Fred
Smith interview, Oct. 25, 2002
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GEOFF COLVIN: Fred Smith hit a big home run 30 years ago when he founded Federal Express, now known officially as FedEx, of which he is still CEO. The stock has been a terrific
performer over these past two and a half terrible years in the markets, and the company, by the
nature of its business, provides a useful barometer of the economy overall. Its advanced infotech
systems may even hold some lessons for national security. Fred, welcome. Glad you're here.
FRED SMITH: Glad to be here, Geoff.
 COLVIN:
I want to start with the stock. You had a good day today, up pretty strongly
with the market. But more broadly, since January 1st of 2000, which was
roughly the height of the market overall, FedEx has been up 29%; the S&P
has been down 40% a huge difference, and that was a period in which the
economy was either officially in recession or very slow. What's the explanation?
SMITH: Well, I think you have to remember that FedEx
stock has grown at the rate of about 19% compounded annually since we
went public in 1978. Now that hasn't been all a straight line, obviously,
but we have always put a lot of attention on improving our earnings and
performing for our share owners.
But I think secondarily, the company's strategy, which we rolled out
in the last two or three years, has become very obvious to people and
it's paid off for us handsomely, and that's the reason for the relatively
good performance that you mentioned in the last couple of years.
COLVIN: What are you seeing now in orders, the business that's coming to you, that tells
you something about the state of the economy overall?
SMITH: Well, I think we do have a very unusual and good look at the U.S., and for that
matter, global economy. Remember, we're the largest all cargo air transport company in the
world, too. And I think that we feel that there is a recovery underway, but there are some external
factors that have slowed things down a little bit. For one, I think a lot of people have
underestimated the reduction in GDP that will be caused by the West Coast port slowdown.
COLVIN: But that was good news for you, I suspect.
SMITH: It was on the margin, but in the main, the types
of things which we carry in our international express system are not the
things that are diverted from sea to air. So the growth in our international
system was very strong prior to the port shutdown. But what it will have
a big affect on is the ability of the retailers to fulfill the market
that's out there for the Christmas season. That's going to knock some
economic activity off the GDP this quarter.
COLVIN: That's interesting. I want to ask you a question that was Peter Drucker's famous
favorite question, which was: what business are you in?
 SMITH:
Well, Professor Drucker, who I had the honor and privilege of meeting
one time, talked about that personally, and he always talked about the
theory of the business. Well, the theory of our business is that we offer
a broad portfolio of transportation services to our customers from global
express services to less than truckload freight services, our ground business,
our customs brokerage business.
And so our business is to fulfill people's transportation and supply
chain requirements with the best possible service value tradeoff, using
the best technology, and most importantly I think the best people.
COLVIN: Well, that is an important point. I mean there
are obviously a lot of companies competing with you in one part or another
of this, and occasionally in all parts of them. You and I first met 21
years ago when I wrote an article for Fortune about your introduction
of the overnight letter, a big innovation at that time. And the worry
back then was that somebody else, starting with the post office, might
be able to roll in and just take all the margins away, take the profitability
away.
Well, admittedly you've done okay for those past 21 years, but people
do still worry about this. How do you avoid having to compete on price
with these other big competitors?
SMITH: Well, all businesses are in the process of being
commoditized, unless you're protected by a patent or something of that
nature. So what top management really gets paid for is to constantly develop
innovations, improvements and strategies that prevent your margins from
going down to zero.
In our case, in the early 1990s we recognized that the most important
thing we had was our brand name and our reputation for service, and our
customers were telling us quite clearly they wanted us to do more for
them than just the express service that we had become so known for. And
that's when we rolled out our new strategy of FedEx Corporation, made
several strategic acquisitions, and they've paid off for us. It's worked
well so far.
COLVIN: You have this amazingly advanced infotech system, much of which you
developed for your own purposes, you at FedEx developed. You think this has application or may
have application for national security. Tell us what you mean.
 SMITH: Well, I think we have been known for our advanced IT technology for a long time.
We've had a succession of world class, I think the best CIOs in the world. Currently Rob Carter
occupies that position. I cannot say enough about Rob, and for that matter our entire senior
management team. But I do think that some of the applications that we've had success with,
keeping up with our transportation assets, making visible to our customers and ourselves what's
in those trucks and planes, has great applicability for improving the security of our transportation
system. It makes it easy for customs to see what's coming into the country, to examine different
shipments and things of that nature.
COLVIN: And also merging IT systems, if I understand properly, which is something the
government has not done a good job of.
SMITH: Well, they have a lot of legacy systems, and it's a very tough problem for the
government. But I think of all of the national security and homeland security issues, you've put
your finger on probably the most important single thing that we have to do to raise our ability to
thwart the terrorists.
COLVIN: Fred Smith, thanks very much for being with us.
SMITH: Glad to be here. Thank you.
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