Frederick Smith’s Majority Stock Purchase of Arkansas Aviation Sales
Frederick Smith’s majority stock purchase of Arkansas Aviation Sales helped form Federal Express, now doing business as FedEx Corp, which is publicly traded on the NYSE under the ticker symbol FDX. FedEx Corp began trading on the NYSE on April 12, 1978 at $24.00 a share. Today, FedEx Corp is still traded under the ticker symbol FDX and has averaged in the month of November 2018 to trade anywhere from $220.00 – $226.00 per share. FedEx Corp fiscal year 2018 reported $65.5B in revenue, a 9% growth from fiscal year 2017, $4.6B in net income, and a 30% in crease in quarterly dividend for fiscal year 2019. (FedEx). FedEx Corporation’s earning per share showed over a 50% increase in FY18 from FY17. Though FedEx Corp’s initial number look strong, the fiscal 2017 and 2018 numbers could have showed a stronger net income if it weren’t for the capital investment in FedEx Supply chain and the acquisition of TNT Express in Europe. These acquisitions are expected to deliver hefty profits in fiscal year 2019, though FedEx will reinvest its gains on their Aircraft Fleet Modernization program. (FedEx) In the Aircraft Fleet Modernization program, FedEx is slated to add on 24 new Boeing Carriers (12 Boeing 777Fs, and 12 Boeing 767Fs) that will begin to be delivered in fiscal years 2020-2025. FedEx Corporation has become extremely versatile and well versed with regards to the products and services it offers revolving around the transportation business. FedEx’s extensive broad portfolio in consistently growing and with the rapid acquisitions it has been making year after year, FedEx is ensuring that it stays as one of the top trusted, preferred firms in the ecommerce, transportation, business services, technology and warehousing industry.
Most recently FedEx decided to merge resources from FedEX Express and FedEx Ground and has not opened the FedEx Corporate Services Division. By merging the two segments there stands to be a tighter integration of resources allowing for FedEx to reduce expenses and operating cost and further maximize their profits. The strength in the 2018 4th quarter financials are said to be a result from various factors such as favorable fuel prices, higher base rates, and an increase in volume, though these gains were reduced by issues that FedEx Corporation faced, such as increases to hourly wages and an increase to their capital spending. In the fiscal 2018 earning report, FedEx Corporation has issued forecasts for fy2019 that show “moderate economic growth” (FedEx) based on planned realignments between FedEx Custom Critical and FedEx Supply Chain and return on investment from the synergy of TNT Express with FedEx Express. Based on the various acquirements of FedEx Corporation in the past 10 years, FedEx Corporation stands to show a continuous and steady growth. FedEx Corporation has propelled its corporate growth through the acquisitions of local and regional transportation companies in the following countries (FedEx): – 2007 – Acquisitions in China and Hungary – 2011- Acquisitions in India & Mexico – 2012- Acquisitions in Poland, France, & Brazil – 2014- Acquisitions in various countries in South Africa, Botswana, Malawi, Mozambique, Namibia, Swaziland and Zambi – 2014- The acquisition of Bongo International ( a leader in North America, in cross-border enablement technologies and solutions) – 2015– The acquisition of GENCO, a North American third-party logistics providers, now known as FedEx Supply Chain – 2016- The acquisition of TNT Express, one of the world’s largest express delivery companies with services in road and air delivery servicing Europe, the Middle East and Africa, Asia Pacific, and the Americas. Financial stability and strength is not just based on the global expansion that FedEx has undertaken, FedEx’s growth will also continue based on the growth in ecommerce both domestically and internationally. FedEx has poised itself in markets that have yet to see the full realization of purchasing power in the ecommerce sector. Latin America and China are players that are said to almost double in growth by 2020, and by setting up a network that will be able to accommodate the need of fast reliable delivery services, FedEx investments in globalization are sure to bring strong financial returns in the next few years, making FedEx a great investment. Current Competition: – DHL- Deutsche Post DHL Group operates under two brands, Deutsche Post (Europe’s leading postal service provider) and DHL which offers international express services on parcels, freight transportation, e-commerce and supply chain management services.
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Employees over 520,000 employees in over 220 countries/territories worldwide. (Deutsche Post DHL Group)In Germany it operates well on ground level, internationally DHL relies heavily on sea and air mail. – UPS – US Based with international outreach, UPS is a Small package delivery service (the main division of business) that also offers through company divisions services in freight, air cargo, and retail based packing and shipping. The freight services UPS offers are over the road and can handle LTL as well as TL, though these services are mainly for the U.S. Most recently UPS has also begun to offer services for Supply Chain. UPS is very customer friendly and easy to operate, with various levels of delivery options that are consumer friendly. – SNCF – A logistics and transportation company based in France. The core of the business is rooted in supply chain optimization, freight forwarding, over the road transportation and logistics. SNCF employees over 43,000 employees in over 120 countries. SNCF does not work with third parties and all movements are handled directly by the company, making tracing and their customer service level superb. – Blue Dart Aviation – a cargo airline company based in Indian, whose parent company is DHL, it services seven major Indian metro cities. Blue Dart is considered a one stop solution for anything related to logistics. – Kuehne + Nagel based out of Switzerland, but started in Germany, Kuehne + Nagel offers services in logistics, sea and air freight, as well as IT based logistics solutions. It has over 75,000 employees in over 109 countries. Each of these companies are competitors to DHL based off the strengths and primary focus of what each firm specializes in. FedEx has such a large portfolio of services it offers, it puts itself in competition not just with the select few firms in the US but also with the strongest of each country FedEx does business in.
As FedEx tries to meet the growing demand of their customers, FedEx is expanding its services and horizons abroad by acquiring firms that specialize in the demanded services in each region, which becomes FedEx’s advantage. By aligning itself with firms that have proven track records, FedEx is not straining its personnel nor equipment resources by servicing so many regions, it stands to excel and expand based on the functioning model they have here in the U.S. One downside to all the global expansion FedEx has is the lack of skilled labor to fulfill their employment needs. Currently FedEx and many of its third party partners are facing a shortage in the workforce for truck drivers, hub workers and airplane pilots. The job market in the U.S. has seen a shortage of supply in workers, and skilled to do what FedEx needs further narrows the pool of available candidates. FedEx has had to take various approaches to try and staff for their 24hour operations. FedEx has begun to focus on training current staff and promoting from within. FedEx has developed a CDL training program for current employees that are interested in driving FedEx trucks, for employees that show talent and drive, the talent acquisition team will put work with management to develop a progression plan for staff and place the employee in various trainings in order to prepare them for the next level. FedEx top executives are also working with local colleges to speak about the what needs FedEx and the Supply Chain sector are currently facing, in hopes that the new curriculum being taught at the college level may cover some of the techniques of what is needed.
As a supporter of the U.S. military, FedEx is very supportive and outreaching in this community in hopes of finding good qualified people to join their team. FedEx also does heavy recruiting at the college level and it is consistently holding job fairs throughout the year, versus past times when they would only hold an open job fair that would happen around the holiday season. Fed-EX has a very complex and detailed business strategy and business model. Fed-EX has a various locations and hubs to deliver packages customers on time in a fast and effective and efficient manner. Their employees on their day to day operations range from unloaders, loaders, sorters, and delivery drivers to part time supervisors who supervise the loading and unloading of packages, supervisors who supervise the sorting and supervisors who supervise the drivers, the shift supervisors, the building managers, regional managers, division managers, vice presidents, and the president and CEO of the company. Fed-Ex uses a complex system of conveyor belts and sorting machines to ensure the packages care going to correct locations in a safe and proper manner. Their sorting and delivery system are similar to their main rival companies such as UPS and DHL, but they have a specific delivery system which prioritizes how and when the packages are delivered to their customers. Unlike UPS and DHL, they have separate drivers to deliver their air bound packages and ground delivery packages. The main differences being that the packages being shipped VIA air costs more money and has less time to be delivered to their customers, so air packages have priority over ground packages but only priority in it’s delivery system. Not how the package is treated. It’s easily confused because someone may think that an air package that’s being delivered that has low value to the package is more important than a ground package of high value which isn’t the case. Air packages simply mean that a customer paid more money for its delivery and it has more importance and less delivery time to reach the customer as compared to the ground packages. Ground packages are just as important and are treated with just as much respect and sensitivity as an air bound package, there is just a longer time window that they have, to deliver the package. Fed-EX prides itself in operating in a non-union workplace environment. Unlike UPS and DHL which have union representation for the workers to protect their working rights, their working conditions, and uphold their end of their contractual obligations and collective bargaining agreements, Fed-Ex does not need union representation for their workers to protect their working conditions, worker rights, and wage increase and promotional opportunities. Fed-Ex also doesn’t just use trucks to deliver their packages, but they also use aircraft and merchant ships going across the oceans to deliver their packages to their hubs in a timely manner.
Fed-Ex drivers also have different options available to their use that other companies don’t. For example, if a driver is delivering a specific route and wants to switch it up with another driver or allow another driver to deliver their packages, they have the option to use someone else to deliver their packages which can help relieve stress of too much product to be delivered in a specific timeframe. Fed-Ex isn’t a typical nine to five, eight hour a day kind of job. When the day starts for a driver, the day doesn’t end until all the packages on their truck are all delivered so there’s overtime options available but they are supposed to be in regular contact with their delivery hub to ensure that if the driver needs help, they get the proper help to get the job done because there is a federal law that states that anyone who drives trucks or package delivery trucks aren’t supposed to exceed twelve hours of consistent driving and working to ensure the safety of the driver and the other people who use the roads. The same principle goes for the part time dock workers who sort the air packages, load, and unload the trucks. It may be a part time job; however, the duty day doesn’t end until all the trucks that need to be unloaded on a certain shift are unloaded and all the trucks that are supposed to be loaded are loaded by the end of the work shift. The business model and strategy are easy to follow as long as people understand that there is an order of hierarchy that the packages being delivered have priority over others and that the duty days aren’t a clear cut eight hour a day, five days a week kind of company. Work is done when all the packages have been loaded, unloaded, and delivered by the end of each duty day.
Strengths: Huge Network/Global Presence: As stated in Marketing 91 article, FedEx stands 9th in the world for the number of manpower, but aside from its large manpower, it also has presence in 220 countries which includes a huge amount of warehousing depots and stores. (Bhasin, 2018) FedEx’s global network includes air and ground networks which provide package deliveries and freight to over 220 countries and territories. (Pratap, 2018)
Brand Recognition: FedEx is a well-known company all over the world, and as Regional Manager, Phil Resendiz, commented during our interview, FedEx is such a known company that the word “FedEx” is often used as a verb now. People sometimes say “I’m going to FedEx you this product” when they are simply going to ship something out. In the Cheshnotes article, author Abhijeet Pratap, explains that the strong brand recognition of FedEx is driven by consistent delivery of reliable services through the past several years as well as their strong focus on customer service which has increased customer trust and brand awareness. (Pratap, 2018)
Workplace Culture: FedEx has received title/award from Fortune of “100 Best Companies to Work For.” (Bamousa, 2016) If there’s one thing that Phil Resendiz reiterated during our interview was the great and one of kind workplace culture within FedEx. They provide great training as well as reliable resources for their employees which leads them to be hardworking and knowledgeable employees which is a reason why FedEx likes to promote within.
Economies of Scale: Economies of scale are said to be successful when more units of a good or service can be produced on a larger scale, however, at a lower cost. FedEx is successful at this because they have trucks set up, where if they are moving from one point to another they will have them carrying more packaging instead of less so that it reduces the fixed cost and increases the margins earned. If trucks need to make more trips to the same destination carrying only small amounts, their costs increase when they can be moving a higher number of packages at the same cost.
Innovation and technological capabilities: FedEx has done a really good job in implementing new technology, keeping up with technological changes and continuously improving their current technology to provide their customers with a superior customer service and obtain a higher efficiency. It was FedEx who started a system two decades ago that helped customers track their packages and know exactly where it is at any given time. (Bhasin, 2018) “It (FedEx) has adopted cutting edge technologies that allow customers to conveniently pick up and drop off from more than 50,000 locations in the US alone. Every day it picks up and delivers more than 14 million shipments.” (Pratap, 2018) FedEx has set up more than 130 automated facilities which allows them to clear higher volumes during peak seasons such as the holidays. (Pratap, 2018)
Financial performance: FedEx’s revenue is growing stronger is has been continuing to grow from previous years. As stated in the Cheshnotes article, FedEx revenue increased to 65.5 Billion and their Net Income reached $4.6 billion in 2018; their 2016 revenue was $50.4 billion and in 2017 increased to $60.3 billion and now in 2018 increased even more and reached a revenue of $65.5 billion. (Pratap, 2018)
TNT Acquisition: TNT Express, an international courier delivery service company, was acquired by FedEx in 2016 which helped them establish themselves in Europe. (Pratap, 2018) Weaknesses:
High Operating Costs: Just as the net income and revenue for FedEx has continued to increase, their operating costs have also kept growing year after year. In 2016, FedEx had operating expenses of 47.3 billion dollars which then increased to 55.3 Billion dollars in 2017 and increased again to 60.6 Billion dollars in 2018. (Pratap, 2018) If their operating costs continue to increase and their revenue remains stable, they will start seeing their profits decrease.
Over dependent in the US markets: United States is the major revenue driver for FedEx and just like everything else, depending so much on any one thing for revenue can be extremely risky when it comes to business because if one thing fails there, they will run into numerous problems which can be hard to resolve. “In both 2017 and 2018, US accounted for more than two thirds of the brand’s revenue. It’s international revenue in both the years was just around half of its revenue from US.” (Pratap, 2018)
Saturation: Most of the freight/transportation competitive companies have all adapted and all provide similar array of services which has led to a reduced scope of differentiation of services. Even though FedEx has the competitive advantage of top brand and consistency, all other companies have developed similar services to them and not a lot differentiates them from the other companies, so FedEx must come up with new systems that will set them apart from the other companies.
Opportunities: Acquisitions and Partnerships: Just like the acquisition of TNT Express has helped FedEx in the European economy, having similar acquisitions across the market can also help FedEx increase their overall presence in the market. If