Services

FedEx Founder Smith Ruining the Company

Douglas A. McIntyre

When Frederick W. Smith founded Federal Express in 1971, the company was a true disruptor. It shipped packages around the country and the world, quickly and at reasonable rates. It took on the U.S. Post Office and postal services in other nations. It helped pioneer fast delivery to small businesses and people’s homes. However, Smith recently has presided as board chair and chief executive over the demise of FedEx Corp. (NYSE: FDX), as it is now known, and it may be too late to halt the decline.

Wall Street has all but abandoned FedEx and may not come back unless FedEx can tremendously change its model again, and until Smith leaves his position. He has, based on FedEx’s recent results, stayed too long and done too little. Shares in FedEx have fallen 41% in the past two years, while the S&P 500 is 19% higher. Analysts have begun to tell investors to sell the stock, even at current low levels. Its plans to emerge from trouble are simply too thin and not believable.

FedEx has two long-term and obvious enemies. The first is United Parcel Service Inc. (NYSE: UPS), which offers almost identical services. The second is the U.S. Post Office, which also is battling for its survival, at least in its current form. Each goes head to head with FedEx on the speed of delivery and price. The cost to deliver is generally up, while prices for many deliveries have fallen.

Amazon.com Inc. (NASDAQ: AMZN) has become FedEx’s roadblock more recently. As it has in other areas, like traditional retail, it has begun to steamroll FedEx. With Amazon’s leverage in e-commerce, its brand and its balance sheet, FedEx has dwindling chances to stem Amazon’s growth in the delivery sector. Amazon used to be a huge FedEx customer. Now it believes it can be a direct and successful competitor. It has begun to build its own air force and is in the midst of creating its own ground delivery system.

FedEx’s recent financial reports have been horrible, on the basis of both revenue and earnings. It keeps dropping its forecasts, and it has lowered its guidance for future periods again. Meanwhile, UPS has posted mostly positive figures in the past few quarters.

Whether FedEx can be fixed at all remains a matter of debate. Those who believe not have been winning the debate. FedEx will need to shrink, they argue, and specialize in the areas where it makes the most money. On the other hand, a niche delivery service may have no future. Whatever the future of FedEx, confidence in CEO Smith has evaporated. The only chance his company has is for him to leave and hope someone else can transform the company, which has become a Herculean challenge.