Scott:
FDX has been discussed on this thread as a backdoor internet play. The article below also talks to this:
msnbc.com
From boxes to bytes for Fedex?
Web operations
change mission
of shipping firm
A shift in operations from
shipping packages to
tracking via the Internet
may ground many Federal
Express planes.
By Douglas A. Blackmon
THE WALL STREET JOURNAL
MEMPHIS, Tenn. — Behind the standoff between
Federal Express Corp. and its 3,500 pilots lurks a
startling question: Could the express-delivery
service be morphing from a transportation
company into an information company?
Frederick W. Smith, chairman and chief
executive of FedEx's parent company, FDX
Corp., has already started on that course,
according to top executives there.
The company claims
its army of 1,500
in-house
programmers write
more software code
than almost any
other non-software
company.
FACED WITH THE PROSPECT of a
Christmas-season strike by the pilots, Mr. Smith and the
executives who run the companies controlled by FDX say
they are making a monumental shift in the FedEx mission.
They are accelerating plans to focus on the information
systems that track and coordinate packages. A new FedEx
could emerge from all this needing fewer pilots and fewer
aircraft than anyone thought possible a few months ago.
The company is already some ways along in its
transformation. FedEx's Web site (www.fedex.com) is one
of the most heavily used places on the Internet. The
company claims its army of 1,500 in-house programmers
write more software code than almost any other
non-software company. Besides delivering packages,
FedEx also designs and operates high-tech warehousing
and distribution systems for big manufacturers and retailers
around the world.
FDX Corporation (FDX)
price
change
$63.13
+2.438
Data: Microsoft Investor and S&P
Comstock 20 min.delay
How much of the change is negotiating bluster and how
much is a real strategic overhaul is still unclear. But today,
information clearly commands a higher premium than trucks
and planes. FedEx executives envy the lofty valuations of
Internet companies such as bookseller Amazon.com Inc.
They are far more appealing than the multiple Wall Street
puts on FDX.
“Moving an item from point A to point B is no longer a
big deal,” says James Barksdale, chief executive officer of
Netscape Communications Corp. and early architect of
FedEx's high-tech strategies in a 12-year stint at the
company, most of it as chief operating officer. “Having the
information about that item, and where it is, and the best
way to use it ... that is the value. The companies that will be
big winners will be the ones who can best maximize the
value of these systems.”
In an interview Thursday, FedEx's president and chief
executive, Theodore L. Weise, said the company still hopes
no strike will occur. He said he would prefer the
transformation of FedEx to be gradual, in partnership with
the pilots. But faced with the threat of a strike, he said, the
company can't wait.
“There will be unwavering dedication to serving our
customers and rebuilding FedEx in the future WITH OR
WITHOUT YOU,” Mr. Smith warned this week in an
electronic missive to the pilots, who don't have a contract
and theoretically could all be fired.
Information Highways
As FedEx talks about shifting its focus, a look at where the
company stands in fiscal 1998:
Revenue
$13.25 billion
Average daily package volume
3,025,999
Average revenue per package
$15.69
Large jets
328
Average number of employees
143,000
Pilots
3,500
Source: FDX Corp.
A futuristic FedEx that traffics in information and
outsources major segments of the routes packages take
would run huge risks. What if the other companies
transporting FedEx packages don't have the dedication and
care that the people loading and operating FedEx planes
and trucks are famous for? FedEx could find itself haunted
by its own 1970s advertising tagline; “The more people
involved in shipping a package, the less chance of it getting
there the next day.”
Already, though, there are signs that a new FedEx is
starting to emerge. Thursday, FedEx executives said they
had consummated agreements to contract with other airlines
for all flight operations in the company's vast international
network. The company wouldn't detail the arrangements,
but said the other airlines will take over the international
operation regardless of whether the pilots strike in early
December, as they have threatened to do. FedEx says it has
now entered into outsourcing agreements that will cost the
company more than $100 million over the next six months.
FedEx began mapping out these changes in earnest two
years ago, under an internal plan named “Reinventing
FedEx,” Mr. Weise said. The changeover in international
flights could begin as soon as next week, the company says.
For 25 years, Mr. Smith courted customers by
evangelizing about a way of doing business in which
companies don't need to own trucks, planes, and
warehouses. FedEx would do it all for them. Now Mr.
Smith is talking about taking his own advice.
Where its value has long been built on giant airplanes
and big trucks, he sees a time when it will be built on
information, computers, and the allure of the FedEx brand.
If it works, FedEx's most important assets will no longer be
taking off and landing on the Tarmac, but instead zapping
around the pristine and pilot-free world of cyberspace.
It might invite more
labor strife from
other employees: A
reduction in aircraft
and pilots could also
mean one day
cutting jobs among
thousands of aircraft
mechanics and
support personnel.
A reinvention of FedEx has other potential pitfalls. The
company spent more than a billion dollars to acquire air
routes in Asia, so that purple-tailed FedEx aircraft could ply
the trade routes. Is the investment as valuable if other
companies fly the routes? And it might invite more labor
strife from other employees: A reduction in aircraft and
pilots could also mean one day cutting jobs among
thousands of aircraft mechanics and support personnel.
The pilots' union, the FedEx Pilots Association,
maintains the restructuring pronouncements are simply a
giant bluff by an anti-union company aimed at frightening
pilots — and other workers who might want to organize
themselves — into accepting inferior pay, benefits and
working conditions. Several other pilot unions Thursday
pledged not to fly FedEx packages if there is a strike.
Negotiators for the two sides have been meeting off
and on with officials of the National Mediation Board in
Washington D.C. for the past two weeks, in hopes of
restarting formal talks. So far, no date to resume bargaining
has been set. Both sides say no major disruption can occur
until after pilots count their strike ballots on Dec. 3. The
White House confirmed it has been receiving updates from
the Mediation Board and spoke Wednesday with Mr.
Smith regarding the FedEx situation, declining to elaborate.
For almost two decades, FedEx has been investing
massive amounts to develop software and create a giant
digital network. FedEx is currently building a corporate
technology campus here, in addition to five others in the
U.S. and several more overseas. The company's electronic
systems are directly linked via the Internet or other online
connections to more than one million customers.
That system, which tracks packages almost hour by
hour, allows the company to do much more than just inform
customers. It also allows the company to predict the future
flow of goods and rapidly reconfigure its network to handle
it.
Mr. Smith declined to be interviewed for this story. On
Nov. 11, the FDX board voted to authorize the
international moves, as well as leasing trucks and aircraft
domestically, based on the possibility of a strike. The
planning accelerated in the past six months in anticipation of
a labor dispute with the pilots, according to FDX's
executive vice president and chief financial officer, Alan B.
Graf Jr.
FedEx has long struggled with a troubling trend in its
fundamental business. As rivals including United Parcel
Service of America Inc. and DHL Worldwide Express have
moved to match the technological innovations which once
made FedEx distinct, FedEx has been increasingly forced to
compete on price, rather than pure service. The result is that
revenue per package has fallen precipitously in key
categories during the 1990s, while the cost of maintaining an
advanced transportation network has risen. It has been a
battle to maintain acceptable margins.
Managing the investments and maintenance costs of an
enormous fleet of jets has been one of the key issues.
Currently, FedEx keeps 17 unused DC-10s, purchased on
the cheap, stored on a desert field in Arizona, waiting to
upgrade the aircraft and phase them into the fleet at
precisely the right time.
Concerns about profitability have been exacerbated by
global economic problems in the past year. With 20
additional aircraft scheduled for delivery in the next several
years, at a total cost of about $2 billion, FedEx has been
actively looking for ways to reduce capital investments
without cutting on services, Mr. Graf said.
—Bob Davis in Washington contributed to this
article.
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All Rights Reserved.
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