photography by Larry Kuzniewski
Excerpts from a lecture (“Air Cargo: Back To The Future”) given at The Wings Club in New York City on May 24, 2012. Smith is the founder of FedEx Corporation.
In 1984, a movie came out called Back to the Future in which the main character, Marty McFly, alternates between the past, present, and future. The movie is a great framework for a speech that focuses on events taking place over a broad timespan. The movie is also a good metaphor for the history and evolution of air cargo.
As you know, we began as Federal Express and created the modern air-express industry almost four decades ago. Our history spans the most important era of the modern air-cargo industry, and today we have nearly 690 aircraft, the largest all-cargo fleet in the world. Our growth has been spurred by several macro-economic trends: the increase of high-tech and high-value-added goods, the wider access of world markets to each other, just-in-time delivery, and the rise of the Internet.
Most air cargo shipments from the end of World War II until the 1970s were moved by either the U.S. government or the military. One problem with the military cargo planes so prevalent after the war was that they could not be adapted to commercial use.
In January 1970, Boeing introduced its 747, which revolutionized aviation. The 747 air freighter, for the first time, gave cargo a starring role in the air transportation system, instead of being an afterthought in the underbellies of passenger planes. Now, finally, you had the plane to carry computers, electronics, and other high-value perishables such as flowers across vast distances.
As the 747 began to dominate long-haul services, an upstart network called Federal Express began flying from Memphis in the spring of 1973 with less than 200 packages rattling around in 14 small Dassault Falcons going to 25 cities on its first day. Our hub-and-spoke distribution system was one uniquely developed to deliver overnight express packages from one point to any other on the network.
Also we created an integrated air-ground express network. And we understood at FedEx that information about the package is as important as the package itself, so we also originated the first tracking system to enable people to keep tabs on their shipments. There was a growing need to move small, important shipments throughout the U.S. “absolutely, positively overnight,” as our iconic advertising touted in those days.
Malcolm McLean, a friend of mine who passed away in 2001, invented the shipping container. The “boxes” were stacked in the hulls of ships. The labor savings and efficiencies, in addition to the ability to transport more cargo across oceans to Asia and Europe, gave a much needed reinvigoration to the shipping industry that continues today.
In this age of instant-technology-gratification, the world is hungry for these products, all on display at our fingertips over the Internet. Of course, that’s great for express air cargo. We take care of all the details such as customs clearance and provide, in essence, a clipper ship service for the computer age.
As we all know, there’s a cloud hanging over today’s industrial horizon — the high price of oil. It’s a villain we didn’t have to deal with in the mid-century world of cheap gas and fin-tailed cars. We’ve certainly had our challenges in the last four decades with the price of oil. I’ll never forget the effect of 1973’s embargo on a fledgling FedEx. We almost went under before we’d barely begun.
Let’s compare a 747 and a large container ship, both going from Los Angeles to Hong Kong. For the ship, it takes one ton of fuel to move 330 tons of cargo. For the plane, it takes about 330 tons of fuel to move the same amount of cargo. The result is a muted outlook near-term for air cargo as a whole. All those big ships I mentioned earlier are nibbling away at the air cargo business, and those bites will become bigger when the Panama Canal expansion is completed in 2014.
Air freight yields have been declining in real terms for many years, while new main-deck all-cargo capacity has been increasing. So, in general, freighter flying has truly gone back to the future where most operations are marginally profitable at best.
The takeaway from this evolution of the air-cargo industry is that the air express sector will continue to grow long-term as the integration of the world’s economies generate more small shipments moving directly from point of production to the end user.
It’s been said many times that the only certainty in life is change. That’s been true in my life and the life of FedEx. No matter what’s happening in our industry now, it won’t be the same 10 years from now. But that’s what makes this journey so exhilarating.