FedEx – Chairman & CEO Interview
LARRY KUDLOW, CNBC ANCHOR: Now, joining me for an exclusive interview from the corner office, we welcome Fred Smith, back to the show. Of course, he is chairman, president and chief executive officer of Federal Express.Fred, it`s wonderful to see you. First up, Merry Christmas and Happy Holidays.
FRED SMITH, CHAIRMAN, PRESIDENT CHIEF EXECUTIVE OFFICER, FEDERAL EXPRESS: Thank you, Larry. It`s always good to be with you.
KUDLOW: Now, FedEx is an economic barometer. It is the first rate economic barometer. For years, the rumor mill has said that Alan Greenspan comes to you and FedEx to find out what the heck is going on in the economy. So my first question is, Sir, what the heck`s going on in the economy?
SMITH: Well, we think the economy is solid. We`ve had a very good peak season. We believe that we`re going to go into calendar year 2006 with good momentum. Our economist, Gene Wang, who we are very proud of, thinks that we`re going to have a 3.6 percent GDP growth rate next year, which is pretty good considering what`s behind us. So we`re optimistic.
KUDLOW: Fred, when you want to get information on the economy, what do you look at inside FedEx? Are there some sort of order books? What are the most sensitive internal areas that you like to highlight when you make your own economic conclusions?
SMITH: Well, Larry, as I mentioned a moment ago, we have a wonderful chief economist and a great team there. We look at a lot of indicators, many of which you comment on, on this wonderful show: manufacturing indexes, producer price indexes. Price of fuel, of course, is a — a big issue because it takes money directly in or out of the consumer`s pocket; interest rates, and so forth. We also have, as you mentioned at the start, a very unique position in the midst of a lot of major macroeconomic trends. And we are talking to literally millions of customers every day, getting a pulse on what they see ahead, as reflected in their future shipping volume. So we are a pretty good indicator, I think.
KUDLOW: Are the order books full? Are the shipping volumes where you want them to be?
SMITH: Yes. I think the industrial side of the economy will be replenishing inventory at a pretty good clip in the first part of the year. And that`s what our customers are telling us.
KUDLOW: A quick word, if you would. You`re a global player, and in some sense, you`re part of the global highway. How does it look in Asia?
SMITH: Well, Asia remains strong. As you know, the international trade has increased at 2 to 3 times the rate of GDP growth of all of the industrial economies for many years. And, the great economy that we`ve had has resulted from the tax moves of the Bush administration and the growth in the international economy. It`s as simple as that.
KUDLOW: How about in Europe, Fred? How does Europe look?
SMITH: You know Europe is a little bit better than it has been. It`s been soft and a lot of Europe, for a long time, but our export business from Europe is particularly strong. And we`ve got a great team there, so we may be taking some market share. But I`m a bit more optimistic about Europe as we go into 2006.
KUDLOW: Now in recent years, FedEx has gone big into the ground game. I want to ask you, how that ground game is going. And I want to also ask you how the competition is doing with UPS.
SMITH: Well, UPS is a fine competitor and we have to earn our keep every day. But having said that, our FedEx ground unit, run by Dan Sullivan and his team, has just done an outstanding job this peak season, a very late peak but tremendous volume, which indicates, again, strong economic activity.
KUDLOW: Is the rate of change or the rate of increase stronger for you in the air game or the ground game?
SMITH: Well, I`d say the rate of increase is very strong in the international air sector. We`re the biggest global transporter of goods by air by far. And in the ground side, both our ground package business, FedEx Ground and
