During the 1980’s, I worked as a consultant for FedEx helping to develop the company’s first quality management system. Two tangential elements from my experience stand out to me today. First, I remember a conversation between Fred Smith and Jim Barksdale where they wondered if it were possible that there were over a million packages to be shipped overnight. In 2012, that number topped 25 million. Second, I remember that the tiny office off to the side of the sorting hub (a manual not a technological operation at that time) that housed the US Customs Service was the most feared part of the organization. “They can shut the entire sort down in less than a minute” was a refrain that I heard every time I stepped into the hub. Growing from less than a million packages a night to over 25 million has a lot to do with the growth of e-commerce, but it can also be attributed to globalization.
Like most of American industry, logistics managers and executives in the various parts of the shipping and delivery business are wondering what new trade policy under the Trump administration will mean for their industry. The potential problems are multifold. An article in this week’s Economist [i] does a good job of outlining the issues.
Higher tariffs represent the biggest threat to trade with the potential to cut demand for cross-border purchases. This could become more complicated, however, as customers could choose to order directly from foreign retailers such as Alibaba keeping their purchases under the $800 limit and avoiding tariffs all together. The trade impact, in this case, would fall heavier on US retailers than on foreign ones.
A second threat could come from the disruption of trade agreements and free trade zones. Today, most goods flow freely within the industrialized world. A breakdown in multilateral trade agreements begun with Brexit but potentially being followed by action by the Trump administration could result in complications with customs codes resulting in higher prices for shipping services and again a dampening of overall demand.
On Thursday, Fred Smith was in Washington testifying before Congress on the benefits of international trade. He has gone so far as to urge FedEx employees to contact their Congressional representatives urging them to oppose Congressional and Executive actions that hamper free trade.[ii] The Economist reports that he has, without a public announcement, shifted his attention to lobbying from day-to-day operations at FedEx. Fred Smith has been amazingly effective advancing the company’s interests in Congress whether it related to deregulation of the air cargo industry in 1977[iii] or labor legislation in the 1990’s.[iv] This will be an interesting and a consequential fight. The mantra attributed to Fred Smith in the 80’s at FedEx was “Who wins the fight between a bear and an alligator depends on where you have the fight.” This will be an interesting and a consequential fight, and Fred Smith has been in this swamp before.