Introduction
The world of package delivery is dominated by a few businesses, some of which have grown to dominate the market. The focus of this research paper is FedEx, one of the major global icons in freight delivery. The paper describes the company’s history and some of the major operations both in the United States and globally. The paper illustrates that FedEx has adopted a unique strategy that has allowed its tremendous growth within a short time.
Company History
FedEx was founded in the early 1970s when the company evolved from a term paper idea to one of the world’s leading delivery services companies. The current chief executive, Fred Smith, is the founder of the company and the individual who developed the idea in 1971. Fred Smith was a former marine pilot in Vietnam and his concept of FedEx was an overnight delivery service. Smith felt that air freight needed different requirements from passenger services, which meant that specialized freight services made more sense than an add-on to passenger service. Additionally, Smith argued that speed was more important than cost and that company-owned aircraft could free the services from commercial airlines (Reference for Business, n.d.). After submitting the paper, Smith invested $4 million he inherited from his father and supplemented it with $91 million in venture capital (Reference for Business, n.d.). In 1973, FedEx started operations in 25 cities deploying a fleet of 14 Dassault Falcon Aircraft and 389 employees (Reference for Business, n.d.). These initial investments laid the foundation for what FedEx has become.
The first three years of FedEx were not smooth as the company continuously lost money. At the time, FedEx was the most highly financed company and it took until 1976 to record the first profits of $3.6 million gained from handling 19000 packages a day (Murray, 2019). Air deregulation of 1977 allowed the young company to purchase large jet aircraft, which increased the number of packages transported per day. Following the deregulation, FedEx purchased seven Boeing 727s (Murray, 2019). In the same year, FedEx recorded a profit of $8 million in sales of $110 million (Reference for Business, n.d.). Additionally, FedEx had acquired over 31000 regular customers, including the U.S. Airforce and IBM, both of which used FedEx to ship spare parts (Murray, 2019). Deregulation of the air travel was an important environmental factor for FedEx’s growth.
Another important era in the history of FedEx is the 1980s, which was characterized by growth and expansion both locally and internationally. At the time, FedEx was directly competing with USPS with the document-sized overnight letter that contained two ounces of documents. The service was offered at a flat rate of $9.50 per package, which recorded the largest sales in the United States for any U.S. air freight company (Murray, 2019). The price wars and competition in the 1980s fueled the company’s growth. The competitors often used regularly scheduled airlines, carried packages of all sizes, and did not emphasize speed as FedEx did. Therefore, even though such competitors as the USPS could offer half the prices of FedEx, USPS was not accessible in many locations, which gave a competitive edge on many fronts. FedEx started to aggressively pursue dominance in the international market through such acquisitions as Gelco Express, a package courier company based in Minneapolis that served 84 countries (Reference for Business, n.d.). FedEx also made acquisitions in the UK, United Arab Emirates, and the Netherlands.
The expansion through acquisition continued through the rest of the 1980s and 1990s. In 1997, FedEx was reorganized as a holding company under the name FDX Corporation based in Delaware (Zippia, n.d.). Its operations began in January 1998 after acquiring Caliber System Inc. With this acquisition, FedEx started offering services other than shipping. Caliber had its own subsidiaries in technology, transport, and logistics that were deployed by the holding company to expand the market and operations. In 2000, the company was changed to FedEx Corporation, followed by a rebranding of all subsidiaries (Zippia, n.d.). The acquisitions by the company remain the most relied upon strategy for international expansion, with such markets as China having been targeted by FedEx.
FedEx on the Global Map
Through its aggressive expansion policies, FedEx now ranks as the world’s largest publicly traded company in the transport and logistics sector. FedEx appears in Forbes Global 2000 list landing at No. 119 on the overall list (Dowd, 2021). Additionally, FedEx toppled UPS for the top spot in the transportation, where UPS landed at No. 165. In 2020, FedEx also ranked among the most admired firms in the world as per the survey published by Fortune Magazine. This marked the 20th year that the company has ranked among the top 20 on this list (FedEx, 2020). Overall, FedEx is a market leader in the freight industry and package delivery services. The company’s large size and the focus on owning and operating aircraft mean that FedEx’s growth has been unprecedented. Today, almost all countries in the world are served by FedEx, which further illustrates the global position of the company.
FedEx’s Aircraft Fleet
FedEx has always preferred running on company-owned aircraft, which gives the company control over its operations. On the contrary, businesses that relied on commercial flights had a disadvantage in that they could not offer the same speeds that FedEx could. The firm started its air operations from the Memphis Airport on April 17, 1973, with 14 Dassault Falcon 20 deployed to move packages across the 25 cities (Reference for Business, n.d.). After the deregulation, FedEx was able to purchase larger aircraft to allow it to deliver more packages. In 1977, shortly after deregulation, FedEx bought 7 Boeing 737, which were quickly followed by Boeing 737 (Reference for Business, n.d.). Other types of aircraft that have been added to the fleet include McDonnell-Douglass DC-10s, Boeing 777s, 657s, 767s, Airbus A-300s and A310s, and MD-11s (Reference for Business, n.d.). The number of aircraft in the company’s fleet changes regularly due to new purchases and other craft leaving service. In the first quarter of the 2022 financial year, the total number of aircraft in service was 697, comprising both feeder and trunk aircraft categories.
The company publishes financial and operating statistics, where the current details of the aircraft are presented. In the 2022 publication, statistics from the fiscal year 2018 have been presented to record how the company’s fleet has fluctuated. However, the figures indicate a growing fleet across the past half-decade. In other words, FedEx’s fleet comprised 670, 681, 679, 684, and 697 aircraft for 2018, 2019, 2020, 2021, and 2022 respectively (FedEx Corporation, 2022). To break down these statistics further, the trunk or jet aircraft in 2022 reached 417, an increase from 385 in 2018 (FedEx Corporation, 2022). Additionally, the feeder aircraft for the same period totaled 280 (FedEx Corporation, 2022). Each of these carriers had a different capacity depending on the model and manufacturer. The table below, derived from the financial and operating statistics report for the fiscal year 2020, summarizes the aircraft and their structural payloads for both categories.
Table 1: Summary of FedEx aircraft fleet
The statistics presented in Table 1 above indicate that FedEx has one of the largest aircraft fleets among the freight service providers. Today, the company keeps adding to both the feeder and jet aircraft as the operations expand. Additionally, all these aircraft spans all the destinations and hubs served by FedEx across the planet. Overall, the fleet of company-owned aircraft remains a key ingredient for the company’s success.
Maintenance Practices
Besides owning and operating aircraft, FedEx also undertakes aircraft maintenance across its hangars. For over a decade, FedEx has been deploying lean thinking and practices, which began at Los Angeles International Airport facility in 2007. The LAX maintenance facility has helped the company reap high returns. Additionally, the LAX aircraft maintenance facility is one of three aircraft operation divisions at FedEx. On the contrary, the facility is involved in routine maintenance and safety checks alongside both major and minor unscheduled repairs. Today, the company operates over 170 maintenance facilities across the world, all of which have been using lean practices. In aviation, aircraft maintenance practices are regulated by the relevant government bodies. In the United States, the FAA regulates maintenance regulations, objectives, and minimum requirements, including preventive maintenance after every 25 hours of flying time and minor maintenance at least every 100 hours (Olaganathan et al., 2020). Considering the destinations covered and the number of aircraft operated by FedEx, maintenance practices could prove to be a major cost center if this function was to be outsourced.
Since the recession of 2009, the company’s hangars have been undertaking measures intended to help reduce the costs of aircraft maintenance. However, this has not meant lowering the standards, especially considering that the company trains and re-trains the technicians to improve their competence and skills. FedEx offers both classroom and on-the-job training for maintenance technicians. Besides training, the company is also keen to hire skilled experts with experience working in aircraft maintenance elsewhere. With such approaches, FedEx ensures not only the safety of the aircraft but also compliance with the maintenance guidelines and regulations offered by the FAA. The main goal of the maintenance team is to achieve efficiency, and speed, which has also meant that the facilities are becoming increasingly automated. The ground maintenance team ensures that the day-to-day operations of the company’s aircraft take place with great efficiency. From an economic perspective, in-house maintenance practices mean that the costs incurred are those involved in the labor and other items, which ensure that the cost-cutting objectives are met. Most importantly, the company has its schedules, which could be compromised by external maintenance vendors.
FedEx Routes
FedEx operates aircraft across the United States and over 200 countries across the planet. As mentioned earlier, the idea behind FedEx is overnight delivery of the services. Besides the aircraft, the company also operates ground routes, most of which are run by independent businesses. FedEx Route has been defined by RLT Finance (n.d.) as FedEx ground delivery routes offered by the company to independent businesses. Two major types of routes are on offer: ground pickup and delivery (P&D) and ground linehaul route. The former covers deliveries to homes and businesses in a designated area while the latter provides long-distance transportation. In each of these two categories, small business owners are responsible for operating them after reaching an agreement with the company. The nature of the transaction is that the routes are bought and sold, which means that each of them presents an investment by the business owner.
While the FedEx routes seem to be a good business investment opportunity, the company has made several independent service provider (ISP) agreement requirements that determine who can be eligible to own the routes. Among the major requirements is that the route holder Must be a non-profit corporation, which means that limited liability companies, sole proprietors, and partnerships are not allowed. Additionally, the route owners are expected to employ all the necessary personnel and cover all personnel-related expenses, including training, legal, and payroll deductions. The agreement terms also cover the following aspects: maintaining the FedEx image, offering reliable services, safety and compliance programs, and commitment to FedEx business. Route requirements include a minimum of 5 routes or 500 stops per day, holding less than 15% of routes in a terminal, and providing both home and business deliveries.
Global Hub Locations
FedEx has grown to become a global business with multiple hubs across the world. In the United States, the Memphis super hub is the company’s headquarters located at the Memphis International Airport. In the United States, the national hub is the Indianapolis International Airport, with regional hubs in the country including international Airports at Oakland, Newark Liberty, Miami, Ted Stevens Anchorage, Piedmont Triad, and Fort Worth Alliance. Internationally, each country has national and other regional hubs. Additionally, each continent has a regional hub that serves as regional headquarters. In Europe, Paris-Charles de Gaulle Airport serves as the regional hub. Other regional hubs include Kansai, Liege, Cologne Bonn, Guangzhou Baiyun, and Toronto Pearson international airports. European national hubs include Vienna in Austria, Brussels in Belgium, Sofia in Bulgaria, and Helsinki in Finland. Major European countries, including Germany, Britain, France, Denmark, Italy, and Spain, have multiple hubs across all major cities.
In the Asia/pacific, multiple hubs have been established in Australia, including Melbourne, Sydney, and Brisbane. In China, Beijing, Ningbo, Guangzhou, Chengdu, Dalia, and Wuhan are just a few of the several hubs in the country. Other hubs in the region include Hong Kong, Dhaka in Bangladesh, Phnom Penh in Cambodia, and several hubs in Indonesia. Major Asian economies, including Japan, Korea, Nepal, Laos, and Malaysia have all been covered by the company. North and South America have multiple hubs across all major cities, similar to India, the Middle East, and Africa. Additionally, it can be argued that the number of hubs in a region or country depends on the economic growth and position of the country whereby more developed nations have more coverage. In other words, all countries with more than one international airport are likely to have more than one FedEx hubs, which explains the company policy of The World on Time. This policy reflects the company’s ability to build and operate air hubs and networks all over the world.
Memphis Super Hub
FedEx was founded in Memphis, Tennessee by Fred Smith. Arguably, Smith selected the hub based on the fact that he was a Memphis native. Regardless of the reason for selecting Memphis, the superhub has become central to the company’s freight operations both in the US and internationally. As a result, it is estimated that Memphis International Airport has grown to become the second busiest airport only behind Hong Kong, and the busiest airport in North America. Today, the airport handles over 4.47 million metric tons of cargo through over 450 combined air arrivals and departures per day. FedEx is responsible for 99% of this capacity considering that Memphis is also the company’s world hub (Davis, 2019). The name superhub was adopted since the location is deemed to be bigger than some cities and has its police and fire departments. All packages are flown to the superhub, from where they are sorted and flown to the respective destination cities. The rationale for this arrangement is that it helps reduce the number of flights needed and to keep fuel costs low.
As a super-hub or the world hub, Memphis plays a vital role in the strategic focus of the company. As a result, FedEx makes all the necessary efforts to keep the hub updated with modern technologies and standards, as well as continuous expansion to cover the ever-growing freight volumes. According to Risher (2018), FedEx announced a $1 billion expansion of the hub in 2018 to help secure the hub’s future. Additionally, the super hub generates an estimated $62 billion a year from its role as the world hub. Therefore, the super hub becomes not only important due to its function as the headquarters but also due to the revenues it generates for the company. The expansion covers over six years of construction, which is accompanied by automation, modernization, and orientation towards technology. As the global hub, such developments are a necessity for a hub that hopes to keep its position on the global map. Even though the airport remains second to Hong Kong, it can be argued that FedEx’s continued growth will keep the hub strategically relevant.
FedEx Cargo
FedEx Cargo is a segment of the FedEx Express specializing in cargo freight services. There are scant details regarding how these operations work. However, it can be argued that parcel deliveries are not the only business that FedEx Express operates Through its multiple websites and other sources, an idea of FedEx Cargo and how it functions can be developed. First, FedEx Charters focuses on build and break cargo services, which means that the clients often charter planes and design them for their specific purposes. Additionally, the company offers support in loading and unloading, a professional loadmaster for the flight, and other tailored services. FedEx Charters have specialized in such areas as general cargo, animals (zoo, horses, and cattle), and hard-to-move cargo. In this case, the company has created room for flexibility where clients can move any cargo through chartered aircraft.
Conclusion
In conclusion, FedEx has grown into one of the iconic brands in the air freight business. The paper highlights that the founder’s emphasis on company-owned and operated aircraft has given speed and flexibility that is not available with other service providers. The growth and stature of Memphis superhub on the global platform embodies FedEx’s vision and ambition of a more connected world and the desire to keep growing.
References
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