Fred Smith passed away last week at the age 80. He leaves behind legacy of innovation but also a company that faces many challenges ahead.
When Frederick Smith, founder of FedEx, died this week, the giant shipping corporation lost more than a chief executive. It lost a man with many titles and descriptions, including combat veteran, risk taker, renegade, and zealot.
Many adjectives also apply to Smith, including determined, confident, adaptable, and, according to Smith himself, crazy. Now FedEx must face an uncertain and challenging future without its leader.
Fred Smith Overcame Challenges His Whole Life, Still Achieved Success
Fred Smith faced many challenges while very young. His father died when he was just four years old. Then at eight years old, he was afflicted by Calvá-Perthes, a disease that interrupted blood blow to his right thigh bone. This affected the leg’s development, and he was on crutches for the next two-and one-half years. He overcame this and later played football, learned to fly at age fifteen, and became a Marine Corps infantry officer.
Prior to becoming a Marine, Smith entered Yale University in 1962. While taking an economics class, he demonstrated he had a clear eye for future business opportunities. He wrote a paper outlining overnight delivery service in a computer information age, an original concept that would later become his idea for FedEx. His professor felt Smith’s idea was “improbable” and gave him a C for the paper.
Smith Joined U.S. Marine Corp as a 2nd Lieutenant and Served Two Tours in Vietnam
After graduating from Yale in 1966, Smith joined the U.S. Marine Corps as a second lieutenant. He served two tours in Vietnam and received decorations for bravery and wounds received in combat. While in the Marines, Smith gained experience that he would directly apply when he started FedEx.
Smith later said he had, “the opportunity to observe the military’s logistic system first hand,” and “carefully observed the procurement and delivery procedures,” experience that fine-tuned his “dream for an overnight delivery service.”
Decades later, during a 2023 interview with the Associated Press, Smith said that everything he did running FedEx came from his experience in the Marines, and not from what he learned at Yale. Smith served for four years and left as a captain.
Smith Used Trust Funds to Start First Business
Smith wanted to create a business and started to develop a reputation as a risk taker. He returned to the U.S. and used a family trust distribution to $750,000 to partner with a friend and purchase Arkansas Aviation Sales at Little Rock Municipal Airport.
Smith led the small company to success, earning $9 million in revenue in the first two years. He also became frustrated by late air freight shipments of spare parts, which his business desperately needed. This only made him more determined to start an overnight delivery service.
In the following years, Frederick Smith got the idea for FedEx and raised $80 million to get started. He received some of the funds from investors and some from his brothers and sisters. The new company began with 14 aircraft carrying just 186 packages the first day.
As the company began to grow, rising fuel costs took its profits. In the first two years, it lost $27 million and neared bankruptcy. Things got so bad, that the company only had $5000 left. During a trip to California where he tried, and failed, to receive funding from General Dynamics, Smith was on his way home and made a detour to Las Vegas.
Smith Bet Company’s Last $5,000 in Las Vegas
He used the $5000 to play Blackjack and won $27,000, which he immediately wired back to FedEx. “The $27,000 wasn’t decisive, but it was an omen that things would get better,” said Smith.
It was not in Smith’s nature to give up, and he was eventually able to renegotiate his bank loans and raised an additional $11 million to keep the business open.
“I was very committed to the people that had signed on with me, and if we were going to go down, we were going to go down with a fight,” he said. “It wasn’t going to be because I checked out and didn’t finish.”
Fred Smith did not show any regret for gambling the company’s last $5,000. “No business school graduate would recommend gambling as a financial strategy, but sometimes it pays to be a little crazy early in your career,” he said.
FedEx Becomes World Shipping Leader
In the following decades, FedEx became, by every measure, a massive success. Under Smith’s leadership and vision, it turned into an $87.7 billion global corporation with more than 500,000 employees, 705 aircraft, and 5,000 operating facilities. FedEx also handles approximately 17 million shipments each day.
Smith Faced Tragedy and Even Possible Prison Sentence
Despite all his success in growing FedEx into one of the worlds leading corporations, Fred Smith also dealt with some dark times, and his ability to overcome them may say the most about his determination. He was thirty years old, and FedEx was struggling to survive, when the FBI accused him of forging papers to get a $2 million bank loan. He was facing the loss of his company and going to prison. According to some accounts, he was considering suicide.
On the same day that he was indicted, while driving home he struck and killed a 54-year-old man. Even worse, Smith continued driving, unaware that he had hit the man. Luckly, an off-duty police officer happened to be driving directly behind Smith and witnessed the accident.
He verified that Smith had not known about the accident, and the hit-and-run charge was later dismissed. He was also found not guilty of the bank loan charge. Smith overcame these challenges and continued to move FedEx forward.
Smith Calls FedEx an Information Business
Fred Smith showed his adaptability, or his ability to innovate, with his approach to organizing FedEx. From its earliest days, Smith said it was in the information business, not just the shipping business. He was one of the first corporate heads to recognize how having current, accurate information about package origin, present whereabouts, destination, price, and shipment costs was as important as prompt deliveries.
Smith always pushed for continuous improvement at FedEx and recognized the potential of the Internet and digital systems. In the 1990s, the corporation installed computer terminals in offices of 100,000 customers and gave its proprietary software to more than 500,000 others. Smith also led FedEx through purchases of Kinkos, and TNT Express, and entered a deal with the U.S. Postal Service.
Fred Smith Passes Away
Fred Smith grew FedEx into a multibillion dollar business that achieved success wildly beyond expectations. Smith stepped back from FedEx in 2022 but retained the executive chairman title.
He passed away on Saturday at the age of 80, leaving behind a legacy of a successful multi-billion dollar business that employs over a half million people worldwide.
FedEx Still Faces Numerous Challenges Now Without its Founder
Anytime a strong leader passes away or leaves, the unit or organization left behind must adapt. FedEx is facing some significant decisions and challenges, and for the first time, they must manage without their visionary leader.
1.) FedEx Cancels Contract With USPS
FedEx lost its contract with the U.S. Postal Service in 2024. While this will result in many less shipments, it could become something positive. In recent years, FedEx’s revenue from its USPS contract has dropped. In 2022, went down by $236 million.
Eliminating this contract will allow FedEx to cut costs for its daytime operations, which could save the company $1.5 billion each year.
2.) Major Competition From Amazon
Another issue for FedEx is its competition from Amazon. While FedEx has a much longer history of providing shipping, Amazon is focusing on developing its shipping capability. While the two corporations were partners for years, in 2019 FedEx they announced they were not renewing their $850 million contract with Amazon.
FedEx reported they wanted to focus more on new e-commerce opportunities and form partnerships with other companies like Dollar General and Walgreen’s. While this is occurring, Amazon is trying to position itself as a competitor to FedEx instead of a partner.
3.) Tariffs Pose a Risk For FedEx
The recent tariffs from the U.S. Government are yet another concern for FedEx. The corporation does business with over 87 countries, including China. With Tariffs approaching 145% on imports from China, shipments from that country are dropping, resulting is less revenue for FedEx. This could be especially difficult for small businesses that can’t afford to pay higher shipping costs.
4.) Strained FedEx Pilot Negotiations Ongoing With No End In Sight
Finally, FedEx is still facing a possible strike by its pilots as negotations remain stalled. FedEx pilots state they are “overworked, undervalued, and fighting for a fair contract.” FedEx Pilots have been picketing outside FedEx Corporate Headquarters in Memphis, Tennessee.
Their current pilot contract was signed in 2015, but the pilots have been negotiating for a new contract since 2021 with little progress on either side, although they are working with a mediator. They had reached an agreement in 2023, but the pilots ultimately rejected it citing that the agreement did not go far enough to protect their careers or keep pace with industry standards.
