Federal Express Begins Operations Summary

  • Last updated on November 10, 2022

Founder Fred Smith officially began operations of Federal Express, the world’s first company to provide guaranteed next-day package delivery. Originally an alternative to the U.S. Postal Service, Federal Express developed into an unsurpassed global network of transportation, information, and trade services.

Summary of Event

Frederick W. Smith first had the idea for Federal Express when he was an undergraduate at Yale University. In a paper analyzing the air-freight shipping industry, Smith identified a major problem with the inefficient distribution of packages by carrier services. Most packages had to be routed indirectly to other cities and airlines before reaching their final destinations, so priority packages could not be delivered within one or two days. This historic student paper proposing overnight express delivery received only an average grade. Federal Express;founding Air-express shipping[Air express shipping] [kw]Federal Express Begins Operations (Apr. 17, 1973) Federal Express;founding Air-express shipping[Air express shipping] [g]North America;Apr. 17, 1973: Federal Express Begins Operations[01150] [g]United States;Apr. 17, 1973: Federal Express Begins Operations[01150] [c]Trade and commerce;Apr. 17, 1973: Federal Express Begins Operations[01150] [c]Organizations and institutions;Apr. 17, 1973: Federal Express Begins Operations[01150] Smith, Frederick W. Bass, Arthur Charles Frock, Roger Lea, Charles Lewis, Jr. Meers, Henry W.

After graduation from Yale in 1966, Smith spent four and a half years in the Marine Corps, where he solidified the Federal Express concept. Observing the frequent wasteful distribution of military supplies to the wrong places, he outlined a new model: an integrated air and ground system with a “hub and spokes,” or central clearinghouse and outlying destinations.

In June, 1971, Smith founded the Federal Express Corporation, with headquarters in Little Rock, Arkansas, but the company did not officially begin operations until April 17, 1973. At this time, the U.S. Postal Service and United Parcel Service United Parcel Service (UPS) were the major package-delivery services. Two smaller companies, Emory Air Freight and Flying Tiger, also provided some services. These services operated on a linear basis, delivering packages from one point to another. With this distribution system, it was difficult to get packages to their destinations in one or two days. At the same time, the computer industry was rapidly developing. International Business Machines (IBM), Intel Corpoation, and other businesses needed express delivery of items such as computers and electronic parts.

Smith believed there was a need for a company that could deliver small packages overnight, and that there was a potentially immense market for his Federal Express Corporation. However, huge amounts of venture capital were needed to set up the complex infrastructure and to begin operating. For his hub-and-spoke system, Smith needed a fleet of more than twenty express jets to cover a network of twenty-five cities. His planes would fly at night. All packages would go to a central hub to be sorted, distributed to outgoing flights to the packages’ destinations, and delivered in the morning by ground couriers or trucks. He estimated an annual revenue of nearly $67 million.

Smith, whose father had founded Dixie Greyhound Bus Lines and the Toddle House chain of restaurants, contributed millions from his inheritance. He had offered the Federal Reserve Board a future contract for overnight air-express services. However, the Federal Reserve rejected the offer. Smith then realized that he needed market data to determine the feasibility of his concept, to see if there was a market, and to attract investors.

Smith hired two consulting firms to conduct market analyses and research on the domestic air-freight industry, independent of each other. He hired Arthur Charles Bass and his firm, Aero Advanced Planning Group. Bass was an aviation marketing consultant who had devised marketing strategies for Cessna, Piper Aircraft, and the Dassault Falcon. The second company was A. T. Kearney & Company, which specialized in transportation economics. Roger Frock, an industrial design specialist who had been with the company for twelve years, was assigned to the project. Both Bass and Frock were skeptical at first, but in the spring of 1972 they concluded that there was definitely an untapped market for on-time air-express service combined with delivery by ground courier. Their research showed that 90 percent of commercial airliners were on the ground at night, so Smith’s small planes could fly at night through noncongested skies and take off and land at uncrowded airports. They estimated potential revenues of $1 billion a year. Both Bass and Frock joined Smith’s new Federal Express company.

The original Federal Express inauguration was scheduled for March 12, 1973. Company headquarters had been moved from Little Rock to Memphis, Tennessee, which was centrally located for the network of target cities. Memphis International Airport also had ample hangar space. On that night, six Dassault Falcon jets delivered only six packages. Disappointed, Smith decided to reschedule the “official” beginning of Federal Express for April. Bass and Frock completely restructured the air-express network.

On the night of April 17, 1973, Federal Express officially started operations, and air/ground express delivery service was born. A combined force of 389 Federal Express employees and fourteen Dassault Falcon jets delivered 186 packages overnight to twenty-five U.S. cities from Rochester, New York, to Miami, Florida. Among the cities in the network were Cleveland, Chicago, Detroit, Pittsburgh, Oklahoma City, Indianapolis, and New Orleans.

Smith and other Federal Express executives and their families watched from the ramp outside the sorting hangar at Memphis International Airport. Also witnessing the event was Charles Lewis Lea, Jr., executive vice president of New Court Securities Corporation, New York City. Henry W. Meers, vice chairman of the Wall Street banking and investment firm White, Weld & Company, had encouraged Lea, who had a $100 million portfolio, to consider investing in Federal Express. Although better than the outcome of the trial start in March, the results were still unimpressive to Lea. This loss was another major financial setback for Smith’s company.

In its first two years of operation, Federal Express lost $30 million. The company did not show a profit until July, 1975, the year it installed the first Federal Express drop box. In spite of continuing financial challenges, Smith persevered. Out of these early years came many stories of personal sacrifice by loyal employees, and creative solutions for survival. For instance, employees often delayed cashing paychecks, and pilots used personal credit cards to purchase gas for their planes.

For two years, Federal Express lobbied for air cargo deregulation. Finally, in 1977, Congress passed Public Law 95-163, which permitted cargo airlines to use larger aircraft, with no restrictions on routes. The company immediately bought seven Boeing 727 aircraft, which had seven times the cargo capacity of the Dassault Falcons. As a result, Federal Express could transport more packages to more locations, and the company grew rapidly.

Significance

In 1978, Federal Express Corporation acquired the ticker symbol FD and became publicly held on the New York Stock Exchange. In 1983, Federal Express became the first American company to earn $1 billion in revenues within ten years of start-up, without acquisitions or mergers.

The company developed memorable and effective slogans and ad campaigns, including “Absolutely, Positively Overnight” (1978-1983), “It’s Not Just a Package, It’s Your Business” (1987-1988), “Our Most Important Package Is Yours” (1991-1994), “The World on Time” (1994), and “Absolutely, Positively Anytime” (1995). In 1994, Federal Express officially changed its name to the popular abbreviation “FedEx” for brand recognition.

Federal Express created the overnight letter and was the first to offer next-day delivery by 10:30 a.m., Saturday delivery, guaranteed overnight package delivery, money-back guarantees, and time-definite service for freight. These services revolutionized mail- and package-delivery systems worldwide.

By 2007, Federal Express had grown into a $34 billion integrated network of independent but collaboratively managed companies: FedEx Express, FedEx Ground, FedEx Freight, FedEx Kinko’s Office and Print Services, FedEx Custom Critical, FedEx Trade Networks, FedEx Supply Chain Services, and FedEx Services. With more than 260,000 employees and contractors, FedEx had become the world’s largest express transportation company, providing services in e-commerce, business solutions, information, and transportation to more than 220 countries and territories. Federal Express;founding Air-express shipping[Air express shipping]

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Birla, Madan. FedEx Delivers: How the World’s Leading Shipping Company Keeps Innovating and Outperforming the Competition. Hoboken, N.J.: John Wiley & Sons, 2005. Firsthand accounts of FedEx management practices. Illustrated, with index and bibliography.
  • citation-type="booksimple"

    xlink:type="simple">Frock, Roger. Changing How the World Does Business: FedEx’s Incredible Journey to Success—The Inside Story. San Francisco: Berrett-Koehler, 2006. An insider’s account of how employees and executives used incredible methods, often at personal sacrifice, to overcome daunting financial and legal obstacles.
  • citation-type="booksimple"

    xlink:type="simple">Sigafoos, Alan, and Roger R. Easson. Absolutely Positively Overnight: The Unofficial Corporate History of Federal Express. 2d ed. Memphis, Tenn.: St. Luke’s Press, 1988. With the company’s registered tagline in the title, this book chronicles FedEx’s development from the beginning to the early 1980’s. Illustrated.
  • citation-type="booksimple"

    xlink:type="simple">Trimble, Vance. Overnight Success: Federal Express and Frederick Smith, Its Renegade Creator. New York: Crown, 1993. Pulitzer Prize-winning journalist provides an unofficial history, including numerous interviews. Illustrated, index.
  • citation-type="booksimple"

    xlink:type="simple">Wetherbe, James C. The World on Time: The Eleven Management Principles That Made FedEx an Overnight Sensation. Santa Monica, Calif.: Knowledge Exchange, 1996. The author, who is the Federal Express Professor of Excellence at the University of Memphis, contends that FedEx’s management principles would help other companies to succeed.

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Categories: History