Hello, this is Kim Yong-gap, a correspondent for Maeil Business News in New York. The American logistics company FedEx has been a symbol of fast and accurate delivery. However, in recent years, consumer complaints about FedEx have been increasing. When watching videos online that describe the delivery services of companies like Amazon, UPS, and FedEx, it is often pointed out that while Amazon provides satisfactory deliveries, FedEx frequently delivers products in damaged condition. These videos have resonated with many people online. Additionally, concerns are growing that FedEx's crisis may be starting, especially with its poor performance outlook. What kind of company is FedEx, really? Have you ever had the experience of tracking a package and finding that it is located further away than expected? The system that makes your package go in circles is precisely what was created by...

FedEx exists. FedEx was founded in 1971 by Frederick Smith. Frederick Smith is also noted as a businessman respected by former U.S. President Barack Obama. Born in 1944, Frederick Smith was born in Marks, Mississippi. The story of FedEx's founding begins during Frederick Smith's college years. In the mid-1960s, while attending Yale University, he wrote a report on the potential of same-day delivery services in a world becoming increasingly globalized and technologically connected. He recognized the need for a fast logistics and delivery system based on the premise that computer companies needed quick repairs when issues arose to enhance their reliability. This paper became the initial blueprint for FedEx, but he received a C grade from his professor at the time.

The reason for the declining feasibility of delivery services through transportation was highlighted. Fred Smith enlisted in the U.S. Marine Corps and spent four years serving. Upon returning in 1971, he confirmed that his ideas had actually come to fruition. The importance of computers had grown, but the delivery system had not kept pace with this development. At the age of 29, he decided to start a business. He established the company with $4 million inherited from his father, along with $80 million in venture capital and loans. He tested the network by sending empty boxes to 25 initial cities and began the first deliveries in April 1973. One of the most famous stories about FedEx is how the company was saved during its early days. When facing a small deficit, Fred Smith took the company's last $5,000 to Las Vegas and sat at a blackjack table. There, he won $27,000, which helped save FedEx.

FedEx was able to survive by covering the costs for a few more days of operation through actual gambling. The differentiated service of FedEx is undoubtedly the introduction of the hub-and-spoke system. At that time, the delivery system typically connected the origin and destination of the cargo directly. However, FedEx introduced the idea of first gathering and sorting the cargo centrally before sending it to the final destination. Instead of launching planes from every city in the U.S., they launched planes from a central hub, significantly reducing the number of flights and fuel consumption. These central locations are called hubs. While there are several hubs in the U.S., the largest one is in Memphis, Tennessee, where FedEx's headquarters is located, and this super hub plays a crucial role in rapid sorting.

It is essential. In response, FedEx has introduced barcode scanning and computerized tracking for deliveries. The super hub has technology that can track and sort packages at an incredible speed of about 500,000 packages per hour. FedEx's delivery system can be considered the precursor to today's delivery systems, which transport items from a central hub to their final destinations. If my package is strangely located in Memphis instead of its intended destination, there is a reason for that. FedEx is also the place where a differentiated delivery system and package tracking began, as well as the world's first overnight delivery service. As a result, a fast air cargo system was established across the United States, allowing customers to receive their items within a day. The competitiveness of FedEx lies in its fast and accurate delivery.

A movie has solidified the image of FedEx. Although it is an old film, anyone who has seen Cast Away, starring Tom Hanks, will likely think of FedEx. In Cast Away, Tom Hanks plays a FedEx employee who crashes on a deserted island while on a delivery flight. The film portrays his four-year struggle for survival on the island. It concludes with Tom Hanks successfully escaping and completing a package delivery to a customer, reinforcing the image that FedEx delivers no matter what. FedEx grew rapidly based on this image, successfully going public in 1978, and by 1983, its revenue reached $1 billion. It set a record as the first American company to achieve $1 billion in revenue within ten years without any mergers or acquisitions. This success of FedEx...

One of the factors is a culture that respects employees. This culture stems from the belief that treating employees well will lead to providing the best service to customers. In line with globalization, FedEx International was launched in 1984, expanding its global presence. Today, FedEx provides services in over 220 countries and has more than 700 aircraft in its fleet. Additionally, it employs over 500,000 people. Due to the vast scale and diversity of FedEx's logistics operations, its performance is often seen as a barometer for the global economy. When FedEx's performance declines, it is said that clouds begin to gather over the world economy. However, recently, FedEx's performance has not been good. On September 19, it announced its results for the first quarter of the 2025 fiscal year, covering the period from June to August, reporting revenue of $21.6 billion, which is a 0.5% decrease compared to the previous year.

The adjusted earnings per share decreased to $3.60, significantly below the projected $4.86. FedEx attributes this decline to reduced demand and increased costs. Additionally, they have downgraded their guidance for the second quarter, lowering the previous earnings per share forecast from a range of $20 to $22 to a new range of $20 to $21. FedEx stated that as demand, which surged during the pandemic, returns to previous levels, they are continuing to implement cost-saving measures. However, it is insufficient to interpret FedEx's weakened performance solely as a result of post-pandemic demand decline or a weakening global economy. The key factor here is Amazon. Looking at FedEx's revenue, approximately 85% comes from international express services and the North American small parcel ground delivery service, known as Ground service. The remaining 11% is attributed to freight services.

FedEx Flight, the delivery service, is charging ahead. Amazon's delivery capabilities are indeed quite threatening in terms of its portfolio. In fact, Amazon's parcel volume has already surpassed that of FedEx and UPS. It surpassed FedEx in 2020 and UPS in 2022, and the gap continues to widen. Just ten years ago, Amazon was a customer of FedEx, relying on external logistics companies like FedEx and UPS during a time when it lacked its own logistics infrastructure. Then, Amazon began its own logistics operations. At that time, FedEx's founder and CEO, Fred Smith, stated that Amazon could not threaten FedEx. He believed it was a business that required a lot of money to operate. However, as Amazon gradually expanded, by 2019, it was in a position to compete with FedEx.

The contract will be terminated. As online transactions surged due to the pandemic, Amazon began to significantly expand its operations, successfully reducing delivery costs and increasing speed through economies of scale. As mentioned at the beginning of the video, Amazon received positive evaluations for the quality of its delivery services, allowing it to grow further. Ultimately, in 2020, it surpassed FedEx in package volume. Additionally, Amazon is focusing on developing technologies such as drones, robots, and autonomous vehicles to enhance delivery efficiency. Now, discussing FedEx's performance in the context of the global economy might overlook Amazon's influence. However, I want to emphasize that FedEx is currently facing a crisis due to the competition from Amazon. It is essential to establish a strategy to respond to Amazon's threats in the e-commerce market.

It is undoubtedly the right time. FedEx also predicts that the scale of e-commerce in the United States will grow by 3 to 4% over the next five years. Here, it is essential to leverage the strengths of FedEx's delivery service. One of FedEx's advantages compared to Amazon is that 94% of Americans live within five miles of a FedEx facility. This means that FedEx is close to people. When receiving items, they are delivered to homes, but when sending or returning items, customers go to the location. It is necessary to utilize this advantage to promote return services. Additionally, a recent collaboration is quite interesting; a catering company partnered with FedEx to deliver cheese online, particularly focusing on the process of delivering perishable products. This optimized delivery by FedEx for food could represent an area that does not overlap with Amazon. Today, we are discussing the current state of affairs.

I shared the story about the company Dex, which created a logistics system. How will FedEx fare in competition with Amazon? If you enjoyed today's video, please subscribe to Maeil Business Newspaper's Wall Street Weekly, and don't forget to like and leave a comment. Thank you!

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