Delivering the Goodies

By Stephen Koepp

The air package companies have created an overnight sensation

Americans are hooked on speed. Not the drug variety, mind you, but the overnight delivery kind. Like the microwave oven and the videocassette recorder, air packages have become such a convenience that people now wonder how they ever got along without them. Overnight delivery is also an exploding, $5 billion-a-year business. One of the fly-by-night companies, Emery Air Freight, ships Cabbage Patch Kids for Coleco, couture dresses for Bloomingdale's and personal computers for IBM. During the Christmas season, the boom time for shippers, Federal Express will carry almost 500,000 parcels daily. Last week the company said it shipped some 7.9 million items during November, up more than 50% from a year ago.

The new supermail is shattering old ways. In the past, far-flung customers of the L.L. Bean mail-order company waited as long as nine days for their merchandise to arrive. This Christmas season, though, Bean will guarantee shipment of its maple syrup, Chamois Cloth shirts and other items in just four days via Federal Express for an extra $7.50. Says John Findlay, Bean's senior vice president: "There's too much at stake at this time of year to make our customers wait."

California's Williams-Sonoma, the chic pot and pan company, last June moved its national distribution center to Memphis, Federal's headquarters, in part to provide faster access to the air service. Customers quickly become spoiled, notes Patrick Connolly, mailorder vice president. Says he: "Once you've gotten a package right away, you don't want to wait the next time."

Small businesses have found that overnight mail gives them new markets. The Rendezvous, a Memphis restaurant specializing in barbecued ribs, ships its delicacy to customers in New York and California by Federal Express. "People call in their orders up until 10 p.m., and we get them there by 10:30 the next morning," says Owner Charles Vergos. "This was the answer to our prayers, because if we don't get the ribs out fast, they are not any good." Romantics in a rush to send flowers can dial Roseland Express, a California firm that for $35 will whisk a dozen fresh, long-stemmed roses to any point in the U.S. overnight on Airborne Freight.

Procrastinators and large families are great fans of the service. Traci Laffer of Los Angeles, the wife of supply-side Economist Arthur Laffer, figures that she has used Federal Express 20 times in the past year. Shipments to her traveling husband or the Laffer children away at school have included cufflinks, homework, a party dress and a computer part. Says she: "My husband thinks I'm crazy, but when you need something quickly it's the only way to get it there."

Emery's two largest customers, General Motors and IBM, rack up huge air courier bills. The service pays its way, however, by allowing them to keep on hand smaller stockpiles of spare parts. Says John C. Emery Jr., chairman of the firm founded by his father: "Companies are controlling their inventory by relying on us for fast delivery of vital shipments." At its Memphis headquarters, Federal Express stockpiles supplies for 64 of its commercial customers in a giant warehouse called the parts bank. From this source, the company can dispatch items wherever they are needed.

Federal Express invented the present overnight delivery system. Both Emery and Airborne for decades had shipped freight on commercial airliners. But Frederick Smith, 40, dreamed up the idea of combining a squadron of planes with a fleet of delivery vans. As legend has it, Smith first proposed the plan in a 1965 term paper that earned him a C in an economics course at Yale. After two tours in Viet Nam, one as a Marine pilot, Smith decided to use a $10 million inheritance to try out his idea, and founded Federal in 1971.

The venture's first years were rocky ones. Employees recall a Federal pilot who had to land his jet and pawn a watch to buy fuel, and Smith claims that he once met a payroll only by winning $27,000 in Las Vegas. But Federal shot straight up after it cleared the ground. Revenue increases over the past five years averaged 41%. And in fiscal 1984 the company earned $115 million on sales of $1.4 billion. A share of Federal stock issued in 1978 at $24 is now, after several splits, worth $273.

The key to Federal's success is the hub, its system of routing packages to one city and then sorting them out and transferring them to other flights for delivery to their final destination. Smith chose Memphis International Airport as his hub because it is centrally located in the U.S. and is socked in by fog only about ten hours a year. Beginning at around 11 p.m., some 60 planes arrive with a mountain of packages to be sorted and reloaded on the jets, which take off again between 2:50 a.m. and 4 a.m. Federal's 761,000-sq.-ft. complex contains 20 miles of conveyor belts. Computers track the location of each parcel, enabling the company to meet its deadline on 99% of packages.

Federal Express has created a corporate culture as distinctive as the ones fostered by IBM or Apple Computer. Indeed, Apple Co-Founder Steven Jobs last month cited Federal's Smith as one of his business heroes. Smith runs Federal with a military zeal that rubs off on his staff. He sometimes rewards outstanding work with Bravo Zulu stickers, which refer to the Navy signal flags meaning "job well done." Says Robert Sigafoos, author of the corporate profile Absolutely, Positively Overnight: "They have a 'kill or be killed' mentality, which permeates the ranks from top to bottom."

Federal Express, though, now faces hungry competitors who have turned the business into a delivery-truck version of Cannonball Run. The battle pushed down Federal's average price for an overnight shipment from $26.29 in 1981 to $19.36 this summer. Many of the rivals have copied Federal's formula. In 1981, Emery built a $60 million hub in Dayton and assembled a fleet of 67 planes. Airborne constructed its hub at an abandoned Strategic Air Command base in Wilmington, Ohio. The U.S. Postal Service has entered the field with its special $9.35 express mail service. In fiscal 1984 the USPS shipped some 41 million pieces of express mail.

The nation's largest package shipper is still UPS (estimated 1983 sales: $6 billion), which has been dubbed the Brown Giant for its fleet of 62,000 chocolate-colored trucks. UPS, which started in Seattle in 1907 with six messengers and two bicycles, last year delivered 1.8 billion parcels, twice as many as the U.S. Postal Service. UPS got into overnight service in September 1982, promising arrival by 3 p.m. the next day at prices lower than Federal's. Now UPS delivers by noon, but Federal has moved up its arrival time by 90 minutes to 10:30 a.m.

Federal made its breakthrough partly by realizing that its customers were not professional shipping agents but secretaries and executives who knew little about air freight. With a $35 million annual ad budget, Federal paid for a series of catchy commercials featuring a cold-eyed boss who talked like a record played at triple speed. As the rivalry has heated up, so has the competitive tone of the fast-delivery advertising. Purolator calls Federal the "inflexible express" and Airborne taunts, "Federal Express does better advertising, so Airborne has to give you better service." Federal retorts, "Why fool around with anyone else?"

The overnighters do have their limitations. Most of them have trouble fulfilling next-day service to such states as Idaho and South Dakota because the population is thinly scattered and airports are few. But competition tends to breed an eagerness to please. Airborne, for example, supplies special containers to protect magnetic tape and film. Emery offers same-day delivery when requested, though it slaps on a surcharge of at least $150. Clerks at a Federal Express counter in Memphis recall painstakingly building a cardboard shipping container last year for a customer who wanted to ship a fully assembled bicycle just before Christmas.

The fierceness of the race has forced smaller companies to look for a safe niche or special identity. DHL Worldwide concentrates on international business, boasting such feats as next-day delivery from Tokyo to Zurich. The California-based company has built a network of 600 offices that serve 146 countries. Emery, which puts a special emphasis on heavyweight cargo, has carted everything from pianos to a small submarine.

Since even overnight delivery may not be fast enough for a country hooked on speed, Federal Express has now developed ZapMail. To send ZapMail, a customer summons a Federal courier to pick up documents, which are then sent by facsimile transmission to another Federal Express office. There a laser printer spews out copies that are hand delivered. Elapsed time: two hours. Under development for five years with the code name Gemini Project, the $100 million electronic-mail venture got off to a slow start in July. Federal cut the price of sending 20 pages of information in half, from $50 to $25, and revamped its advertising. The company remains convinced that once customers try ZapMail, they will wonder how they ever got along without it. -By Stephen Koepp. Reported by David Dawson/Memphis and Thomas McCarroll/New York

With reporting by David Dawson/Memphis, Thomas McCarroll/New York