery. He received a C grade, but the idea remained with him. He went on to serve for four years in the U.S. Marine Corps, including two tours in Vietnam, where he earned a Purple Heart. After leaving the Marines in 1970 he began working on a new company he dubbed Federal Express.
On the company’s first night of operations, its 389 employees and fleet of 14 small jets delivered 186 packages (“half of which, I think, were actually sent by our own sales force,” according to Smith). After nearly going bankrupt, the company took off, and now delivers almost 2 billion packages every year in 215 countries.
In the process, FedEx has changed America and the global economy. Studies show that about 40 percent of U.S. economic activity is now conducted on a fast-cycle, or “just in time,” basis—which would not be possible without overnight deliveries.
Smith recognized that in addition to transportation, he was selling knowledge—about the exact location and delivery time of his high-priority packages—so his company has been one of the most technologically advanced firms in the world since its founding, pioneering the use of everything from hand-held computers to satellite transponders on delivery trucks. Smith also anticipated the importance of certainty—which is why he offered his company’s famous guarantee of a full refund for a delivery not made on time.
The result? Memphis, Tennessee—FedEx’s biggest hub—has become one of the largest ports in America for international imports and exports.
In late March, Fred Smith was interviewed for The American Enterprise by California journalist Michael Robinson.
TAE: A hundred years from now, what will students of history read about the impact of the FedEx invention of the overnight delivery industry?
Smith: There are several important things FedEx has done. The first was to change the ability of technology-based industries to sell on a national basis and to supply and support their products. Second, we developed our tracking and tracing system that let us know exactly where millions of items are every day. This has allowed businesses and individuals to manage important in-motion inventory with the same degree of certainty as if you had it in a warehouse.
The last thing we did is something that’s hardly ever written about: Had it not been for FedEx, a lot of transportation deregulation would never have taken place. The first round of deregulation, in 1977, was for air cargo, which we championed. After that came air passengers, and then, probably most importantly, interstate surface transportation in 1980.
The results have been nothing short of incredible. In 1980, logistics expenses—the costs of transporting goods, warehousing inventories, paying interest on that inventory—were about 16 percent of U.S. gross domestic product. Today, those same costs are well south of 10 percent of GDP. Much of the economic progress we’ve seen over the last generation is a result of the deregulation of transportation markets. Had that not occurred, Dell Computer couldn’t have put its business model in place. Wal-Mart would not have been the phenomenon it has become.
Last Christmas season, the U.S. had its lowest inventory-to-sales ratio in history—which means we don’t have those enormous, inventory-led business corrections that put us in recession every few years. Our economy is now able to correct from bust to boom much more quickly.
TAE: You’ve predicted that by 2020 something like 80 percent of all manufactured goods will be crossing national borders. Given this enormous tide of international trade, what do you think about today’s outcry against growing globalization?
Smith: Human prosperity is a result of the application of economic ingenuity to increasingly bigger markets. That’s a constant, whether you’re talking about the growth of Great Britain in the eighteenth and nineteenth centuries or about post-World War II America. As part of this, jobs are going to migrate to new places. There’s not much difference in today’s phenomenon than there was when textiles moved from Worcester, Massachusetts down to South Carolina, and then to the Caribbean, and then to the Orient. The naysayers are just not historically well-founded. A hundred years ago more than half the people in the United States worked in agriculture. Now it’s 2 percent, and we’re producing so much food that our biggest problem is obesity, for gosh sakes. Of course it’s not easy if you’re one of the people whose job is subject to competition elsewhere. But that’s always been an issue.
TAE: The issue of outsourcing jobs overseas was big in the 1980s, especially in the auto industry. It’s taken on a new momentum now, with jobs many people considered too high value to move offshore (for instance in the tech industry) now leaving. Is this comparable with the shift of agricultural and industrial jobs in earlier eras?
Smith: At the end of the day, there’s not a credible, highly regarded economist who doesn’t believe that the benefits of open markets and free trade vastly outweigh the localized negatives. Going back to the example of the auto industry, what happened? U.S. manufacturers had to re-tool and re-engineer, and today U.S. automobiles are ranked among the highest quality automobiles in the world again. And guess what? The Japanese and Germans now operate many plants in the United States that employ tens of thousands of Americans. The blue-collar jobs that were displaced and then re-created by free trade in the auto industry were every bit as high-paying as many of the software jobs that are now being done in India and elsewhere. It’s just deja vu all over again.
TAE: Why do you believe that markets should remain free?
Smith: Because the alternative isn’t viable. On what basis do you manage the market? What’s the moral or legal justification for it? Why should an American citizen who can buy clothing at Wal-Mart for significantly less be obliged to pay more to someone in the Carolinas to make clothing? There’s no sensible regime that you could manage.
TAE: FedEx earnings have been strong in recent quarters. What does your barometer say about the current state of the U.S. economy?
Smith: I think the U.S. economy is in the midst of a strong recovery. That includes, for the first time in a while, growth in the U.S. export sector. And there is clearly strong momentum in the domestic market, owing to the stimulative effect of lower tax rates, a washout of the overhanging excess capacity that built up during the dot-com era, and today’s historically low interest rates. There’s continued improvement in the earnings of the employed, the number of which in absolute terms continues to grow. There are about one and a half million more people employed in the spring of ’04 than there were in the fall of ’02. Job growth hasn’t risen back up to the heights of the dot-com era, but a lot of those positions simply were not real jobs to begin with.
TAE: You’ve been a long-time student of technology and its impact. What are some important trends you see looming on the horizon five or ten years from now, and what effects will they have on society and business?
Smith: Well, I think video travel is going to become much more prevalent. Many times when I’m in our Washington office, I conduct our weekly management meeting by video. We’re going to see very profound changes as a result of the elimination of time, space, and the need to travel for business. Second, the medical revolution as a result of mapping the genome and growth of biotechnology is going to shock everyone. And there will be major changes in the way power is generated for transportation, industry, and residences that will have a big effect on the world.
TAE: What is your view of unions in terms of their tendency to oppose outsourcing jobs, and what is their role, if any, in the new economy?
Smith: Anybody who says the union movement wasn’t a big part of this country’s economic power a century ago is not being honest. But the problem with unions recently has been that they simply have not changed the way every other institution in the country has. They continue to try to deal with issues like globalization in the political arena rather than in the economic arena. That’s a prescription for declining influence—just what’s happened to them. Their market share has gone down from about 35 percent right after World War II to 12 or 13 percent of the workforce today. And if you take out government, it’s down to about 8 percent. If you were managing a company that had that kind of decline, you’d have to ask yourself if perhaps your product isn’t what the market wants.
Over time, people who run businesses came to understand that a motivated and a committed workforce is worth a lot in terms of competitive advantage and profitability. So many of the things that modern corporations do obviate the need for a third party getting between the corporation and its employees and customers. One problem of the modern union movement is that customers are often taken for granted and treated as a distraction, when, in fact, they’re everything.
TAE: You’re one of the great entrepreneurial success stories in modern America, having started from scratch a company that has grown to occupy a position right at the heart of our economy. Many entrepreneurs fare poorly when their company grows large and their role becomes more administrative than creative. How have you avoided this?
Smith: I suppose it’s because this company is a very, very interesting entity. It sits in the middle of so many fascinating developments—the growth in high technology, advanced pharmaceuticals, international trade. We’re the ones who make it all possible. If you want semiconductors from Taiwan, we’ll pick them up this afternoon and deliver them to any address in the United States, customs cleared, the next business morning. We see everybody. We’re like plumbers or house cleaners—we’re inside every company in America. It’s interesting and a lot of fun.
I don’t think being an entrepreneur and a good manager have to be mutually exclusive. A good analogy might be the idea that you can’t be a good athlete and also become a good general manager. That’s been proven to be wrong so many times it’s not even funny. Often, entrepreneurs won’t stay with a company as it grows large, but there have been an awful lot who did, and did well.
TAE: You did two tours in Vietnam. Has there been an accurate book that reflects your view of the war?
Smith: There’s been so much nonsense written about Vietnam. A hundred years from now, the history books will be quite different than what the conventional wisdom is today. That war could have been won, there’s no question in my mind about that. The Marine Corps approach in Vietnam—local counterinsurgency through the Combined Action Platoons—was the correct one. That, combined with the strategic use of force up north, would certainly have brought the situation in South Vietnam to the same place as Korea, had it been pursued. To have contrary nonsense floating around is not very productive. What you would have had today is South Vietnam where all the lights are on, and a North Vietnam which looks black, just like in those nighttime satellite photos of Korea.
I have a great perspective on what Asia (where we do huge business) is like today compared to when I first went there as a young man, courtesy of the U.S. government. There’s no question there would have been a domino effect if the United States hadn’t taken a stand in Vietnam. Maybe the Bamboo Curtain would have fallen quicker than the Iron Curtain, I don’t know. But I can tell you one thing, you would have to be deaf, dumb, and blind to have been in Singapore, Taiwan, Hong Kong, the Philippines, and Japan as I was in the mid 1960s and not be impressed by the unbelievable improvements in well-being since then. This progress was the result of an open, market-based system, and Southeast Asia might have missed it had we not made a statement in Vietnam.
TAE: How would you assess the American military operation in Iraq versus how things went in Vietnam?
Smith: The improvements in the American military as evidenced by the Gulf War and Operation Iraqi Freedom are built on the shoulders of a lot of officers who were junior officers as I was in Vietnam. Young officers, including Colin Powell, General Schwarzkopf, General Franks, and others built a new military around some very sound leadership and management principles, including moving to an all-volunteer force, keeping units together rather than using the rotation system, and then combining that with the most incredible application of modern technologies you can imagine. That combination has proven to be without precedent, probably of any organization of any type. The capabilities our military has are head and shoulders above any comparable organization. There’s really no parallel in the corporate world.
TAE: How do you view the Iraq war?
Smith: The decision on Iraq was a very tough call. But people forget that the Congress of the United States passed an act in 1998 that essentially called for regime change in Iraq because of the danger that Saddam Hussein presented to the world. With the post 9/11 prism applied to the issue, and the almost universal agreement among the intelligence services that that regime was dangerous, I don’t see how the President could have made any other decision. I don’t see how the United States, after suffering the largest attack in its history, could have simply ignored the intelligence that it was receiving and take the chance of not acting.
TAE: How good a leader is George Bush?
Smith: Well, you know, I’m sort of the Forrest Gump of American politics. President Bush and I were in the same fraternity at Yale, and John Kerry was one of my best friends at Yale. So I know both of them quite well and like both of them, although my politics are much closer to President Bush’s than John Kerry’s. John Kerry is certainly not the patrician and stiff person that he’s been portrayed as. But I think the President has made some very, very difficult decisions, and has been steadfast in his convictions. You can disagree with him, but I don’t think you can fault him for leadership. I think he has been very upfront, including about the weapons of mass destruction. He said, “Look, we were acting on the best intelligence we had.” And as a junior officer in the Marine Corps, including right before the Tet Offensive, I saw intelligence estimates that ended up being just incredibly off. But you have to act on the intelligence.
TAE: What are your recollections of John Kerry?
Smith: John was always a political person, from the first time I met him as a sophomore. He was involved in the Yale Political Union. He was an outstanding debater. He gave our class talk at graduation, which was ambivalent about the Vietnam build-up going on at that time. Meanwhile, the President was a very likable guy, very smart—contrary to his depiction in the press as someone who is not bright. But George Bush was not as overtly interested in politics at that stage in life.
Both of them are good men, and both of them are intelligent. I think the President has a more clear-eyed view of what he believes must be done. I think John’s position, partially based on his constituency and his party, doesn’t reflect reality. It’s all well and good to say we should have these coalitions and go to the U.N., but the record is pretty stark as to the ability of that course of action to really do much. When you have countries like Libya chairing the human rights section of the United Nations, there’s a fundamental defect in the design.
Last summer I was in Paris at a symposium of the French-American Business Council, and the United States was really getting a tongue lashing from a French journalist. He was talking about the United Nations this, and the United Nations that. I’ve studied the
U.N. charter carefully, and I pointed out to him that the U.N. specifically allows a country to defend itself when it believes it is in danger.
TAE: You obviously read a lot. How much?
Smith: Well, I enjoy reading both books and periodicals immensely. I read a number of newspapers every day—the Wall Street Journal, the New York Times, the Financial Times, Investor’s Business Daily, our local paper, the Washington Post online. I read a lot of industry publications and three business magazines. I read an awful lot off the Internet. And I try to read a book or two every week.
TAE: What book most recently?
Smith: 20:21 Vision: Twentieth-Century Lessons for the Twenty-first Century by Bill Emmott, the editor in chief of The Economist. Basically, he talks about the two fundamental questions: Will America continue to maintain stability in the world through its military prowess? And will the capitalist system survive all of the assaults that are continuously made on it? It’s a very good book.
TAE: What are your recollections of John Kerry?
Smith: John was always a political person, from the first time I met him as a sophomore. He was involved in the Yale Political Union. He was an outstanding debater. He gave our class talk at graduation, which was ambivalent about the Vietnam build-up going on at that time. Meanwhile, the President was a very likable guy, very smart—contrary to his depiction in the press as someone who is not bright. But George Bush was not as overtly interested in politics at that stage in life.
Both of them are good men, and both of them are intelligent. I think the President has a more clear-eyed view of what he believes must be done. I think John’s position, partially based on his constituency and his party, doesn’t reflect reality. It’s all well and good to say we should have these coalitions and go to the U.N., but the record is pretty stark as to the ability of that course of action to really do much. When you have countries like Libya chairing the human rights section of the United Nations, there’s a fundamental defect in the design.
Last summer I was in Paris at a symposium of the French-American Business Council, and the United States was really getting a tongue lashing from a French journalist. He was talking about the United Nations this, and the United Nations that. I’ve studied the
U.N. charter carefully, and I pointed out to him that the U.N. specifically allows a country to defend itself when it believes it is in danger.
Thanks for posting this article. It says it ALL.
389 employees on a start up company???? Yea Right!
In another article I read, he said that he had to have a tremendous amount of capital (14 jets remember), and a large staff just to open the door. Everybody predicted failure
You are EVIL.
[I can't focus my eyes "right", now]...:))
At least it is pointing in the right direction.
LMAO Loki!! My 11 year old pointed that out to my hubby the Chief and me about 3 months ago! We're still talkin about it!!
Great post! I'm looking at FedEx a little differently now.
Type "38" in the zip seach field---that's the prefix of most of the zips around FedEx headquarters. Virtually every FedEx officer (and spouse) has given the maximum to George W. Bush (and many also to the RNC.)
(Think about this next time you see a DHL commercial---DHL, owned and financed by the German government.)
That's brilliant. I've never noticed it before and I've always loved Fedex. hmmmm....
You stink!
; )P
Thank you for that information.
I will remember it.
help me out, I can't see it :)
ok, got it. now. I probably get 10 FedEx's a day, and I have never noticed it...
Smith originally wanted to establish the company in Little Rock - as the costs would be lower than at Memphis.
The local airfield's major tenant (Central Flying Service) convinced the local politicians that expanding the ramp area for this upstart company would be a money loser.
Thirty years later, Memphis is still the location of one of the worlds most successful companies pouring billions into the local economy. Little rock is still a mid sized city that depends on a modest state government payroll to keep it financially afloat.
And thirty years later whenever a bitter funding battle over future expansion funding pops up someone is sure to cry out "remember FEDEX!"
Yet another reason why economies shouldn't be centrally planned.
Great article. Thanks.
Welcome aboard. But how could you be a FReeper since Oct. 2, 2004?
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