Fred Smith, Who Transformed Parcel Delivery by Founding FedEx, Dies at 80
(Bloomberg) -- Fred Smith, who transformed the parcel shipping industry by risking his family's fortune to found FedEx Corp. in 1971, has died. He was 80.
'It is with profound sadness and a heavy heart that I share that Frederick W. Smith, our founder and executive chairman, died earlier today,' Chief Executive Officer Raj Subramaniam wrote on the company's website.
Smith first conceived of his idea to create a hub-and-spoke network to delivery packages overnight by jet aircraft in 1965 while attending Yale University. After two tours in Vietnam as a Marine, he convinced investors to back his concept. Now, FedEx is one of the world's largest logistics companies with more than $80 billion of annual sales.
Smith's venture veered toward bankruptcy in the initial years, putting in peril his family's fortune and even getting him into legal trouble as he sought to revolutionize a duopoly package-delivery market dominated for decades by United Parcel Service Inc. and the U.S. Postal Service.
FedEx delivers packages and freight around the world and has more than 500,000 employees in addition to supporting thousands of small, contract-delivery companies that hire thousands more. Still, Smith didn't reach his life-long goal of surpassing the sales of his biggest rival, UPS.
Smith was executive chairman and the largest individual shareholder of FedEx with around 8% of the stock. His son, Richard W. Smith, is chief executive officer of Fedex's airline.
Smith disrupted the package-delivery industry by introducing next-day air service to a sector that decades ago wasn't built for speed. With the expansion of e-commerce and the increase of residential deliveries beginning in the second decade of this century, the disruptor was now being shaken up by e-commerce and Amazon.com Inc.
FedEx and UPS were both accustomed mostly to business-to-business deliveries and found it difficult to make the same profit with residential customers, who receive fewer packages at each stop than a business and usually require more miles traveled. In 2019, Smith clashed with Amazon over the price it paid FedEx to handle packages and the two companies canceled their contracts and parted ways.
To become more profitable on residential parcels, Smith retooled FedEx Ground by extending service to seven days from five, building facilities to handle large packages, taking back deliveries it had been handing off to the postal service for final delivery and upgrading software to build more efficient routes. The changes helped the company cope with an avalanche of package volume in 2020 after lockdowns designed to prevent the spread of Covid-19 forced many consumers to shop online.
FedEx Express also flourished during the pandemic as airlines, which carry freight along with passengers, drastically reduced flights, pushing more overnight cargo to FedEx and UPS. FedEx played a large role in flying tons of personal protection equipment to the US during the early months of the pandemic and distributing vaccines around the world in 2021.
Frederick Wallace Smith was born on Aug. 11, 1944, in Marks, Mississippi, to James and Sally Smith. His father, who founded a bus company that became Dixie Greyhound Lines and a restaurant chain, left a multimillion-dollar fortune upon his death when Smith was only four years old.
From an early age, Smith was fascinated by aircraft and became a pilot as a teenager. He studied economics at Yale where he wrote his paper on the hub-and-spoke model for a delivery company.
After graduating, Smith joined the Marines in 1966 and served two tours of duty in Vietnam, where he saw front-line action as a platoon leader and was awarded the Silver Star, the Bronze Star and two Purple Hearts. He left the Marines in 1969 with the rank of captain and a life-long admiration for the military that would permeate his leadership style.
Building on his passion for aviation, Smith first invested in an aircraft maintenance company in Little Rock, Arkansas, and later founded FedEx there with his inheritance and the support of early investors. Even before receiving regulatory approval to operate, Smith bought several Falcon 20 business jets and converted them into freight-carrying planes.
The company relocated to Memphis, Tennessee, because of its central location, more space at the airport and the city's good weather, which rarely disrupts flights. Package-delivery operations began in April 1973 with 186 on the first night. FedEx now handles more than 15 million packages a day.
It wasn't easy. FedEx got off to a rocky start and soon ran into financial trouble. At one point, Smith made payroll by taking the remaining $5,000 in the company's treasury and winning $27,000 at Las Vegas gambling tables, according to 'Changing How the World Does Business,' a book by early FedEx executive Roger Frock. He was charged with forging documents involving a family-owned company to obtain a loan and had to go to trial, where he was acquitted.
Rea More: FedEx Faces Obstacles on Way to Look More Like UPS: Thomas Black
The overnight delivery service caught on and FedEx began to make inroads on competitors. Sleek marketing helped fuel rapid growth, especially an advertising campaign with the tag line, 'When it absolutely, positively has to be there overnight.' In response, UPS began its cargo airline in 1988. Smith countered in 1998 with the purchase of Caliber Systems Inc., which operated a ground package delivery unit called Roadway Package System. RPS evolved into FedEx Ground and introduced the use of bar codes with package tracking to gain market share.
FedEx Ground became the company's fastest-growing and most profitable unit. It uses a model of paying a per-package fee to contractors, who in turn buy vehicles and hire drivers to deliver parcels. The contractor model, which has been copied by Amazon and other competitors, allowed Smith to prevent unions from organizing his drivers.
Smith wasn't a fan of unions and equated workers wanting to organize against the company with disloyalty. He had already battled with FedEx pilots over unionization and lost. The company's pilots voted in January 1993 to form an organized bargaining unit by a slim majority. Still, the pilots are organized under the Railway Labor Act, which has restrictions on labor unions including requiring government permission to strike.
Free trade was another crusade for Smith, whose company benefited from the expansion of global business. During President Donald Trump's first administration, Smith was vocal in his opposition of Trump's protectionist policies and tariffs. 'We've been very disappointed over the last few years with the assumptions that we made on the growth in international trade, particularly with the Trump administration,' Smith said in a June 2019 conference call with analysts.
Although Smith was successful in building his startup into a global company, he had his stumbles along the way. He started a service to send documents for companies over facsimile machines, an idea that didn't pan out after the fax machine became inexpensive and ubiquitous in office buildings. He also failed in his first attempt to expand full delivery services to Europe, and then he acquired TNT Express in 2016, which ended up costing more and taking more time to integrate than originally forecast.
Smith and his first wife, Linda Black Grisham, had two children. With his second wife, Diane, he had eight children. His daughter Windland Smith Rice, known as Wendy, died in 2005.
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