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The Fedex Story

Why did a fledging overnight-delivery company relocate in Memphis--and what does it take to keep it there?

Deep inside a huge warehouse-like building on the grounds of Memphis International Airport lies the Federal Express Corp.'s "primary matrix." It is a spider web of 80 conveyor belts that churn at different levels, perpendicular to one another.

Every weekday night, a million packages arrive in Memphis on more than 150 FedEx cargo flights. They are loaded, by hand, onto the top rack of belts. Then they are nudged, prodded and dropped by computerized robot arms onto the lower rack of belts, where they move in groups toward the proper outbound plane.

The packages start arriving at 10 p.m. By 6 a.m., they're all gone.

FedEx has other sorting hubs around the country, but Memphis remains the largest. As company officials like to say, Memphis is the location of last resort for any package that missed the cutoff times for flights into other airports.

On the ground, the process of sorting these packages and moving them out is accomplished by an army of workers and such a vast fleet of vehicles that you would think only Dwight Eisenhower could have dreamed it up. In fact, of course, this enormous sorting and shipping operation was dreamed up by a man named Fred Smith, who wrote the idea up for a business-school term paper and--undeterred by a low grade-- proceeded to make it a success in the real world.

The FedEx story has been told over and over again in business schools and management seminars around the world. Less often discussed, however, is the business location decision that helped to make it happen.

In 1973, Smith agreed to relocate the then-fledging Federal Express company from Little Rock to Memphis International Airport. It is arguable that this was the single most important economic development decision made in any major U.S. city in the past 30 years. Today, Memphis International Airport, which serves the 42nd-largest metropolitan area in the United States, is the busiest cargo airport in the world. The freight volume in Memphis is 30 percent higher than in Los Angeles and Miami, 50 percent higher than at Kennedy Airport in New York and double that of London Heathrow. Almost 10,000 people in the Memphis area work for Federal Express, and it's estimated that one in five workers in Memphis works in air-related operations. Federal Express is the lifeblood of Memphis.

So it's worth pondering just exactly why Federal Express is located in Memphis--and what it takes to keep it there.

Smith liked Memphis for a bunch of reasons. First, and maybe most important, it was his hometown. Second, the airport had good weather. And third, it was in the Central Time Zone--meaning that without relocating to the East Coast, FedEx could buy an extra hour and still be close to most of the nation's major markets.

But over time, the way Memphis approached its airport--and its relationship to FedEx--turned out to be just as important. In the 1960s, you couldn't even land jets in Memphis. According to one airport authority old-timer, FedEx was lured in part by a $6 million loan from the airport, which was looking for a cargo anchor at an airfield that served only 30 planes a day at the time. It was part of an overall expansion plan, which also included the opening of a 9,300- foot runway in 1972.

It was a risky move. After all, who could have predicted that overnight delivery would turn into such a big business? But today Memphis is still investing in FedEx. The airport is in the process of completing an 11,000-foot runway at a cost of $100 million, and the principal beneficiary will once again be FedEx, which will be able to fly cargo planes nonstop to other continents.

The main lesson of the Memphis experience, of course, is that size-- metropolitan size, that is--doesn't matter. In fact, in many ways, large size would have been a hindrance to Federal Express. The company needed the runways to be clear all night long, and that wouldn't have happened in Los Angeles or New York.

There is also the issue of lighter traffic in a smaller metropolitan area. FedEx trucks from throughout the Mid-South bring packages to the Memphis airport, so that Memphis' relatively minor traffic problems are a plus for the company. That wouldn't be the case in a Los Angeles or New York.

The main drawback for Memphis--a theoretical one, at this point--is that the city has laid too many chips on one company. Who knows whether FedEx will survive in 30 years?

But in the long run, that may not matter. The original loan notwithstanding, Memphis has put most of its money over the years into the airport, not into the company. Today, Memphis has the facilities, the labor pool and the reputation. And last year, when UPS decided to open its first combined air-ground sorting facility, it chose Memphis as the location. So even if FedEx goes out of business someday, Memphis' FedEx gamble will have paid off anyway.

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