April 9, 2020
FedEx: How Las Vegas Paid for Your Package

FedEx: How Las Vegas Paid for Your Package

Imagine your computer breaks down. You’re a PC Master Race type of guy and
it’s your most valuable possession: it’s custom built, ultra powerful, and on
the bleeding edge of technology. You check to see what’s wrong: it’s the
processor, it’s burnt out from all your late-night Kpop sessions. You pick up your phone and order a new one:
after all, it costs only 2 thousand dollars. Four hours later, you hear a knock on your
door: it’s the FedEx guy, and he’s got your
processor. Just fifty years ago, this scenario would
sound like it was straight out of a science fiction book. Compare that to today, when we’re so used
to fast transcontinental deliveries that we barely even think about them. This week’s video is dedicated to one of
the companies that made such deliveries possible: FedEx. Now, the story of FedEx is really a story
about airplanes. You know how important airplanes were during
the 20th century. From dropping bombs on Nazis to supplying
food to West Berlin, they completely changed the rules of warfare and logistics. It wasn’t just the military that benefited:
the commercial airline industry also took off in the decades after World War 2. The 50s and 60s came to be known as the Golden
Age of Flying, a time before the popularity of cramped seats and crying babies. There was, however, one industry that lagged
behind military aviation and commercial airlines: the courier industry. That might seem strange. After all, if planes can carry people, then
why not packages too? Well, the surprising answer is, that they
carried both. Before the 1970s, the airline industry was
one of the most tightly regulated ones in the US. The Civil Aeronautics Board had authority
over all domestic air transport. They could set fares, pick routes, and choose
airlines, essentially acting as the federal equivalent of Agent Smith. Regulation was so tight that most freight
was moved not through specialized air carriers, but through the cargo hold of regular commercial
aircraft. Instead of being at the mercy of the CAB and
having to pay for its own delivery fleet, the courier could just rent the space he needed
on passenger flights. This solution made sense economically, but
it also meant deliveries would be very slow, especially to smaller cities with fewer flight
routes. This issue of cost versus speed was the topic
of one Yale student’s economics essay. His name is Fred Smith, and in his essay he
outlined the basics of an overnight delivery service, the idea that would eventually give
rise to FedEx. His professor didn’t really like the paper
though, and gave him a C on it. A few years later, when he graduated from
Yale in 1966, Fred joined the US Marine Corps. He served two tours of duty in Vietnam, and
he got to see first hand how the military handled their logistics. When he returned from service in 1969, he
immediately started working on his courier idea. To make it happen, in the true spirit of the
American dream, he got a small loan of 4 million dollars from his father’s trust fund. Fred’s original plan was to use his courier
service to deliver checks between the Federal Reserve banks. Now, the way the checking system work is like
this: I write you a check and you cash it in at
your local bank. They send the check to one of the Federal
Reserve banks, where it gets validates. From there, the check travels to my bank,
where the payment is settled. As you can imagine the process was very slow,
sometimes taking as long as 10 days to complete. Fred’ plan was to speed up the whole thing
by delivering the checks overnight using his delivery fleet. The Federal Reserve initially agreed to the
idea, and so Fred bought two Falcon business jets to start things up. He even decided to name his company Federal
Express, and incorporated it on June 18th, 1971. Things were looking good, until the Federal
Reserve decided to pull out on their agreement. Fred was stuck without a client, but he didn’t
give up. Instead, he raised 91 million dollars from
venture capitalists. He spent a big chunk of that money on marketing,
and he finally launched his service in 1973 with a fleet of 14 Falcons that would fly
between 25 cities. It was a good start, but that very same year
the Arab members of OPEC initiated an oil embargo. The price of oil doubled over the next two
years, and since jet fuel is made from refined oil products (kerosene, naphtha, gasoline),
the early Federal Express saw their costs skyrocket. By the start of 1975, they had lost more than
29 million dollars just from running their business. Things were so bad that the company’s bank
account in July amounted to less than 5 thousand dollars. Fred knew he couldn’t pay for next week’s
fuel costs ($24,000), so he did what any reasonable businessman would in his position:
he flew to Las Vegas and played blackjack with the company’s last 5 grand. It was a questionable move, but Fred ended
up winning 27 thousand dollars, enough to keep Federal Express going for another week. That week ended up being all that mattered,
since by then Fred had managed to secure another loan from investors. His strategy was a polar opposite of what
the airlines and other couriers were doing. While everyone was cutting costs and raising
prices, he was still spending money on marketing. Federal Express grew rapidly over the next
two years, processing almost 20,000 packages a day in 1976. By the end of 1977, they had 8 million dollars
in profit, with over 31,000 regular customers: not just local firms, but big guys like IBM
and the US Air Force. Their success was in large part due to their
focus on smaller cities. While all the major airlines fought for market
share along the big passenger routes, Federal Express were raking in millions with almost
no competition. A lot of that profit was spent on lobbying
for deregulation. Remember how strict the CAB was at the time? Well, Federal Express and other air freight
companies were pushing hard against it, and their efforts finally paid off in 1978 with
the introduction of the Airline Deregulation Act. This was a huge win for Federal Express. It removed most of the CAB’s authority,
as well as other old rules that hurt the industry: one of the regulations lifted, for example,
was about the weight of cargo that could be transported. Prior to the act, Federal Express planes were
forbidden from carrying more than 7,500 pounds. This was hugely ineffective, since they had
to use a bunch of smaller aircraft instead of a single big one. The Deregulation Act gave Federal Express
the freedom to expand, and they did so rapidly. By 1981 they were the largest air freight
company in the US, and their fleet had increased to 32 Falcons, 38 Boeing 727s, and 5 Boeing
737s. Other companies quickly caught on to how successful
the Federal Express model was, and so they started copying it. Outside the US, Germany’s Deutsche Post
express service, now known as DHL, were also offering overnight freight. To answer their competitors, Federal Express
went on an buying spree, acquiring courier companies in the US, Britain, the Netherlands,
and the United Arab Emirates. By 1988 they were operating in 90 countries
across all continents, and their overnight service revenue was almost double that of
their closest competitor. In 1994 Fred Smith finally gave up on the
cumbersome Federal Express name, and replaced it with the more popular FedEx. Today, FedEx is the third biggest air courier
in the world: they operate 8 separate divisions and provide service around the globe. Interestingly enough, even after the Airline
Deregulation Act they remain one of the biggest lobbyists in the US. They spent over 5 million dollars on lobbying
just in the first three months of 2010. Back in 2005 they donated 250 thousand dollars
to support George Bush’s second inauguration. Their latest move was in 2015, when they acquired
TNT Express, one of their biggest European competitors, for the meager sum of 4.4 billion
dollars. UPS had also tried to acquire TNT, but the
European Commission has blocked them on antitrust grounds. Fred Smith is still the CEO of FedEx 45 years
later, and you have to hand it to him, he’s done a pretty good job so far. Let’s hope, for the sake of our PC Master
Race guy, that he continues to do so in the future. I hope you enjoyed FedEx’ story. I’d love to hear your thoughts and opinions,
so do share them in the comments below and don’t forget to mention which company you’d
like me to feature next. If you’d like to support this channel please
like and subscribe, and as always, stay smart.

100 thoughts on “FedEx: How Las Vegas Paid for Your Package

  1. Never get shipping through fedex, non union and treat their employees like shit, they need corporate death, and last Vegas must be used for nuclear testing or just let the fbi clear out lvmpd by firing squad

  2. I LOATHE DHL! Any time I buy something from Ebay, and I see the carrier is DHL, I know it'll be two weeks or longer before I receive my package.

  3. I noticed this channel about a week ago or so, and I've been watching at least three clips of you guys since then. This is brilliant work. Subscribed. Patreon next. These stories are so damn interesting, thank you for making this!

  4. Fedex is so poorly run, it's a wonder that they're still in business. I had numerous problems with them as a shipper, and I still have numerous problems when someone uses them to ship something to me. UPS is a little more expensive, but you get what you pay for.

  5. Worked in a FedEx ground facility for a few weeks. Job wasn't too bad. It required getting up at 4:30 in the morning, and lifting packages up to 150lbs, but wasn't too bad. I quit because I ended up getting a better paying job with over double the amount of hours offered by FedEx with more pay per hour. Uh who am I kidding, working at a ground facility, I'm guessing also Air, is pretty awful. Don't do it.

  6. A late reply but I'd like to see a story on copying centers and how Fedex Office became the dominant force after acquiring Kinko's.

  7. fedex can't deliver shit .fake video fedex takes ur package and money then give it to a small company that dont care about if you get your package or not

  8. Dear Creators of this channel,

    I'm writing a coursework assignment on the business success story of FedEx, and this video is simply amazing. I can honestly understand the amount of work that must have gone into it. Can I please ask for a list of references that you used to put together this video? It would ease my life tremendously!

    Many thanks!

  9. I know it was an exageration, but almost no one buy a 2000 usd procesor when a similar one goes for a third the price(acording to the prices and performances that you shown)

  10. Finally, after watching most of your videos, I've found 1 CEO who continued from beginning till the end….

  11. Why don't you make a video on indian Company "Tata Group". It is one of the biggest company in India with strong history and ethics model. Great work guys!! Eager to see video on Tata group.

  12. do ya'll prefer FedEx or UPS? I like FedEX more, but it's unfortunate that you can't pick who you want to deliver your package on Amazon and all these other sites….i would think Amazon would give you the option to chose FedEx, UPS, or DHL

  13. Fred went to Vegas, gambled and won enough money to save his company! Lol I wish everyone who went to Vegas got that lucky!

  14. Boy, if there was like a stock market for YouTube channels, I would buy a lot of business casual stock!!!!!

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