In 1973 FedEx began operations and quickly ran into financial turmoil. With rapidly inflating fuel prices and other costs, FedEx was bleeding money.
With only $5,000 in its checking account and a $24,000 jet fuel bill, Fred Smith and FedEx were in trouble. After Smith was turned down for a loan by General Dynamics, Smith flew to Las Vegas with his last $5,000 and played blackjack. He won $27,000 – enough to pay the fuel bill and operate for another week. Smith’s partner Roger Frock recounted the experience:
I said, “You mean you took our last $5,000– how could you do that?” He shrugged his shoulders and said, “What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway.” Fred’s luck held again. It was not much, but it came at a critical time and kept us in business for another week.”
In the book “Changing How the World Does Business: FedEx’s Incredible Journey to Success – The Inside Story,” Roger Frock, a former senior vice president of operations at FedEx, described the scene when he found out what Smith did. “I said, ‘You mean you took our last $5,000 — how could you do that? [Smith] shrugged his shoulders and said, ‘What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway.'”
Shortly afterwards, Smith was able to secure more loans and FedEx rode out its bumpy early days. Today, FedEx carries up to 1.2 billion packages to 220 countries. Fred Smith himself is worth over $2 billion.
The FedEx Story
In 1965, Yale University undergraduate Frederick W. Smith wrote a term paper that invented an industry and changed what’s possible. In the paper, he laid out the logistical challenges facing pioneering firms in the information technology industry. Most airfreight shippers relied on passenger route systems, but those didn’t make economic sense for urgent shipments, Smith wrote.
He proposed a system specifically designed to accommodate time-sensitive shipments such as medicine, computer parts, and electronics. Smith’s professor apparently didn’t see the revolutionary implications of his thesis, and the paper received just an average grade.
In August 1971, following a stint in the military, Smith bought controlling interest in Arkansas Aviation Sales, located in Little Rock, Arkansas. While operating his new firm, he saw firsthand how difficult it was to get packages and other airfreight delivered within one to two days. With his term paper in mind, Smith set out to find a better way. Thus the idea for Federal Express was born: A company that has revolutionized global business practices and that now defines speed and reliability.
Smith named the company Federal Express because he believed the patriotic meaning associated with the word “federal” suggested an interest in nationwide economic activity. He also hoped the name would resonate with the Federal Reserve Bank, a potential customer. Although the bank denied his proposal, Smith kept the name because he thought it was memorable and would help attract public attention.
Company headquarters later moved to Memphis, Tennessee. Memphis was chosen because of its central location within the U.S. and because Memphis International Airport was rarely closed due to bad weather. The airport was also willing to make the necessary improvements for the operation and additional hangar space was readily available.
Federal Express officially began operations on April 17, 1973, with 389 team members. That night, 14 small aircraft took off from Memphis and delivered 186 packages to 25 U.S. cities from Rochester, New York, to Miami, Florida. Though the company did not show a profit until July 1975, it soon became the premier carrier of high-priority goods in the marketplace and set the standard for the express shipping industry it established.