The World on Time

(Case Study)
Case Study || The World on Time

Contents

Background .........................................................................................................................................................2

Focus ...................................................................................................................................................................2
1. Corporate Goals .......................................................................................................................................2
2. Goal Measurement: ..................................................................................................................................2

Business Insights ...............................................................................................................................................3

Technology: A Key Enabler ...............................................................................................................................3
Competencies .....................................................................................................................................................4
SWOT Analysis ...................................................................................................................................................5
1. Strengths ..................................................................................................................................................5
2. Weakness .................................................................................................................................................5
3. Opportunities ............................................................................................................................................5
4. Threats ......................................................................................................................................................5
Exhibits: ...............................................................................................................................................................6
Assignment Questions: .....................................................................................................................................8

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Case Study || The World on Time

FedEx: The World on Time

Background
FedEx initially started as a federal express corporation and was established in 1971 in America by Frederick W.
Smith. FedEx operated as “federal express” from 1973 until 2000, after that it was renamed FedEx. Federal
Express’s official operations started on April 17, 1973, with 389 team members. FedEx did not earn a profit up
to 1975 but it became successful to build its image in the market as a fast courier service provider. It soon
became the top courier service provider of high-priority goods in the marketplace and sets high-quality standards
for the fast delivery of products in the courier industry.

During the mid-1970s, Federal Express was a leader in lobbying for air cargo deregulation, which was legislated
in 1977. These rule changes were important because they allowed the company to use larger aircraft (Boeing
727s and McDonnell-Douglas DC-10s) and spurred its rapid growth. By the 1980s, FedEx became a well-
established company. In the year 1983, it reported $1 billion in revenue, making it the first company in American
business history to reach that financial hallmark within 10 years of a startup without mergers or acquisitions.

The company made another significant transition in 1994, adopting the name “FedEx” as its official brand.
One year later, it started to serve China through an acquisition from Evergreen International Airlines. Under
this authority, it became the sole U.S.-based, all-cargo carrier with aviation rights to the world’s most
populated and fast-growing nation. Its global reach has continued to expand into what is now an unmatched
network, delivering to customers in more than 220 countries and territories.

Focus
For the development and implementation of broad measures and objectives of the business, Fred Smith and
his team focused on the company’s quality objectives, its customers’ needs, and the potential effectiveness of
the service quality index as a measure and motivator. Smith led the development of a measure that tells all
FedEx employees, every day, exactly how they are doing on customer satisfaction and service quality making
active participation in the quality improvement.

FedEx considers customers focus as its key parameter and assigns individual officers for major customers all
around the globe. Fred Smith and his team receive continuous feedback from the customers to ensure their
satisfaction.

1. Corporate Goals:
I. People
II. Service
III. Profit

Fred Smith believes “when people are placed first, they will provide the highest possible service, and profits will
follow.” The three corporate goals are translated into measurable objectives throughout the corporation.

2. Goal Measurement:
I. People - Leadership Index
II. Service - Service Quality Indicator
III. Profit – Pre-Tax Margins

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Case Study || The World on Time

Progress on the people goal is determined by the Leadership Index, a statistical measurement of subordinates’
opinions of management’s performance. The service of FedEx is based on the Service Quality Indicator. The
profit goal is a percentage of the pre-tax margin, determined by the previous year’s financial results. Success
in meeting the objectives for each area determines the annual bonuses for management and professionals.
(The bonus can account for up to 40 per cent of the employee’s total compensation.)

Business Insights
FedEx’s strengths in logistics, operations, and technological innovation allow them to pursue a differentiation
business-level strategy. FedEx works to stand apart from its competitors by creating a level of service that is
difficult for competitors to match. The Company has been identified as an innovator, but what they need to get
across to their customers is that they provide a high level of quality service. FedEx charges higher prices for its
services than many of its competitors in the industry. This is considered a premium that a customer pays for the
quality-of-service FedEx provides. By differentiating their standard of quality from their competitors, FedEx lets
their customers know that if they are willing to pay more, it will be worth it.

FedEx has transformed itself into an e-business by integrating physical and virtual infrastructures across
information systems, business processes, and organizational bounds. FedEx’s experience in building an e-
business shows how a company can successfully apply its information technology expertise to pioneer
“customer-centric” innovations with sweeping structural and strategic impacts. It also shows the role of
outsourcing, which frees companies to concentrate on their core business.

The value chain for FedEx Express can be seen as starting with the pick-up of the packages. FedEx employees
gather the packages from various locations such as drop boxes, businesses, and residences. Value is created
for the customers by making package pick-ups possible just about anywhere or anytime. FedEx has a money-
back guarantee for those people whose packages do not arrive on time, therefore creating value by assuring
timely delivery of the packages.

After the packages are initially picked up, they must then be transported to a hub. The hub is a central location
where packages are sorted according to their destinations. The packages will likely pass through many hands
before reaching their destination. The packages stay at the hub until they are picked up and shipped either by
truck or plane.

FedEx Supply Chain Services synchronize the movement of goods for enhanced customer satisfaction. With
all this evidence it can be said that FedEx segments its markets according to the needs of the customers and
not by demographic regions.

Technology: A Key Enabler

The Company’s website hosts more than 6.3 million unique visitors per month and handles on average over 2.4
million package tracking requests daily. More than 2 million customers connected with the company
electronically every day, and electronic transactions accounted for almost two-thirds of the more than five million
shipments FedEx delivered daily. FedEx operates one of the world’s largest telecommunications networks with
more than 75,000 networked computers and thousands of hand-held computers that record and track

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Case Study || The World on Time

shipments. FedEx’s data center processes more than 20 million information management system transactions
daily which is more than any other US company.

The Company is involved in connecting 39 hubs across the globe, operating 677 planes and 90,000 vehicles,
monitoring 200,000 employees, and delivering six million packages daily in 220 countries where every second
was important. This is the ‘FedEx EDGE’, for which the company is known for.

FedEx transformed both customer and business transportation models with higher speed, reliability, application
of information technology, improved material handling system and streamlined logistics network. The company
popularized the concepts of ‘just-in-time’ and ‘build-to-order’ which reduced customers’ lead time and increased
productivity. Apart from venturing into a ‘logistics solution provider’ the company was able to maintain its
leadership position in the small package and light freight market through its unique ‘hub and spoke model.

The role information technology has played in FedEx’s strategy is exciting. FedEx has reached an almost
entirely new group of people by using IT as a major part of its business. It has maintained its reputation and
increased its business at the same time. It has created a greater opportunity for customers in the global market
and people can now request service, pay for that service, and track the package online with customers no longer
needing to speak to FedEx. They are now free to order as they need, twenty-four hours per day, seven days
per week and because of this, FedEx changed its strategy and now focused on the use of the Internet and other
technological advances.

Competencies
While FedEx is a very large company that occupies a large portion of market share in the express delivery
sector as well as the ground sector, FedEx does not so much possess distinctive competencies, as it has strong
existing competencies that allow it to compete competitively with industry leader UPS. These competencies
include a very timely customer response time, cutting-edge technology, and innovation. With the fact that FedEx
does not have a competitive advantage, or distinctive competencies, yet is still the largest express package
delivery service.

FedEx Corporation in the United States administers a variety of advanced factors of production. These are
managerial sophistication, logistics know-how, and physical infrastructure. Logistics is one of the main advanced
factors which FedEx developed for managing its complex hubs. The physical infrastructure that FedEx uses is
not only airports but also roads and ports

Additional distinctive competencies of FedEx also arise from firm-specific tangible and intangible resources,
namely FedEx’s hubs and package handling systems, its package tracking and customer support function and
its logistics support. The main barrier to imitating these firm-specific resources is the high cost associated with
acquiring them. FedEx’s package tracking and customer support functions as well as their logistic support are
examples of the firm’s distinctive competencies as well. The barriers to imitating FedEx’s package tracking and
customer support functions are because FedEx was the initiator in establishing the first tracking applications
website and providing each customer with a unique barcode to individualize each shipment which allowed
FedEx to gain proficiency in these systems and knowledge about the functional operations.

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Case Study || The World on Time

SWOT Analysis

1. Strengths:

• FedEx has a first mover advantage in the industry as it has been a market pioneer since 1971
• The company has a strong financial position
• Inorganic growth in the form of acquisitions has strengthened the position of the company
• The company has operations in more than 200 countries
• FedEx provides a variety of services like express transportation services, small–package
ground delivery services, freight priority and economy services as well as different business
services including printing, sales, market etc.
• Extensive Global Network and Supply Chain

2. Weakness:

• FedEx has an overdependence on the US market with 68% i.e., $47.5 billion of revenue
generated in the US
• FedEx operates an undiversified business which hampers the ability to work in dynamic
scenarios
• The rise in oil prices across the globe has increased the overall transportation cost for the
company
• FedEx has made a significant investment in aircraft, vehicles, technology, package facilities,
etc. Considering these are fixed costs, any uncertainty in the volume level can severely affect
the profitability of the company.

3. Opportunities:

• FedEx can expand its operations in emerging economies in Asia, Africa, and Latin America to
tap into the growing demand.
• FedEx could capitalize on the growing demand for delivery services in the retail e-commerce
sector given the positive outlook of the industry
• FedEx can diversify its portfolio by entering the online retail sector given its extensive global
network already functional.

4. Threats:

• FedEx is losing market share to old and new players in the courier, logistics, and freight sector
from DHL to UPS
• Amazon, a customer of FedEx, and Uber Freight are gearing up to compete with FedEx. For
example, Amazon is slowly breaking ties with FedEx Ground transportation, and simultaneously
Amazon has been establishing a network of hubs, vehicles, and aircraft to expand its logistics
and transportation capabilities. If Amazon expands its in-house transportation capabilities, it
can pose a severe risk to FedEx’s revenue and market share.
• Oil prices remain highly volatile with drastic drops and spikes due to dynamic economic
activities all around the globe
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Case Study || The World on Time

• With uncertain economies globally, some markets that FedEx depends on are already sliding
into recession. Economic activities like the Russia-Ukraine war can hamper the financial
performance of the company.

Exhibits:

Exhibit 1
FedEx Corporation
Consolidated Statement of Income
(Year Ending Dec 31)
(In Million, Except Per Share Amount)

Particulars 2021 2020 2019

Revenue 83,959 69,217 69,693

Operating Expenses:
Salaries and Employee Benefits 30,173 25,031 24,776
Purchased Transportation 21,674 17,466 16,654
Rentals and Landing Fees 4,155 3,712 3,360
Depreciation and Amortization 3,793 3,615 3,353
Fuel 2,882 3,156 3,889
Maintenance and Repairs 3,328 2,893 2,834
Business Realignment Cost - - 320
Goodwill and Other Asset Impairment Charges - 435 -
Other 11,981 10,492 10,041

Total 78,102 66,800 65,227

Operating Income (EBIT): 5,857 2,417 4,466

Other (Expenses) and Income:

Interest Expense (793) (672) (588)
Interest Income 52 55 59
Other Retirement Plans Income (Expense) 1,983 (122) (3,251)
Loss on Debt Extinguishment (393) - -
Other, net (32) (9) (31)

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Case Study || The World on Time

Particulars 2021 2020 2019

Income Before Income Taxes 6,674 1,669 655

Provision for Income Taxes 1,443 383 115

Net Income 5,231 1,286 540

Basic Earnings Per Common Share 19.79 4.92 2.06

Diluted Earnings Per Common Share 19.45 4.90 2.03

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Case Study || The World on Time

Assignment Questions:
1. In your opinion, what made FedEx the leading logistics conglomerate in the world? What were the key
success factors in this journey? (min. 75 words)
2. What recommendations would you suggest to FedEx Corporation based on the SWOT analysis of the
company? Describe in a few words the best suitable strategy that FedEx should consider in its long-
term growth plan and expanding its business. (min. 75 words)
3. Using Exhibit 1, answer the following:

a. Calculate the CAGR of Revenue for the last 3 years

b. Using comparable analysis of the profitability ratios for the last 3 years, comment on the
company’s historical performance and efficiency of the business (min. 50 words)

4. Using Comparable Company analysis, determine the equity value of FedEx on Dec 31, 2020? (show
calculations)

a. Average Industry Comparable EBIT multiple is 8.0x

b. Average transaction EBIT multiple for the past two years is 7.0x
c. Assuming debt to be $10 billion & excess cash balance to be $2 billion
d. Furthermore, calculate the IRR based on the calculated Equity Value for 2020 in addition to
the following assumptions:
i. Calculate the number of Shares outstanding as of Dec 31, 2020, which will provide
the price per share based on the computed Equity Value
• Please use Exhibit 1 for the necessary data
ii. Assume you have acquired 1,000 shares of the Company and sold the same on Dec
31, 2021
iii. Assume the exit Equity Value at an Industry Comparable EBIT Multiple of 6.9x as of
Dec 31, 2021
iv. Assume the same number of shares outstanding from the previous year
v. Assumed debt to be $23 billion & excess cash balance to be $3 billion

5. Answer the following questions using the above case study and Exhibit 2:
This is a guesstimate question and will require you to make your assumptions using the given
information. Please provide the rationale for your assumptions.

Exhibit 2

Courier type Price (per kg)

Standard Delivery $ 3.25

a. What is the total market size of the Courier Market in the US?
(Population: 329 million, Avg. volume per order: 6 kg)
b. What is the revenue market share of FedEx in the US?

6. Briefly summarise the problem statement based on your understanding and evaluation of the case
study. (100 Words)

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