This is Dominic Pino filling in for Jim Geraghty. You’ll read me again tomorrow, then Audrey Fahlberg will finish out the week.
On the menu today: A break from Iran coverage (for that, you can read about the tentative cease-fire here, and check out Audrey Fahlberg’s deep dive on Iranian threats to the 2024 Trump campaign here) to commemorate the life of Fred Smith, the founder of FedEx and CEO until 2022, who died over the weekend of natural causes in Memphis at the age of 80.
Absolutely, Positively Transformative
Frederick Wallace Smith was born in Mississippi in 1944 but grew up mostly in Memphis. His father was a successful businessman there, running a chain of restaurants and a bus line, but he died when Smith was four years old. He was mainly raised by his mother, Sally, and struggled with a hip disorder that forced him to walk with crutches while young.
He went to Yale to study economics, and in 1965 wrote one of the most consequential undergraduate term papers ever. At the time, airfreight was carried in the bellies of passenger planes (where much of it still travels today), moving when and where passengers moved. Shippers had to coordinate with ground transportation companies whose schedules did not line up with the airlines’. Smith saw a market opening up in newer high-tech sectors (in 1965!) such as electronics and medical devices where companies would be willing to pay for speedy, direct shipments.
The idea from his paper was to create a transportation company that would carry only cargo, and do so for a package’s entire journey, such that it could deliver a package anywhere in the U.S. overnight. He claimed later that he wrote it right before the deadline and probably got a C from his professor.
Smith graduated from Yale in 1966 and joined the Marines, leaving the service as a captain. He did two tours in Vietnam and was awarded a Silver Star, Bronze Star, and two Purple Hearts. FedEx said Smith “would often joke that he received his ‘business degree’ from the USMC.”
In 1971, he began to put that college paper idea into action. He founded a new freight company called “Federal Express,” to denote his national ambitions. He also hoped the Federal Reserve would become an early customer (it didn’t). Operations began in 1973 with 14 aircraft.
It was not inevitable that FedEx would succeed. The early years were rough, both due to Smith’s personal troubles (a lawsuit by his half-sisters and a hit-and-run incident for which charges were later dropped) and high fuel prices from the 1973 OPEC embargo. Smith’s pilots were asked to use their personal credit cards to buy fuel and stagger cashing their paychecks. At one point, the company was down to its last $5,000 — which Smith took to Las Vegas and turned into $27,000 playing blackjack. That was enough money to get FedEx through the week.
FedEx made its first annual profit in 1976 and has been profitable almost every year since then. The company basically invented overnight nationwide package delivery and other things that characterize modern logistics.
Modern logistics likely would not have been possible were it not for the government getting out of the way. Deregulation undertaken by Jimmy Carter meant that the federal government no longer had to approve routes and prices for interstate air transportation. The government abolished the Civil Aeronautics Board under the direction of regulatory economist Alfred Kahn. Without those constraints, FedEx could afford to buy larger planes and by 1983 had revenue over $1 billion.
FedEx soon realized that the market for its services was much larger than Smith initially thought. It built out its ground network alongside its air service and took the invention of e-commerce in stride. Today:
- FedEx makes an average of 16 million deliveries per day, or 185 deliveries per second.
- It is the largest cargo airline in the world, with about 700 airplanes, and its delivery fleet includes about 200,000 motorized vehicles.
- FedEx employs over 500,000 people (370,000 in the U.S.) at over 5,000 facilities worldwide.
- Its website processes 500 million package tracking requests each day.
FedEx invented the tracking number. It began as an internal practice that then became visible to customers. The company also began putting barcodes on packages. Because the delivery process was conducted by FedEx from origin to destination, FedEx customers could know where their package was at any point in the process, a first for the transportation industry.
Smith was always sensitive to the gains in productivity that come from technology, and FedEx was very early to computerization in transportation, adopting its first centralized computer system in 1979. FedEx also created its own wireless network beginning in 1980, allowing drivers to share information from their trucks years before cell phones. It was the first transportation company with a website that allowed customers to track packages on the internet, beginning in 1994. “The information about the package is as important as the package itself,” Smith said.
The Memphis Superhub has always been central to FedEx’s identity, literally and figuratively. Smith was a pioneer of the hub-and-spoke model now ubiquitous in transportation, and he was a Memphis resident for most of his life. Memphis has one of the busiest cargo airports in the world, almost entirely because of FedEx, whose cargo operation there is significantly larger than the airport’s passenger terminal.
Why Memphis? Good weather for flying, a central location, and lots of space. Global trade benefits the interior of the country, too. Competitor UPS’s largest hub is in Louisville, and cities such as Chicago, Kansas City, Indianapolis, and Columbus are vital transportation hubs.
FedEx is the Memphis area’s largest private-sector employer, with over 30,000 workers. It employs people at every income and skill level, from package sorters to salesmen to software engineers. Unlike competitor UPS, FedEx is non-union (except for its pilots). For a video showing this center of global trade in action, click here.
Smith was a potential secretary of defense for George W. Bush (a fraternity brother at Yale) and a rumored running mate for John McCain in 2008. Jim Geraghty described him as “absolutely, positively under the radar,” a play on FedEx’s famous commercials. He was a pallbearer at McCain’s funeral.
He also drew admiration from Barack Obama as “very thoughtful” and “somebody who is thinking long-term.” Two of the policy issues Smith focused on the most were increasing domestic energy production to ensure that the U.S. never experiences something like the 1970s energy crises again, and using U.S. power to expand and defend free trade around the world. The current president is a fan of one of those ideas, not so much the other.
In 2013, Smith co-wrote an op-ed with George Shultz for the Wall Street Journal that said, “The U.S. even could surpass Saudi Arabia to become the leading global producer within the next decade,” at a time when U.S. production was still well behind both Saudi Arabia and Russia. The U.S. first surpassed Saudi Arabia in 2018 and hasn’t looked back, today producing more crude oil than any country, ever.
In 2019, the New York Times ran a piece criticizing FedEx for not paying taxes. The company didn’t do anything illegal, and Smith challenged publisher A. G. Sulzberger to a public debate on corporate tax policy. Smith was an advocate for lowering the corporate tax rate and allowing full expensing for business investments in equipment. The 2017 Tax Cuts and Jobs Act cut America’s highest-in-the-developed-world corporate rate to near the average for the OECD, and the current tax bill working through Congress might make full expensing permanent.
FedEx was one of the companies that thanklessly kept the world semi-functional during the Covid pandemic. “FedEx flew 777s bearing PPE across the Pacific more than 1,000 times in the early months of 2020,” the Wall Street Journal noted in an interview with Smith in 2022. “There are only two networks that could deliver the vaccines — us and UPS. And we did tens of millions, at 99-plus accuracy,” Smith said.
He also shared this bit of wisdom: “There’s only two kinds of economic systems: the market-driven and the government-directed. That’s it! The more you move toward a state-directed economy, the less efficient and more corrupt it becomes.”
Need to deliver a pacemaker to a specific room of a hospital? FedEx does that. Clinical samples for medical research? Liquid or dried, they can do it. Navigating complicated rules about international alcohol shipments? They’ve got you covered. Food products that need to be at a certain temperature and arrive the next day? Sure. How about giant pandas? Yep, they do that, too.
The Memphis-Shelby County Airport Authority is planning to rename Memphis International Airport after Smith. His legacy was already so apparent in Memphis that plans were in the works to rename the airport after Smith 30 years ago, but Smith objected. “Fred told me that naming buildings was for dead people,” airport authority vice chair Jack Sammons told the Memphis Commercial Appeal. “(He said then) that he had a lot of runway left and that if I did that, he’d personally whoop my ass. ‘When I’m gone, do what you want to do, but while I’m alive, hell no.’”
Now, he is gone, but his idea has taken hold like few others have. Smith’s successor as FedEx CEO, Raj Subramaniam, praised him for “shaping global commerce as we know it.” Phrases like that are usually overstatements, but this one is not. If you’ve ever received or shipped a package overnight, be grateful to Fred Smith. He came up with an idea that people didn’t think was possible and made it into something billions of people take for granted.