Raj Subramaniam, CEO, FedEx 
Interviewer: Alan Murray, Chief Executive Office, FORTUNE


Brainstorm Tech 2022: A New Era In Global Delivery

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thank you so much for being here and for the excellent outfit coordinator. That good good on that one really. It's great to have you here, you know, over the years we've had many C. E. O. S. Who replaced founders but I think this is the first time we've had a Ceo who replaced the founder who was in the job for 50 years. I mean how how do you replace a legendary founder? Well you don't that's that's that's the first order answer. But the great news here is that I have had the wonderful opportunity to work for fred and work with fred for so long and especially the last three years when the succession planning was pretty much telegraphed and uh you know, opportunity to work very closely together. Especially I did some some of the most important work in the history of our company as we delivered the vaccines and health care stuff all around the world. And it's been just an incredible journey with him and you know he's not only just Ceo school, its history school, his geography school, it gives you a whole different person and he's not going away. I know you say you know you're still here and you know obviously it's a wonderful opportunity. I had a mentor who once said that you should choose your predecessors carefully. You may have failed on that score. No I did not. You know I'm I'm totally what happens in the future. I'm totally grateful for the fact that I've had that opportunity to work with. So as you heard from dan from for just a minute ago we've had a fair amount of conversation about is there isn't there a recession this afternoon? You have better data than any of us, do you? You have a sense. But that was a fascinating set of charts that was put up right now. I was always interesting to see. Uh so you know, from our point of view, actually, if you look around the world, uh you know, china went through a pretty tough period in in april may all the numbers of volumes were down and then, you know, come back now and the manufacturing is back online, but at the same time the consumer demand is now definitely slowing. As we just saw, europe is in the war situation uh with the energy crisis definitely driving all aspects of that economy down and us is kind of somewhere in the middle right now, the consumer side of the equation, the spend is there, but there's a dichotomy between higher wage earners and lower wage earners and they're also between goods and services, there are more being spent on services now, whereas goods and so that's um that's also happening. There's a little bit of a reset on e commerce before the pandemic. E Commerce represented about 16% of retail at the height of the pandemic, it reached 22% is now back down to 20%. So yes, it's a little bit of reset going on but still significantly higher than 16. So hopefully that gives you a flavor of yeah, so it sounds like there's some indications of slowing but not not clearly recessionary. Well I don't know whether our volumes across all lines of business and just reported quarter was all down and so we we we experienced that and so again you know we like to tack up the numbers and when the quarter gets done and we can technically say one way or the other but the numbers are volume numbers were down in the fourth quarter of our fiscal fourth quarter. So you know supply chains used to be a forbidden topic on stages like this. Nobody wanted to talk about it or hear about it and and and now it's kind of uh the topic what are you seeing improvement in in predictability? Yeah. You know it's kind of crazy. I mean I must have you know someone just woke up in a different place where supply chains, everyone wants to talk about it. But the two aspects of supply chain to be honest with you, the first one is really the supply chain manufacturing especially the high value goods like semiconductors and so on and that's the classic supply chain bull whip effect where the first the the demand went down, the supply went down, the demand went back right up but the supply never caught up and so we are now seeing you know 12 18 months gap and it was for that second was this physical transportation issues especially in the port of Los Angeles and um you know, so really the issues were in the 1st 20 or 30 miles from the ports from there, our systems work or we flew over that over that So that's going to get resolved probably faster and then probably the next 6-8 months. But that's you know, that's that's what we're thinking. 6-8 months for the those uh first friends, the semiconductors and such. It'll be much longer, take longer time because it takes a long time for manufacturing capable. So so you know, we all think of Fedex as the planes flying into Memphis and so forth. But there's an enormous amount going on there. I know you've made a lot of technology investments. Can you talk about how Your business is going to change over the next decade because of technology? Yeah, I mean just make up one broad point here the last 15, 15 years, you know, there's so much value being created by tech platforms and digital companies. It's been amazing to see how, you know, how they've succeeded. Um you look ahead, I feel like this is now a time for physical companies who adopt digital transformation and then combine both both assets. I think this is a great opportunity for those companies to create value and it's not gonna be easy because you know, but I think done right, this could be significant value creation in this regard. So give us some examples of the kind of value that will yeah. As well as you know, so for example, we have, you know, more than 15 million packages that travels through our system every single day and each of those packages are scanned 20 or 25 times. We're sitting on a lot of insights about the supply chain every single day. So we are now creating common data platforms and working strategically with our customers, some of the top retailers in this, in this world. For example, the minute somebody orders something on online on their on their side, that information is passed to us and we can immediately say based on weather patterns, based on traffic patterns, based on our network, their network and say to get to the service level commitment to your end consumer, you need to fulfill that from from Chicago or Dallas or wherever the opportunity. Maybe the other thing is information to us. We get that information 12 hours before. Before that before, before we used to get when we used to get before that's a lifetime for Fedex and we can manage then we can optimize our resources. And thirdly then consumer and we are now using the latest and greatest in data and Ai and Ml to be able to provide predictability and visibility for that, you know that shipment to come when they come to the house visibility where I'll be able to track what you're shipping for me that you always add it. But now we can, you know, we can tell you more and more accuracy or when that package is going to come to you, we're gonna have photo on delivery and you're gonna show up on your doorstep and you know, just, you know, so they just peace of mind and then consumers, so you can see supply making, supply chains Smarter is a new mission. And can that technology ever reach the point where where it becomes a differentiator for Fedex where I as an e commerce buyer can say, I really want my stuff to come to me by Fedex, not ups not yeah, it's a very good question. It's already a differentiator today from the shipper side of the equation because what we're not talking about is, you know, we're really making efficiency and, and visibility now we have to keep adding more and more and more value to the end. Consumer, before we get to the state that you're talking about, we need to get there. But I think it's, uh, but you know, there's just by itself won't be enough. But ultimately, the consumer has so much choice and visibility and predictability, photo and delivery and other aspects of it, potentially there could be a day where they say I send it this way, not that way, I want to talk a little bit about geopolitics because Fedex is such an important part of sort of the global economy. I had the opportunity to be with fred smith on the day that Russia rolled into Ukraine and of course it was, he was the perfect person to be with that. You can imagine talking to him about the effects of that. But how is it changing your business? I mean Fedex really was the, was the marker of, of globalization and you're looking at a very different geopolitical world right now. Yeah, No, I think the globalization, the measure of global one measure of globalization is percentage of trade as a percentage of GDP and that actually peaked Like in 2010. And after that it's been pretty much flat a little bit up and down. So even today, uh, that's that's that's where it stays. And especially in the high value part of the trade, those numbers still holding up. It's not, there was a golden era from you know, 1980-2010, let's call it that or 75. That was, you know, there was a constant increase in, in the global trade as a percentage of GDP and especially the high value trade, the situation in in europe is, I mean, first of all as a human tragedy. And uh, so our first priority was making sure that our team members are taken care of. And um, so that's what we did. But in addition to that we had to, you know, we had all our, you know, our flights that or, or flow um, Ukraine we had to reroute it. We have been spending a lot of time and effort spend, you know sending relief material and in fact we just last week we had a airplane go down there to send more relief and things like that. So we're doing a lot in that front. But from a pure globalization perspective we are in a stall area right now. We're not totally declining at this point. I wouldn't say that. But what's going to happen here also is that the patterns of trade are going to change and whether it is a near shoring or re shoring. So maybe more regional trade and the good news for us is that the fact that we have networks everywhere that we can move our capacity and connected to. It doesn't, it doesn't hurt your business. No, we we can move much faster than manufacturer seeing that happen, ensuring, ensuring we watch it very, very carefully and add capacity to write notes and connected to our network. And how do you think about china these days? I mean again fred smith was one of the leaders in getting china into the W. T. O. Uh you have major investments there but a lot of companies are kind of rethinking their connections with china in the wake of what happened in the Ukraine wondering, well what if this had been xi in Taiwan, how are you thinking about it? Well, you know the chinese business is quite large as is the case for most companies. Again, it's the manufacturing ecosystem. And so we, we are working with our, I mean as you said, our customers businesses. It's a referendum every single day on our network is what we see on our, on our, on the networks. I think the the thing that we should remember here is that you know, there is such a strong ecosystem for manufacturing in china. It's not so easy for somebody to just up and leave because suddenly then you are looking for all the parts that you need to make your product and you go, so it's a slow process. So yes there is, there has been some move to Vietnam, some of Southeast Asia, some move to India. But for the main, you know today, even today the Chinese manufacturing is I think 28% of the global manufacturing and still very large. Uh, Fedex has made an impressive commitment to reaching net zero by 2050 people don't normally think of Fedex as a politically correct uh, company or a awoke uh, woke company but, but explain what you're doing and why you're doing and why it's so important Islands. 2040 24, you've already moved it up. So no, it's uh, no, we have been, we've been working on this for quite some time. It's something that's near and dear to my heart the whole company. So you know the assets that we have in this business, we have 700 airplanes. We have 200,000 motorized vehicles. We have 5000 facilities and uh, so electrification on the, on the road is the way to go for us. And that's, that's the strategy on the facility side of the equation. You know, we're gonna make it carbon neutral. How about up in the sky? So that's the, that's the airplane is the trickiest one. Everyone talks about sustainable aviation fuels and we will obviously look at that. But the issue with S. A. S is one that the supply is only a very small compared to the demand. And then the green premium is, as it's called, is very high. So that's why we are now investing in fundamental research and we invested $100 million with and created the Yale Center for natural carbon capture. And then if we're building partners across our industry and you're doing so you don't see your name anywhere on it. It's the Yale center for natural carbon capture. The whole notion here is to get the aviation industry, you 2% 3% of emissions to be carbon neutral. And so we're working on that and then we're working with our customers really to truly for them to understand their carbon footprint so we can make their businesses carbon neutral and give them options to say, okay, do you want this is what the green shipping option could be there. There was a question right over here. Hey, uh, jake here again from North Dakota, we're going to solve your renewable diesel and aviation fuel problem with. Don't worry about that. But the question is, what's keeping you from completely being all in, at least in the metro's an electric? Like what is the, keeping you from keeping you from being all in on TVs or are you, we are, you, are, you know, we are, that's what we are. That's our, we're committed to going into electric vehicles by 2035. What's the limitations to get there? What's your biggest, it's the biggest issue really is the infrastructure needed to support the fleets that, you know, it's a massive fleet. So we need to have, it's got to be a public private event here. So that's, that's the limitation. Another question. Mac McKelvey question on the skies. What about drones? Yeah, Drones is a question that comes up often. It's, you know, anything that flies, we kind of know about the issue is purely, is, uh, you know, it's not the technical issues technically is available. It's a question of, you know, what makes sense. You know, doesn't make sense to send, you know, 50 million packages on drones or, you know, how do you scale it up? And so those are the kind of things. What's your guess? I think the, the real issue on the drones on the road. So we have something called Fedex Rocks. So it's a, you know, if you, if you haven't seen it just google it up. You'll tell you, you know those are, those are, you know, gets you on the road, you know get get to you know your pharmacy or your pizza or coffee or whatever and comes climb some stairs on your on your porch, opens the door here it is take it, it goes goes right back that kind of solutions And we're working with neuro on their their their product that those kind of drones on the road a little bit more scaling. I think that's, that's, that's a real office on the roads more than the sky. The sky will be specialized applications, healthcare, you know, and then specialist applications question back here. Hi, my name is Gary lauder lauder partners. Um, my, I am a frequent user of Fedex and ups and I found that both have had incredibly bad reliability lately. I've googled it to try to find out why it's a mystery. So could you help us understand? Yeah, thank you for the question. I think, you know, I think the reality is the last two years and we have had tremendous growth driven by e commerce and you know, in the last two years we've got $25 billion at the same time. The company, we just saw the labor labor was a big issue. So a year ago we went to a situation where we didn't have the right labor uh, to, to deal with the demand and that resulted in inefficiencies as well as uh, in the network. So that's now behind us uh services where we, that's our differentiation, that's our brand, that's where we stand for our purple promise. You have the people you need to do. Yes, we do. Yes. And is not going to have this problem again? Yeah, we'll make sure he doesn't know his problem again. I mean, you know, but we stand by our purple promise right back here Nathan Rosenberg from Insignia Raj. Um, I think there's a flip side of Alan's point about technology thinking back 30, 40 years. Uh, there was an envelope, it had documents in it and you guys promised to get it to the next place the next day. Obviously that business has probably gone away because of doc you sign and other kinds of technology. So what are the technological threats to Fedex business? You gotta be quick on this one. Okay. No, I think, I think you know, until we get beam me up scotty machine, you know that there's, you know, we move high value trade and they got to move and that's why the physical networks are so important. People try to kind of where we want and you know, see if they can do it without it, it's impossible. The physical networks are very important. But having data, having insights, having new solutions that right on top of that will give a complete value add uh, to what we already provide. On the physical side. Fred Smith did the job for 50 years. You're gonna do it for 50 years. I don't think I'll be alive 50 years. I don't know, maybe some technology here, but I'll work on it. Thank you so much for taking. Thank you very much. Thank you very much.