FedEx's Success with a C-Grade Report... Why They Introduced the 'Next-Day Delivery' Service [Hidden Business Story]

FedEx CEO Frederick Smith Leading Logistics Revolution with 'Next-Day Delivery'
Chairman Smith: "99% Customer Satisfaction Is Not Enough," "A People-Centered Company"

Photo by FedEx, official Instagram screen capture.

[Asia Economy Reporter Heo Midam] "This package saved my life."

This is a famous line from the movie Cast Away, released in February 2001. In the film, Tom Hanks (playing Chuck Noland) appears as an employee of FedEx. Busy traveling around the world on cargo planes, he boards a flight on Christmas Eve without finishing his date with his girlfriend. However, due to a sudden accident during the flight, the plane crashes, and he ends up stranded alone on a deserted island.

Even in such a desperate situation, Tom keeps one package with an intact shipping label without opening it. He treasures this package along with a volleyball named "Wilson" and a watch given by his girlfriend, taking them with him when he escapes four years later. After a difficult escape from the island, he personally delivers the cargo he received there. Unfortunately, since the recipient was not home, he leaves a note on the door saying, "This package saved my life," and the movie ends.

The FedEx featured in the movie is a global logistics company, well-known enough for its logo to frequently appear in Hollywood films. Among others, former U.S. President Barack Obama once cited the founder of FedEx as one of the business leaders he admired. How did FedEx come to be known as a symbol of innovation in the logistics industry?

◆ The C-grade report written by the founder contributed to the establishment of FedEx

FedEx started from a report written by its founder, Frederick W. Smith, during his college years. In 1965, while studying economics at Yale University, he submitted a report on a new cargo transportation system called "Hub & Spoke."

Just like bicycle spokes radiate outward from the center, the idea was to create a hub?a cargo consolidation center?in the population center of the United States, gather all cargo there, then sort and redistribute it for express delivery. He aimed to revolutionize the entire logistics industry, which previously took weeks or months. However, the report was harshly criticized at the time. His professor gave him a C grade, saying it was "not feasible."

Although everyone underestimated his idea, he believed that the upcoming computer revolution and other changes would impact logistics delivery. In 1971, he founded FedEx, choosing Memphis, located in the heart of the U.S., as the hub.

At that time, Smith started the business with substantial capital, including $4 million inherited from his parents and $91 million from investors, but due to the nature of the delivery business where customer trust is crucial, the entry barriers for new companies were high.

To make matters worse, the first oil shock occurred, causing fuel prices to soar and transportation costs to increase significantly. As a result, Smith had to bear massive debts for two years after founding the company.

Nevertheless, he adhered to the principle of "guaranteed next-day delivery" even in difficult circumstances. This principle gradually spread by word of mouth, and customers who wanted fast delivery began to use FedEx more. Eventually, FedEx grew into a global air cargo delivery company.

Photo by FedEx, official Instagram screen capture.

◆ The secret to FedEx's success: 'Customer satisfaction' and 'Employee focus'

Smith cited "customer satisfaction" as the key to FedEx's success. In an interview with a media outlet, he said, "99% customer satisfaction is not enough," emphasizing, "With 99% customer satisfaction, you will inevitably lose customers to a company that achieves 100% customer satisfaction someday. Customers never show affection to the second-best company." He stressed the importance of service spirit. His introduction of the Service Quality Index (SQI) at FedEx is related to this philosophy.

On the other hand, FedEx's management philosophy that values people is also considered a success factor. Regardless of gender or educational background, any employee with good performance can rise to the top positions in the company.

Thanks to this culture, David Rebholz, former CEO of FedEx Ground, which handles ground transportation, started as a contract worker washing cars and carrying packages at the FedEx Milwaukee branch in 1976 and eventually became CEO.

Regarding this, Smith said, "FedEx is a people-centered company," adding, "More than half of the executives have been promoted step-by-step from within."

◆ Parcel delivery industry booming due to COVID-19... FedEx's profits surge

Especially with the increase in online shopping orders due to COVID-19, FedEx's sales have also surged.

FedEx announced that from December last year to February this year, it recorded $21.5 billion (about 24.35 trillion KRW) in revenue, $1.05 billion (about 1.14 trillion KRW) in operating profit, and $892 million (about 1 trillion KRW) in net profit, which is 2.8 times higher than the previous year. Compared to a year ago, revenue increased by 23%, and operating and net profits increased by 2.5 times and 2.8 times, respectively.

FedEx is one of the representative companies that benefited from the COVID-19 pandemic. As offline stores closed due to lockdown measures during the pandemic, the parcel delivery industry, including FedEx, has been thriving. Regarding this, Smith said, "The company as a whole is experiencing strong revenue growth and improved profit margins," and "We expect e-commerce and international express delivery demand to remain very high for the foreseeable future."