The Road to FedEx: Fred’s Epiphany

If you follow ecommerce or logistics news you’ve certainly heard that in August FedEx announced it would no longer provide US domestic ground services to Amazon. This followed the carrier’s decision a few months earlier to stop providing Express services to Amazon. Then, in the midst of the holiday rush, Amazon blocked 3rd party sellers from fulfilling Prime orders via FedEx in December, reversing the decision by mid January.

Much digital ink has already been spilled hashing through each of these decisions and their impact on the future of FedEx. But, I’ve found that looking back at history give us a clearer picture of the kind of organization FedEx is today and elucidates how they may operate going forward. In a series of posts in the next few days I’ll provide an overview of that history, calling out some of the elements that I believe provide the best context for how FedEx operates.

Author’s Note: I’m employed by a company which works with FedEx in a variety of capacities so it’s important to state that all opinions and statements contained in this post are solely my own and are not intended to represent the positions of my employer, FedEx, or any other organization. Additionally, all information below is based on public sources.

Fred’s Epiphany

One of the most fascinating aspects of the early days of FedEx is an event that occurred several years before its founding. In the mid 60’s, Fred Smith was a student at Yale and wrote a paper for his economics class in which he laid the groundwork for what would become his approach to package delivery.

In this paper, he made the case that ever-smaller electronic circuitry meant smaller and smaller components were becoming more and more valuable. With increasing applications for microelectronic circuitry came increasing demand for mass-produced electronics. But, the very nature of how these devices were manufactured represented a massive logistics headache when it came to delivering them to consumers.

Smith’s determination was that the only method of achieving the delivery speed required was air transport. He went on to argue that the US air cargo system was incapable of meeting these requirements due to regulatory restrictions and internal inflexibility. Beyond these challenges, the very structure of the system meant fast, efficient deliveries were nearly impossible. Each cargo airline operated only a handful of routes necessitating transfers between airlines to reach most destinations. Then, when a package had arrived at the destination airport, another handoff was required to a cargo forwarder who could perform the actual final mile delivery.

The only appropriate solution, concluded Smith, was the creation of a new concept in logistics: a single carrier responsible from door to door. This new type of air cargo company would have to own and operate its own sorting hubs, aircraft, forwarding stations, and delivery vehicles. Accuracy and timeliness would rely on the carrier collecting all packages in a centralized sorting facility from which all shipments would be dispatched for delivery and the entire operation would be controlled.

Rumor has it that this paper which would form the blueprint for Smith’s empire wasn’t entirely appreciated by his professor. When asked in 2004 what grade it had received, Smith reportedly responded, “I don’t know, probably my usual ‘C.'”