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Aviation History
1981
1981 - 0946.PDF
Federal Express: the Memphis connection N EW YORK is 180 miles from Boston as the crow flies. But if Federal Express delivers a package between the two cities, it will be car ried via Memphis, Tennessee, and will travel over 2,000 miles. The pack age will be flown on an aeroplane which is only operated for l,200hr annually in an airline industry where average yearly aircraft utilisation is about 3,000hr. It will be delivered by an all-cargo airline which flies only at night and early in the morning, and only on five days a week. If it weighs more than 701b Federal Express will not carry it. One would be forgiven for thinking that this airline is neither successful or efficient. Yet Federal Express can justly claim to be the USA's fastest- growing and most reliable cargo car rier. Its revenues have grown at least 50 per cent in each of its last five financial years, with profits jumping from $3-5 million in 1976 to nearly $39 million in 1980. It carries more than 90,000 packages every night, of which about 15 are lost or stolen. Federal Express promises that any package it is given for priority de livery within the USA will get there "absolutely, positively, overnight;" in fact the carrier claims that almost 95 per cent arrive at their ultimate destinations by noon the next day, and 99-7 per cent by the close of the working day. Federal Express is now the un questioned leader of the market it serves. Company president Peter Wilmott reckons that it commands 35 to 40 per cent of the overnight small package delivery business. The reason it holds this dominating posi tion is simple—the company saw a need and has exploited it to the full, with foresight and daring. But behind today's good fortune lies a story of one man's vision and entrepreneurial ability. Federal Express owes its creation to Fred Smith, its founder and chairman. While studying at Yale University Business School, Smith submitted a paper which argued that in modern technological society time meant money more than ever before and that, with the advent of miniaturised electronic circuitry, very small com ponents had become extremely valu able. As another consequence of the electronic revolution, the widespread use of instant communications had led to the decentralisation of Ameri can society and industry. Smith real ised that American industry faced Federal Express operates large fleets of Dassault Falcon 20s and Boeing 727s, plus three DC-IOs iifift perhaps its most critical problem ever: although the consumer society was becoming increasingly hungry for mass-produced electronic items, the decentralising effect induced by these very devices gave manufacturers tremendous logistic problems in pro viding spares for them. To set up hundreds of separate stores was economically out of the question, even for major manufacturers. Smith believed that their problems could be solved by guaranteed overnight de livery of such high value items be tween any two points in the USA. Smith felt that the necessary delivery speed could only be achieved by using air transport. But he be lieved that the US air cargo system was so inflexible and bound by regu lations at that time that it was com pletely incapable of making suffi ciently fast deliveries. Because of the regulations then in force, it had to rely on aircraft designed for pas sengers and operated by airlines in the business of moving people, not goods. Consequently, circuitous routes were unavoidable, and the airlines' heavily day-time-weighted scheduling was totally unsuited to the overnight- delivery needs of the business world. Smith's concept required that an important package be sent at any time during the day—even after normal working hours—so that it arrived in time to be of use during the next business day. The cargo had to be flown at night, when ordinary airlines were not operating. As Smith saw it, tihere was a second reason why the US air cargo industry was highly unsuited to the role. Its system depended on co-operation be tween companies: interlining was often necessary to get a consignment from point A to point B, and the industry relied heavily on cargo for warders to fill hold space and per form doorstep deliveries. Thus, days were wasted as cargo spent much of its in-transit time sitting in ware houses; and tariff structures were be coming too complicated for users to understand. More importantly, the system inevitably led to a dilution of
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