'The economy will come around'
The founder and CEO of FedEx answers Fortune.com readers' questions - and a few of our own - about fuel, the financial crisis and his future.
(Fortune Magazine) -- If you're looking for insight into the global economy, Fred Smith is a pretty good place to start. As CEO of Memphis-based package-delivery giant FedEx, he oversees an army of some 290,000 workers who collectively move 7.6 million parcels daily to more than 220 countries.
Since starting FedEx (FDX, Fortune 500) in 1971, Smith has built a company that is not only large (with over $35 billion in revenue, it's ranked No. 68 on the Fortune 500) but also highly regarded (No. 7 on Fortune's list of Most Admired Companies). In September, FedEx reported first-quarter profits that met Wall Street's expectations but were down 22% from the year before because of a "continued slowdown" in the global economy.
Readers, via Fortune.com, asked the 64-year-old Smith about how the economy is going to dig out after the Wall Street crash, how FedEx is adjusting to higher fuel costs, and what kind of business he would launch now if he were just starting out.
How long do you think it will take the U.S. to get through this financial crisis? - Nick di Vincinzo, Montreal
I don't have a crystal ball. The industrial economy is a lot stronger and more resilient than I think people give it credit for. And there's an enormous amount of money in China, in the Middle East, and elsewhere that has to be invested. It can't just be placid on the sidelines. So after a period of trauma and readjustment, my guess is that the economy will come around.
What do you view as the most insightful metrics within FedEx that reflect macroeconomic activity? What are they showing? - David Johnson, Denver
There's one overriding metric that we follow every day, which is a pretty good surrogate for the goods-producing side of the economy, and that's our traffic levels. We have a referendum every day with millions and millions of shippers that reflects enormous numbers of discrete transactions of buyers and sellers. We have a lot of other gauges on our dashboard: GDP, price of fuel, overall trade stats, etc. They're showing pretty clearly that the economies of the industrialized world are slow, and that the emerging economies, like China and India and the intra-Asia trade, all continue to grow at pretty good levels but at substantially lower growth rates than was the case a few months or years ago.
FedEx uses enormous amounts of fossil fuels. What plans are being put in place to become more fuel-efficient? - Larry Levine, Hernando, Miss.
We've felt for many years that we had to become more energy efficient because the likelihood was higher that energy input costs would go up than that they would go down. On the facilities side, we now have three major solar installations that are up and running. On the vehicular side, we partnered with Eaton Corp. (ETN, Fortune 500) [a diversified manufacturer] and the Environmental Defense Fund to develop the first commercial hybrid pickup and delivery fleet ever. And we have now nearly 200 of these. They're about 40% more fuel-efficient than the diesel vehicles. The problem with them has been the capital cost, which is about 40% or 50% higher. But with the run-up in fuel prices and the increasing environmental concerns, our efforts there are about to be rewarded.
If you were to start a business today, what would it be and why? - Luc Robitaille, Quebec
I'd probably look for some areas that were opportunities in improving energy consumption or improving the environment. They're not going to go away, and they're massive markets.
Four years ago you paid $2.4 billion to acquire Kinko's. You recently renamed FedEx Kinko's as FedEx Office. Is your strategy working? - Peter Bazzinotti, Tewksbury, Mass.
We felt that the retail footprint [of Kinko's] would give us a completely unduplicated network to accept our Express and Ground packages. That's proven to be very successful. The traffic through that channel today exceeds $1 billion a year, and it's growing faster than our traffic overall. FedEx Office also provides very important ancillary services in the digital print and copy sector. That business has been significantly affected by the downturn, for instance, in the mortgage service industry. At the end of the day, it's been a huge success in one sector and not as great as we would have liked in the other.
How has your business in China done vs. your expectation for growth? - Rick Pulliam, Diego Garcia
Our growth in China has been meteoric. China has 1.3 billion people. And the reason that it will continue to be the biggest story in Asia is simply because of its size. Vietnam is a very important emerging market too. We just expanded our service there. We put a widebody flight down to Hanoi and Ho Chi Minh City, and the first few days you couldn't get another pound on the plane.
Why are you opposed to union labor? What's your take on the Teamsters attempting to unionize FedEx? - Stephen Miller, Sterling, VA
FedEx is not anti-union in any way. The Teamsters are in the business of trying to represent people and collecting dues from them. They've been trying to represent FedEx employees for 35 years. The Teamsters have not had success here not because we're doing anything that's anti-Teamster but because we're doing things that are very pro-employee.
MBA students are often taught that "team" is one of the most important factors in building a business. How has your thinking of team-building evolved? - James Symanski, Monterey, Calif.
What I've always tried to do is to get people who have skill sets that are very different from my own - and to give them a lot of authority, relying on them to run their part of the show. I think that's been a strong suit for FedEx. Everybody's got individual skills and individual weaknesses. Knowing what kind of skills to put in place at what time is really the art - or some would call it the science - of what a chief executive does.
Do you have any plans to retire? - Mark [Name Withheld], San Francisco
I don't. I'm 64, and I've had open-heart surgery. But I'm in good physical health. And I like working with my team members, and as long as they're happy with what I'm doing and the board of directors is happy with what I'm doing, I don't have any immediate plans to retire.
You were rumored to be on John McCain's list of VP candidates. If he's elected, would you be interested in a role in his administration, like Secretary of Treasury?
I'm very happy running FedEx, and when those rumors came out, I made every Shermanesque statement I could make, to no avail. Obviously you've got to listen to whatever the President of the U.S. says. But I have no burning desire to do it. I did my government service early on [as a Marine in Vietnam].
Your film production company, Alcon, has produced a bunch of movies, most recently The Sisterhood of the Traveling Pants 2. What do you like about being a movie mogul on the side?
I provide the financing for Alcon Entertainment, which is run by two very smart men: Andrew Kosove and Broderick Johnson. I'm not involved in the day-to-day part of the business, and I certainly don't consider myself to be a movie mogul.
You're a part owner of the Washington Redskins, and your son Cannon is a freshman quarterback at the University of Miami. Do you just watch sports all weekend?
My son Arthur also played football at the University of North Carolina. He's an assistant coach for the Redskins. I play a lot of tennis. My daughters were always involved in sports. So, yes, we spend a lot of time watching or participating in sporting events.