Frederick Wallace Smith (born August 11, 1944), or Fred Smith, is the founder, chairman, president, and CEO

of FedEx, originally known as Federal Express, the first overnight express delivery company in the world, and the largest in the United States. The company is headquartered in Memphis, Tennessee. Early Years: Smith was born in Marks, Mississippi, the son of James Frederick Smith who (before age 20) dropped his first name, expressing a preference to be known as Fred or Frederick the founder of the Toddle House restaurant chain and the Smith Motor Coach Company (renamed the Dixie Greyhound Lines after The Greyhound Corporation bought a controlling interest in 1931). Fred Smith, the father, died while Smith the son was only 4, and the boy was raised by his mother and uncles. Smith was born in Marks, Mississippi, on August 11, 1944. The younger of two sons, Smith was named after his father, an entrepreneur and businessman who established the Dixie Greyhound Bus Lines, later a part of Greyhound Bus Lines. To further supplement the family fortune, the senior Smith and his older son established the Toddle House Restaurant chain, which offered Southern-style cooking at locations throughout the United States. In 1948, when Smith was only four years old, his father died. Fortunately for the family, Smith senior had made enough money to ensure his familywhich now consisted of a wife, two sons, and two daugh tersa comfortable existence. However, it would be a long time before the children would see any of their father's money. Concerned that his children would squander their fortunes and waste their lives and talents, Smith senior had his money placed into a trust fund to be released to the children upon their 21st birthdays. From early childhood, Smith was troubled by a birth defect known as Calve Perthes disease, a peculiar form of childhood arthritis of the hips caused by a temporary loss of blood supply to the hip. The ailment was such that Smith spent much of his early years on crutches and in braces to stabilize his hip joint sockets. However, by the time he was 10, Smith had out grown the disease. Smith attended Memphis University Prep, where he participated in athletics and was an excellent student. He also developed a keen interest in theAmerican Civil War. But Smith's true passion was flying; by the age of 15 he was learning the ropes while operating a crop duster. In time he became known as a skilled amateur pilot. Smith's business acumen started early; while in high school, he and a group of friends founded the Ardent Record Company, a small recording studio that later went on to become a legitimate company. In 1962 Smith left Memphis to attend Yale University.

Smith had a great interest in flying, and became an amateur pilot as a teen. He attended elementary school at Presbyterian Day School and high school at Memphis University School.

In 1962, Smith entered Yale University. While attending Yale, he wrote a paper for an economics class, outlining overnight delivery service in a computer information age. Folklore suggests that he received a C for this paper, although in a later interview he claims that he told a reporter, "I don't know what grade, probably made my usual C", while other tales suggest that his professor told him that, in order for him to get a C, the idea had to be feasible. The paper became the idea of FedEx (for years, the sample package displayed in the company's print advertisements featured a return address at Yale). Smith became a member and eventually the President of the Delta Kappa Epsilon fraternity and the secret society Skull and Bones. He received his Bachelor's degree in economics in 1966. In his college years, he was a friend and DKE fraternity brother of George W. Bush. Smith was also friends with John Kerry and shared an enthusiasm for aviation with Kerry and was a flying partner with him. Marine Corps Services: After graduation, Smith joined in the U.S. Marine Corps, serving for four years, from 1966 to 1969, as a platoon leader and a forward air controller (FAC), flying in the back seat of the OV10. Much mythology exists about this part of his life; Smith was a Marine Corps "Ground Officer" for his entire service. He was specially trained to fly with pilots and observe and 'control' ground action. He never went through Navy flight training and was not a "Naval aviator" or "pilot" in the military. Individuals who completed Navy flight training and became a "Designated Naval Aviator" (pilot) were obligated to serve six years at the time. As a Marine, Smith had the opportunity to observe the military's logistics system first hand. He served two tours of duty in Vietnam, flying with pilots on over 200 combat missions. He washonorably discharged in 1969 with the rank of Captain, having received the Silver Star, the Bronze Star, and two Purple Hearts. While in the military, Smith carefully observed the procurement and delivery procedures, fine-tuning his dream for an overnight delivery service.[4] Smith also served with, and became a personal friend of, legendary Special Forces-Intelligence hero Marine Lt. Col. William V. "Bill" Cowan during his Vietnam service. Cowan's wvc3 group is famous for daring hostage rescues, and assisted Smith in FedEx's expansion into the Middle East. Business Career: In 1970, Smith purchased the controlling interest in an aircraft maintenance company, Ark Aviation Sales,[4] and by 1971 turned its focus to trading used jets. On June 18, 1971, Smith founded Federal Express with his $4 million inheritance (about $21 million in 2008 dollars),[9] and raised $91 million (about $484 million in 2008 dollars)[9] in venture capital. In 1973, the company began offering service to 25 cities, and it began with small packages and documents and a fleet of 14 Falcon 20 (DA-20) jets. His focus was on developing an integrated air-ground system, which had never been done before. Smith developed FedEx on the business idea of a shipment version of a bank clearing house where one bank clearing house was located

in the middle of the representative banks and all their representatives would be sent to the central location to exchange materials.[4] Smith has served on the boards of several large public companies, the St. Jude Children's Research Hospital and Mayo Foundation boards. He was formerly chairman of the Board of Governors for the International Air Transport Association and the U.S. Air Transport Association. Smith is chair of the Business Roundtable's Security Task Force, and a member of the Business Council and the Cato Institute. He served as chairman of the U.S.-China Business Council and is the current chairman of the French-American Business Council. In addition, Smith was named 2006 Person of the Year by the French-American Chamber of Commerce. He is a member of the Aviation Hall of Fame. Smith was approached by Senator Bob Dole, who asked Smith for support in opening corporate doors for a new World War II memorial.[10] Smith was appointed to co-chairman of the U.S. World War II Memorial Project. Smith was named as Chief Executive magazine's 2004 "CEO of the Year". In addition to FedEx, Smith is also a co-owner of the Washington Redskins NFL Team. His son, Arthur Smith, who played football at the University of North Carolina, is now a coach for the Washington Redskins. This partnership resulted in FedEx sponsorship of the Joe Gibbs NASCAR racing team. Smith also owns or co-owns several entertainment companies, including Dream Image Productions and Alcon Films (producers of the Warner Bros. film Insomnia starring Al Pacino and Robin Williams). In 2000, Smith made an appearance as himself in the Tom Hanks movie Cast Away, when Tom's character is welcomed back, which was filmed on location at FedEx's home facilities in Memphis, Tennessee. A DKE Fraternity Brother of George W. Bush while at Yale, after Bush's 2000 election, there was some speculation that Smith might be appointed to the Bush Cabinet as Defense Secretary.[11]While Smith was Bush's first choice for the position, he declined for medical reasons Donald Rumsfeld was named instead.[12] Although Smith was friends with both 2004 major candidates,John Kerry and George W. Bush, Smith chose to endorse Bush's re-election in 2004. When Bush decided to replace Rumsfeld, Smith was offered the position again, but he declined in order to spend time with his terminally ill daughter.[13] Smith was a supporter of Senator John McCain's 2008 Presidential bid, and had been named McCain's National Co-Chairman of his campaign committee. Some had speculated that Smith might have a role as an economic advisor in a theoretical McCain administration. Smith was inducted into the Junior Achievement U.S. Business Hall of Fame in 1998. His other awards include "CEO of the Year 2004" by Chief Executive Magazine[14] and the 2008 Kellogg Award for Distinguished Leadership, presented by the Kellogg School of Management on May 29, 2008.[15] He was also awarded the 2008 Bower Award for Business Leadership from

The Franklin Institute in Philadelphia, Pennsylvania.[16] He is the 2011 recipient of the Tony Jannus Award for distinguished contributions to commercial aviation.[17] While CEO of FedEx in 2008, Frederick W. Smith earned a total compensation of $10,434,589, which included a base salary of $1,430,466, a cash bonus of $2,705,000, stocks granted of $0, and options granted of $5,461,575.[18] In June 2009, Smith expressed interest in purchasing the controlling share (60%) of the St. Louis Rams from Chip Rosenbloom and Lucia Rodriguez.[19] In 2009, Frederick W. Smith earned a total compensation of $7,740,658, which included a base salary of $1,355,028, a cash bonus of $0, stocks granted of $0, options granted of $5,079,191, and other compensation totaling $1,306,439.[20]

Frederick W. Smith was born in Memphis, Tennessee. The Smiths were a well-to-do family, but Frederick's father died when he was only four, and the growing boy had to rely on his mother and uncles for guidance. While attending Yale University, Fred Smith wrote a paper on the need for reliable overnight delivery in a computerized information age. His professor found the premise improbable, and to the best of Smith's recollection, he only received a grade of C for this effort, but the idea remained with him. After graduation, Smith enlisted in the Marine Corps and served two tours of duty in Vietnam. As the Yale-educated son of an affluent family, Lt. Smith had some adjustments to make to the realities of war, but he cherished the advice given him by a veteran Marine sergeant: "There's only three things you gotta remember: shoot, move and communicate." While in the military, the young lieutenant observed military procurement and delivery procedures carefully, with an eye toward someday realizing his dream of a vast network dedicated to overnight commercial delivery. Smith got his chance when he left the service and started his express transport business in 1971. "I wanted to do something productive after blowing so many things up," he told an interviewer. The young entrepreneur raised $80 million to launch Federal Express, informally known as FedEx. The delivery service began modestly with small packages and documents. On the first night of operations, a fleet of 14 jets took off with 186 packages. In the first two years, the venture lost $27 million. In a short time, the company was on the verge of bankruptcy. It appeared that Smith had lost all of his investors' money, including the capital of his own brothers

and sisters. But Smith succeeded in renegotiating his bank loans and was able to keep the company afloat. Unlike many entrepreneurs, Fred Smith is also a hands-on manager, who directs every facet of corporate strategy. He determined at the outset that FedEx was in the information business -that knowledge about origin, present whereabouts, destination, estimated time of arrival, price and shipment cost of his cargo was as important as its prompt delivery. Another principle Smith applied at FedEx was to make sure every employee felt they could share in the success of the company. FedEx managers are carefully trained to ensure respect for all employees, and their performance is monitored. Mangers are evaluated annually by both bosses and workers to ensure good relations between all levels of the company. Smith believes that fair treatment instills company loyalty, and that company loyalty always pays off. Smith's professor at Yale may not have seen the need for overnight delivery, but today's business world depends on businesses like FedEx shipping all manner of goods around the globe quickly and reliably. Smith's fleet of MD11s and A300s circle the globe carrying all manner of goods: Maine lobsters, Japanese cherries, Hawaiian flowers, medicines, heart monitors, contact lenses, surgical scalpels, tennis shoes, circuit boards, fresh blood, tractor parts, auto bumpers, European fragrances, Swiss watch parts. As Smith says: "We are the clipper ships of the computer age." In 1997, Smith acquired the $2.7 billion Caliber System, whose trucking subsidiary RPS ranked second in ground shipments, exceeded only by UPS, the United Parcel Service. The RPS fleet of 13,500 trucks increased FedEx's profit margin, because ground fleets are cheaper to operate than airplanes. It also gave FedEx the extra muscle it needed to step into the breach when FedEx competitor UPS was immobilized by a strike later that year. Fred Smith's effort to instill company loyalty bore fruit. During the UPS strike, when FedEx was swamped with 800,000 extra packages a day, thousands of employees, many of whom had already worked a full day, voluntarily poured into the hubs a little before midnight to sort the mountain of extra packages. Smith publicly thanked them in 11 full-page newspaper ads; he

also ordered special bonuses. When the strike was over and the smoke cleared, FedEx had pulled roughly two percentage points of market share away from UPS, increasing its share of the express transportation market to more than 43 percent. While UPS faces additional labor unrest among its pilots, FedEx pilots are among the best-compensated and most contented in the industry. The stock market responded to FedEx's gains. Over the course of the year, the company's share price rose by nearly 70 percent. Fred Smith has never allowed FedEx to rest on its laurels. Continuous improvement is one of his fundamental management principles. in the 1990s, the company installed computer terminals in the offices of over 100,000 customers and gave proprietary software to more than half a million more, enabling shippers to label their own packages. Today, more FedEx customers print their own labels directly from the FedEx web site. FedEx receives electronic notification to pick up the cargo, then ships and delivers. Competitors in the express delivery business are still rushing to catch up with FedEx's technological advances. In 2001, FedEx made an unprecedented deal with the United States Post Office, contracting to transport large mail shipments for the Post Office, while installing FedEx drop boxes in U.S. Post Offices. Three years after, FedEx also took on international express shipments for the Post Office. That same year, FedEx purchased the document services company Kinko's, renaming the business FedEx Kinko's Office and Print Center. At over 1,000 locations across the United States, customers can print, copy and bind their documents and dispatch them for overnight shipping from one convenient location. Today, FedEx Express is the world's leading express transportation provider. As of 2007, more than 290,000 FedEx team members worldwide were fielding a fleet of 672 aircraft and 75,000 other vehicles, delivering over 7.5 million packages every business day, to more than 220 countries and territories. Fred Smith amassed a vast personal fortune by enabling the world of business to deliver its goods quickly, anywhere in the world. Businesses seeking to reduce the costs of maintaining large inventory are increasingly adopting "just in time" delivery practices, increasing the demand for express services like FedEx. The rise of Internet commerce and the growth of the global economy are also contributing to the company's growth. FedEx has capitalized on both of these trends, with proprietary software for Internet catalogue service, and the completion of facilities in the Philippines, Taiwan and France. As of this writing, new hubs are under construction in

Greensboro, North Carolina and in Guangzhou, China. Around the globe, communications and transport continue to develop along the lines undergraduate Fred Smith predicted in his term paper over 40 years ago. THE ROAD TO FEDEX While at Yale, Smith intended to study economics and political science. Unfortunately he found himself more drawn to campus social activities, which affected his scholastic performance. However, one incident in his junior year stood out, providing the germ of an idea that later carried Smith to success. For an economics class Smith wrote a term paper that outlined his idea for a company that would guarantee overnight delivery of small, time-sensitive goods, such as replacement parts and medical supplies, to major U.S. cities. The professor was not impressed and gave Smith a grade of C for his work. But Smith's idea stayed with him, though it would be a few more years before he would have the opportunity to try it out. In 1966 Smith graduated with a degree in economics and shortly thereafter enlisted in the U.S. Marine Corps. As a second lieutenant, Smith was sent overseas to fight in Southeast Asia during the Vietnam War. Smith would do two tours in Vietnam, enrolling in flight school and eventually flying more than two hundred ground support missions. In July 1969 Smith was honorably discharged at the rank of captain with numerous honors, including a Silver Star, a Bronze Star, and two Purple Hearts. In August, Smith married Linda Black Grisham. However, the marriage would not last, and the couple divorced in 1977. Upon returning to the United States in 1970, Smith decided to revisit the idea he had written about in his economics paper. The need to create something was also spurred in part by his time in Vietnam. As he later told an interviewer, "I got so sick of destruction and blowing things up that I came back determined to do something more constructive" (Current Biography Yearbook 2000 ). To get his fledgling business underway, Smith began by purchasing the controlling interest in Ark Aviation Sales, an aircraft maintenance company owned by his then father-in-law. By 1971 Smith had expanded the company's venue, turning the focus from airplane maintenance to a company that bought and sold used corporate jets. But even the success of posting over $9 million in revenue and the company's seeing profits for the first time were not enough to satisfy Smith. A RADICAL IDEA By now Smith had devised a well-thought-out strategy to implement his idea while making the most of his resources. Originally Smith wanted to do contract work for the Federal Reserve System, transporting, sorting, and rerouting checks. His business plan called for a fleet of planes that would pick up packages for delivery. The planes and cargo would be flown at night, when air traffic was minimal; packages would then be dropped at a central location or hub, where they would be sorted. From there the parcels, using both ground and air, would be routed to their destinations within a 24-hour period. Smith chose Memphis as the hub city because of its central

location, moderate climate, and labor resources. Smith also wanted the company to own its own planes in order to bypass federal shipping regulations. Despite Smith's proposals, which he calculated would have saved the nation's banking system an estimated $3 million a day, many financial institutions, while interested, were not convinced that Smith's ideas could realistically be carried out. On paper Smith's delivery system was simple and practical. However, there were many problems to overcome to make it work. Financially, the business required a tremendous amount of money for planes, pilots, and insurance. Smith also needed to design a transportation system that could not only link any two parts of the country but also ensure that packages going back and forth could be delivered within the promised 24-hour windowsomething that had never been tried before in cargo delivery. Although Smith was unable to convince the Federal Reserve that his plan would work, he decided to spend money on an intensive advertising campaign to persuade anyone else who might be interested in such a venture. Smith also realized that by using both air and ground transport, package deliveries did not have to take the most direct route, as long as they made it to their destinations within 24 hours. Over time a web of interconnecting cities was established that would provide Federal Express service. Finally, on June 18, 1971, Smith, then 27 years old, created the Federal Express Corporation. His startup funds consisted of $91 million from venture capitalists in addition to his own $4 million inheritance. By 1973 Smith was ready to go; Federal Express, with a fleet of 14 jets and several vans, began offering service to 25 cities. Still, as Smith later recalled, few people were encouraged by his new venture. In a 1979 interview, Smith said, "People thought we were bananas. We were too ignorant to know that we weren't supposed to be able to do certain things" (New York Times, January 7, 1979). Federal Express's first two years were grim. In fact, on its first night of business, the fledgling company shipped only 186 packages onto its 14 Falcon jets routed to 22 cities. Within the first three months of operation, the company had lost almost a third of its start-up cash. It was not uncommon for Federal Express drivers to dig into their own pockets to pay for gas. The company also lost money because of high advertising costs (Smith believed advertising to be essential for his company's survival) and because of increased aircraft fuel and gasoline prices resulting from the Arab Oil Embargo of 1973. Smith's sisters also brought suit against their brother for misappropriating their trust fund monies. These and other factors, such as outdated federal aviation restrictions and run-ins with the International Brotherhood of Teamsters, caused FedEx to lose $29 million in its first two years of operation. However, by 1976 the company had begun to show a profit as it delivered everything from documents and computer parts to sensitive parcels, such as blood and organs. Despite competition from UPS and other delivery companies, the Federal Express customer base was growing as well; besides counting several businesses among its clientele, Federal Express was also handling deliveries for the federal government. By 1978 the company had proven itself financially stable enough to begin selling shares on the New York Stock Exchange. In 1984 Federal Express reached a milestone not only for itself but also for American business when it surpassed $1 billion in revenues.

Company Perspectives:

FedEx understands there is no such thing as a "glide path" to sustained profitability and market leadership in our industry. Instead, we're continually applying new information technologies, strategic management initiatives and aggressive marketing strategies to better connect with customers, reduce operating costs and improve profitability.

Company History: FedEx Corporation specializes in overnight delivery of high-priority packages, documents, and heavy freight. The company created the overnight air-express industry virtually singlehandedly in the 1970s; its success was such that by the 1990s it faced the sincerest form of flattery: increasing competition from rival carriers. However, FedEx's continued mastery of logistics and its ability to track packages during the shipping process has enabled it to retain its leadership role in the express air cargo industry, as well as act as a moving warehouse for numerous corporate and individual customers. It operates in 211 countries, and serves all of the United States, providing 24-to-48-hour delivery of valuable, time-sensitive cargo to any destination worldwide. FedEx was founded as Federal Express Corporation in 1971, by 28-year-old Memphis, Tennessee, native Frederick W. Smith. Smith, a former Marine pilot, originally outlined his idea for an overnight delivery service in a term paper he wrote for a Yale University economics class. He felt that air freight had different requirements than air passenger service and that a company specializing in air freight rather than making it an add-on to passenger service would find a 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. Term Paper Topic Becomes Reality, 1973

Smith supplemented a $4 million inheritance from his father with $91 million in venture capital to get his idea off the ground. In 1973 FedEx began service in 25 cities with a fleet of 14 Dassault Falcon aircraft and 389 employees. The planes, which were relatively small in size, collected packages from airports every night and brought 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. Smith's idea was costly indeed; it required creating an entire system before the company's first day of business. FedEx added to these start-up costs by beginning expensive advertising and direct-mail campaigns in 1975. The company lost $29 million in its first 26 months of operation: in 1975 alone it gained $43.5 million in sales against an $11.5 million loss. Smith's investors considered removing him from the helm of the fledgling company, but company president Arthur Bass backed the young founder. Bass improved delivery schedules and FedEx's volume climbed to the point where it was profitable: By late 1976 the company was carrying an average of 19,000 packages a night, and by year's end it was $3.6 million in the black. In 1977 company profits hit $8 million on sales of $110 million. The company had 31,000 regular customers, including such giants 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. FedEx serviced 75 airports and 130 cities. 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 in 1977 Fuels Growth Deregulation of the airline industry in 1977 gave the still-struggling company an important boost. At the time of FedEx's startup, the U.S. airline industry had been subject to tight federal regulation. In fact, the company had only managed to get into business through an exemption that allowed any company to enter the common carrier business if its payloads were under 7,500 pounds. These self-same regulations, written in 1938 to protect passenger airlines, would ultimately hold back FedEx's growth. The company was forced to fly up to eight small Falcon jets side-by-side to bigger markets when use of one larger jet would have saved money. Smith led a 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 later, DC-10s. FedEx bought a fleet of used 727-1OOCs, using its Falcons to expand into small- and medium-sized markets. In 1978, with its prospects looking solid, FedEx went public, selling its first shares on the New York Stock Exchange. The move raised needed capital and gave the company's backers a chance to gain back a portion of their initial investment. 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. Its fleet included 32 Falcons, 15 727s, and five 737s. Explosive growth continued as a tidal wave of businesses switched to overnight service. Miniaturization of consumer electronics and scientific instruments translated into increasing numbers of small, valuable packages needing express shipment. In addition, many U.S. companies were shifting to just-in-time inventories as a way to keep prices down, lessen qualitycontrol problems, and cut costs. Consequently, these companies often needed emergency shipment of goods and parts, and FedEx was there to provide that much-needed service. It soon began billing itself as a "500-mile-an-hour warehouse." Competition and Price Wars During the 1980s A decline in the reliability of the U.S. Postal Service caused even more companies to switch to FedEx for important packages. Courier-Paks became the fastest growing part of the company's business, accounting for about 40 percent of revenue. In 1980 Courier-Paks&mdash-velopes, boxes, or tubes used for important documents, photographs, blueprints, and other items--cost the consumer $17 but guaranteed overnight delivery. By mid-1980 the company had eight $24 million DC-10s on order or option from Continental Airlines, each capable of carrying 100,000 pounds of small packages. It had also acquired 23 additional used 727s, and operated 2,000 delivery vans. In mid-1981 FedEx announced a new product that would bring it into direct competition with the U.S. Postal Service (USPS) for the first time: the overnight letter. The document-size cardboard envelope, which could contain up to two ounces, would be delivered overnight for $9.50 at that time. By 1981 Federal Express had 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. Unlike FedEx, competitors shipped packages of all sizes using regularly scheduled airlines, and didn't stress speed; FedEx's narrowly focused, speed-oriented service won over many of its competitor's customers. To compete, 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 CourierPak began eating into its revenues. The Postal Service's overnight mail was about half the price of FedEx's, but was not as accessible in many locations. While FedEx was the leader in the U.S. overnight package-delivery industry, DHL Worldwide Courier Express Network built a similar service overseas; the two would become major competitors when FedEx started building its own overseas network. Such increased competition put pressure on FedEx's niche, but its lead was large and its reputation excellent. In 1983 the

company reached $1 billion in annual revenues--the first company in the United States to do so within ten years of its start-up without mergers or acquisitions. Aggressively Pursues International Market Dominance In 1984 FedEx made its first acquisition, Gelco Express, a Minneapolis-based package courier that served 84 countries. Hoping to recreate its U.S. market dominance overseas, the company made further acquisitions in Britain, the Netherlands, and the United Arab Emirates. Meanwhile, UPS also began building a competing overseas system. By the late 1970s Smith had realized that up to 15 percent of the company's Courier-Pak business was information that would eventually be digitally transmitted as telephone and computer technology improved. He spent $100 million to develop his own electronic-mail system, which was launched in 1984 as ZapMail. A system for sending letters by fax machine and couriers, ZapMail was plagued by technology problems from the beginning: Fax machines broke down frequently; light-toned originals would not transmit; minor telephone-line disturbances interrupted transmissions. ZapMail cost $35 for documents up to five pages, plus $1.00 for each additional page, and high-volume customers soon discovered it was less expensive to install their own fax machines. The program also faced competition from MCI Communications' electronic-mail system. ZapMail was still losing money in 1986 when FedEx abandoned the system, taking a $340 million charge against earnings. In line with the company's policy of limiting layoffs, the 1,300 employees working on the ZapMail system were absorbed into other FedEx operations. In 1985 FedEx took a major step in its attempt to expand its services to Europe by opening a European hub at the Brussels airport. Revenue reached $2 billion in 1985. In 1986 the company opened sorting centers in Oakland, California, and Newark, New Jersey, to more quickly handle shipments to nearby high-volume destinations. And FedEx's hubs were being transformed into warehouses for its clients, as parts were stored there until customers needed them, then shipped overnight. For example, IBM used FedEx to store mainframe parts and get them quickly to malfunctioning computer systems. This trend coincided with a decline in FedEx's overnight mail volume, which was hurt by the spread of fax machines and the lower rates charged by competitors. Revenue for 1987 was $3.2 billion, while rival UPS collected about $1.7 billion from overnight delivery. By 1988 FedEx, with 54,000 employees, was providing service to about 90 countries and claimed to ship about 50 percent of U.S. overnight packages. Mounting competition, however, had led to a price war that eroded company profits from 16.9 percent of revenue in 1981 to 11 percent in 1987. Profits in 1988 were $188 million on revenue of $3.9 billion. Expanding overseas proved tougher than FedEx had anticipated, and the company's international business lost $74 million between 1985 and 1989. In February 1989, hoping to quickly develop a global delivery system, FedEx bought Tiger International, Inc., for $883 million, thereby

acquiring its heavy-cargo airline, Flying Tiger Line. Before the acquisition, FedEx had landing rights in five airports outside the United States: Montreal, Toronto, Brussels, London, and limited rights in Tokyo. The company hoped to supplement these with the delivery routes Tiger had built over its 40-year history, which included landing rights in Paris and Frankfurt, three Japanese airports, and cities through east Asia and South America. FedEx could use its own planes on these routes instead of subcontract to other carriers, which the company had been doing in many countries. Tiger's large fleet of long-range aircraft also gave FedEx an important foothold in the heavy-freight business. In 1988 Tiger had 22 747s, 11 727s, and six DC-8s; 6,500 employees; and revenue of $1.4 billion. Unfortunately, many of Tiger's planes needed quick repairs to meet U.S. government safety deadlines, which led to lower-than-anticipated profits. The purchase price paid by the company--which several analysts claimed was too much--also increased FedEx's debt by nearly 250 percent to $2.1 billion, and put the company into a market that was more capital-intensive and cyclical than the domestic small-package market. Owning Tiger also put FedEx into an awkward position--many of Tiger's best customers were FedEx's competitors, and the company feared it might lose many of them. Such fears proved unfounded, although Tiger's on-time record temporarily fell to 80 percent after the takeover, climbing to 96 percent by early 1990. At the same time price wars continued with competitors, some of which made inroads into the overnight market. Earnings from UPS's overnight service rose 63 percent between 1984 and 1988, and its revenues tripled. FedEx had a 55 percent share of the U.S. overnight letter market and shipped 33 percent of U.S. overnight packages. It was clearly the leader in the expressdelivery business, but its growth was slowing. FedEx's U.S. shipment volume grew 58 percent in 1984 but declined to 25 percent in 1988. The company compensated by pushing its highermargin package service, which grew 53 percent from 1987 to 1989. Analysts estimated that packages provided 80 percent of FedEx's revenues and about 90 percent of its profits. In April 1990 FedEx raised its domestic prices, ending the seven-year price war. The U.S. airfreight industry was consolidating, and rival UPS had heavy capital expenses from its own overnight air service, giving its competitor room to raise its prices. FedEx needed the extra profits--estimated at between $50 million and $75 million a year&mdash help pay for losses in its international business. Its foreign operations lost $194 million in 1989 as it struggled to integrate Tiger and build a delivery system in Europe. Tiger was unionized but unstructured; FedEx was non-union but bureaucratic. Several uneasy months passed while the two systems were unified and a pilot seniority list was drawn up. To help increase overseas tonnage, the company introduced one-, two-, and three-day service to large shippers between 25 cities worldwide and 85 cities in the United States. Maintains Market Lead in the 1990s

FedEx entered the 1990s with increasing competition in the U.S. market, but was able to maintain its leading market share. UPS, now its main competitor, continued to slowly woo away some customers by introducing volume discounts, a policy which it had resisted for years. FedEx responded by instituting a customer-by-customer review of its own pricing strategy that resulted in a consolidation of subcontractor trucking routes, the streamlining of pickup and delivery routes, and an increased profitability of certain freight runs; in some cases prices were also adjusted upward. Enhancements were offered to express-service customers, including earlier-inthe day service options, computer software that allowed FedEx clients to electronically prepare all shipping documentation, and Internet tracking of shipments via FedEx's new homepage. And the company's network of retail affiliates was expanded, with new FedEx drop-boxes installed in more than 870 office supply superstores nationwide. The results: Despite erosion from aggressive competitors, FedEx's domestic package volume rallied in mid-1992, with revenues growing from $7.6 billion to $7.8 billion over the previous year. Internally, 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. The company's Station Review Process allowed the most effective local policies to be shared by the entire FedEx station network. Despite cost-cutting measures, however, employee-related expenses rose when FedEx became mired in over two years of contract negotiations with the Air Line Pilots Association (ALPA). Despite what Smith had considered generous enough salaries and benefit packages to keep the threat of unionization at bay, heated labor negotiations ultimately resulted in the 1996 unionization of FedEx's 3,100 pilots. However, only a few weeks after the pro-union vote, an organization of company pilots was petitioning the National Labor Mediation Board to call a second vote to oust the union, leading analysts to doubt ALPA's continued influence over FedEx budgetary policy. On the plus side, the expiration of a federal cargo tax during the federal budget impasse of January 1996 would provide FedEx with a fiscal boost as the company maintained prices despite a temporary hiatus in federally directed excise payments. In the early 1990s FedEx's foreign operations were troubled, and their losses dragged down company earnings. While overall sales rose from $5.2 billion in 1989 to $7.69 billion in fiscal 1991 operating income fell from $424 million to $279 million over the same period, much of it resulting from the costly development of overseas markets. Industry analysts were divided over whether or how soon the company would be able to make its foreign operations profitable. Some analysts questioned how long FedEx could accept international losses while carrying $2.15 billion in long-term debt. Smith countered such concerns by arguing that when the company's international volume increased, international service would become profitable. In an effort to boost that volume, FedEx traded in its 727s for larger-capacity Airbus Industrie jet aircraft for their three daily European-destination flights, filling extra cargo space with non-express packages to increase perflight profitability. In 1994 the company became the first international express cargo carrier to receive system-wide ISO 9001 certification; by mid-decade international service accounted for

12 percent of the company's business: FedEx linked over 200 countries and territories worldwide, representing the bulk of global economic transactions. By 1996 the company could boast sales of $10.27 billion against operating income of $624 million. Further Expansion and a Look to the Future Aggressive international route expansion included creating divisions in several hemispheres. A Latin America and Caribbean division was created in 1995 to integrate services within the second-fastest world's economic growth area. And in September of that year the company introduced FedEx AsiaOne: a next-business-day service between Asian countries and the United States. Via a hub established at Subic Bay, Philippines, FedEx planned to duplicate its successful hub-and-spoke delivery service within 11 of that continent's commercial and financial centers. Unfortunately, the company's plans were confounded by the Japanese government, which limited FedEx's flying rights from Japan to other Asian countries in mid-1996, after a series of talks between the U.S. and Japan failed to reach a compromise. While the U.S. government contemplated appropriate sanctions against the Japanese government for its failure to honor existing flight privileges with FedEx, Japan viewed the company's growing success in Asia as a threat to its own overseas cargo industry. Despite difficulties with Japan, the extension of its world-renowned service to the Pacific Rim area placed FedEx in a strategic position within one of the fastest-growing economic centers in the world--particularly with regard to China, where the company was the sole U.S.-based cargo service then authorized to do business. Through 2015 the international express air cargo market was predicted to grow nearly 18 percent per year; FedEx was expected to reap a major portion of that growth as it saw its foreign operations increasing by as much as 25 percent per year. By retaining the confidence of its customers through its logistical capabilities, expanding the carrying capacity of its fleet of over 557 fuel-efficient aircraft and 37,000 vehicles, and a continued dedication to providing costeffective express service, "FedEx it" continued to be the generic way to request express shipment. Principal Subsidiaries: Federal Express Aviation Services; Federal Express International; Flying Tiger Line Inc.; Tiger Inter Modal Inc.; Tiger Trucking Subsidiary Inc.; Warren Transport Inc. Mission: FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related business services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx 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.

Strategy: The unique FedEx operating strategy works seamlessly - and simultaneously - on three levels.

Compete collectively by standing as one brand worldwide and speaking with one voice. Operate independently by focusing on our independent networks to meet distinct customer needs. Manage collaboratively by working together to sustain loyal relationships with our workforce, customers and investors.

Values:

People: We value our people and promote diversity in our workplace and in our thinking. Service: Our absolutely, positively spirit puts our customers at the heart of everything we do. Innovation: We invent and inspire the services and technologies that improve the way we work and live. Integrity: We manage our operations, finances and services with honesty, efficiency and reliability. Responsibility: We champion safe and healthy environments for the communities in which we live and work. Loyalty: We earn the respect and confidence of our FedEx people, customers and investors every day, in everything we do.

Lesson

#1:

Be

Willing

To

Roll

the

Dice

In retrospect it was ridiculous to try to put this system together, says Smith, which required so much up front money, and required changing a lot of government regulations, but I didn't know that at the timeI didn't know that I couldn't do this. What Smith was proposing in Federal Express had never been done before, and to make it successful, he would have to realize it on a large scale. He admits that it was a crazy idea and that he was even crazier for wanting to be the first one to do it. But, it was Smiths ability see the possibilities through the risks that made him the success he is today. He believed strongly in his idea and was willing to do whatever it took to make it happen. I was very convinced that the idea was the central feature of the new economy, says Smith. That without a system like this, it simply wasn't going to be able to work. So I was, in every sense of the word, a zealot. It was the conviction of his belief that gave Smith the courage to gamble and take a chance that others would share his

vision. I felt very strongly that this needed to be done, that it was something that would be extremely useful to people and that it would make the economy and the society and the system work much better than it would work absent that, he says. As a result, Smith committed himself 100% to his business idea regardless of how risky and foolish others said it was. I wasn't afraid to lose my money, says Smith. I knew I was right; I knew I had put this thing together properly and that it was going to be all right. That was what stood me in good stead. Smith never lost confidence in himself or his company because he never believed that the consequences of failing were as bad as others were saying. Oh my goodness, I've lost my money! or what have you, says Smith. I just wasn't motivated along those lines. And I was very, very, very sure that what we were doing was extremely important and was destined to be successful. Smiths perspective on success was something he had gained during his service in the U.S. Marine Corps. The currency of exchange in FedEx was just money, it wasn't people's arms and legs, or lives, he says. I was willing to take a chance, because losing wasn't the worst thing in the world that could happen to you. I had seen that very clearly. While Smith admits that both luck and navet played large roles in his success, he knows that it was primarily his ability to take risks that put him where he is today. That's the definition I think of an insane person, or a zealot, says Smith. And most entrepreneurs, I think you would find, have that sort of green wire laid in there just a little bit cross-wise. And they begin to get focused on something, and they believe in the idea or themselves far beyond what they probably should.