Richard Smith

Good morning, thank you for that kind introduction. I didn't come today thinking I would talk about the park, but I'll ad lib on that for just a moment since it came up. Eric gets it. We are a victim of our own success here. It's very much a high quality problem. With the park being better than it's ever been, the Levitt Shell making investments, about four million in investments to bring in bigger and better acts, the zoo—our number one tourist attraction in Shelby County, number six in the entire state—huge economic driver for the city and the MSA. And it's just grown so rapidly with no coordination that everybody's kind of at each other's throats over this issue. And we tend to forget—and I had not heard 'hippies versus hippos' and I love that—but we tend to forget that what we're really talking about here are city-owned amenities. We are talking about things that all of the taxpayers utilize and enjoy here. And it's really about balancing the interests and needs of all of the constituencies—not the zoo versus the park or the hippies versus the hippos—but balancing it on behalf of all of the taxpayers and preserving those vital green spaces, which as we know, looking at a lot of cities out there who have developed their precious green spaces, they're real hard to get back once they're gone. So if we keep that in mind, I think we can come up with this compromise. But I keep humming to myself over and over again that old Rolling Stones song: you can't always get what you want, but if you try sometimes, you just might find you get what you need. And I think that's where we're headed with this mediation and this dispute over the park.

So that being said, I will jump into my presentation here very quickly. I think most of you are familiar with FedEx, but I'd be remiss if I didn't take you very quickly through the company we are today and that sprung up from our humble beginnings here in the early '70s, right here in Memphis, Tennessee. So that being said, today FedEx is really a collection of companies underneath the FedEx Corp umbrella. Those companies are FedEx Express—my employer—where I run our global trade services division, which is what it sounds like. I facilitate all the inbound and outbound US trade for the Express company, including customs clearance and regulatory compliance and all that fun stuff. And I'll talk a little bit more about Express, which is the original Federal Express integrated air-ground express system.

We have FedEx Ground, which was formerly RPS. So we grew here through acquisition. We purchased them and the other Caliber companies in 1999, and year over year they have continued to gain share on our largest competitor on the ground parcel side, UPS, who until we came along really almost had a hundred-year monopoly on the ground parcel business in terms of the size of their market share. And we have really emerged into a viable competitor for them there, as they have for us on the air side since our inception in 1973. FedEx Freight, which is the largest less-than-truckload carrier in North America—this was two acquisitions, Watkins and American Freightways, that came together to make up our FedEx Freight company—and we offer a priority regional LTL service and a longer-haul national service through those two entities that now make up FedEx Freight. And then the FedEx Services company is really all of the common overhead functions: it's the sales and sales support, customer service, information technology, marketing, and other groups that are common to all of these operating companies. And underneath FedEx Services there's another acquisition of note, which is Kinko's, which we acquired in 2004, which is now FedEx Office.

I bring all of this up because we have grown tremendously, some through just organic growth but a lot through acquisition. We're in the process of making the largest acquisition in our history, of TNT, a Dutch-based company that will really fit nicely in Europe for us because we have a strong intercontinental system there and their strong intra-European system is kind of a hand-in-glove fit. That's about a 4.8 billion dollar acquisition that we're in the process of trying to finalize now. We recently acquired GENCO, which is a supply chain or 3PL company that specializes in e-commerce fulfillment and returns. And we also acquired a company formerly called Bongo, which we've just rebranded as FedEx Cross-Border, and that's part of our FedEx Trade Networks, our freight forwarding customs brokerage division.

So we continue to grow, and a lot of that growth right here in Memphis, where we're headquartered. We have more than 340,000 team members worldwide, we serve over 220 countries and territories, and every street and every ZIP code in the United States. We move over 11 million discrete shipments through all of our various networks today. The Express company, the original Federal Express, started here on April 17th to be precise—was our first official day of operations, 1973. And of the 340,000 team members I mentioned, approximately 180 to 200 thousand are FedEx Express employees, so it is the largest entity in our portfolio. And of the 11 million shipments, over 4 million transit the Express system worldwide in a day. We go to over 375 airports, have over 660 aircraft, and in the Express division alone, over 50,000 surface vehicles.

So why Memphis? Why did we choose Memphis? Well, in addition to our founder and CEO having grown up here—he was actually born in Marks, Mississippi on their family farm, but he is a Memphian, make no mistake—grew up down the street on Audubon Drive from Elvis Presley. And if I could tell a little story: when he was growing up down the street, Elvis Presley used to see him, and at one point in his life he had these crutches he had to wear, and Elvis Presley would come down the street and throw the football with him on occasion. So he is Memphis to his core. If you grew up down the street from Elvis and threw the football with him, I think that's as Memphis as it gets.

But why did we choose Memphis? In addition to him growing up here and being from Memphis, I think this quote really sums it up best. He basically said to put a national hub-and-spoke system in place, you have to have certain parameters that dictate where it can be. If you do a hypothetical box, it would start about Memphis, go up to St. Louis, east to about Cincinnati, Ohio, and come back down just east of Nashville. So you must put your hub somewhere in that location within that box. The other criteria in those days were weather, of course, airport infrastructure, and political support. And we had all of those right here in Memphis.

Little Rock is a city that comes up quite a bit as being in contention with Memphis. I think the problem with Little Rock was it was too far west—it was outside of the box—and they got a lot of fog, which back in those days with the instrumentation you were using with your aircraft was a big challenge. We did look at Smyrna Airport in Nashville, we looked at Louisville, but when you put all the factors together that I just mentioned, Memphis came out on top.

So we began operations, as I said, April 17, 1973—so just had our birthday—and we launched with 14 tiny Dassault Falcon aircraft out of Memphis International. On that first night we delivered 186 packages to 25 cities. We had about 300 employees. And in his own words, it was a grim night, it was dismal. 'I thought we were going to be buried in shipments, but we weren't.' They were actually, truth be told, two startup nights. The first one was so bad we actually took it down and went back to ground zero. It started a month later. So April 17th is the second first night of operations—the official one—the first one being so bad that we went back to square one.

But today FedEx Express is the world's largest express transportation company and the largest all-cargo airline in the world, and part of about a 60 billion dollar Fortune 500 company that consistently ranks amongst the world's most trusted and most admired brands.

So very quickly, I'm going to go through a little piece on trade and why trade is important. Trade has come under attack recently, that's no secret. You see some of our presidential hopefuls out there attacking trade and talking about bad trade deals. I think this is a little misguided—to point to a few trading partners and say that all of trade is bad. In fact, my father recently wrote a piece for The Wall Street Journal: 'How Trade Made America Great.' I would encourage you all to go look it up if you haven't read it—they gave him a lot of real estate for it—but I think it's a very compelling historical narrative that kind of puts in perspective just how important trade is and has been, not just to our prosperity but to pulling millions of people around the world out of the most abject poverty you can imagine. So trade is a very good thing; it just has to be managed effectively and appropriately.

Some key actions that created the modern trade environment: the 1934 Trade Agreement Act, which allowed for reciprocal trade treaties; the repeal of the Smoot-Hawley Act—protectionism which contributed to about a 66 percent drop in global trade between 1929 and 1930; the creation of the global trade bodies, first GATT and later the World Trade Organization; deregulation of various US transport modes; certainly Malcolm McLean's invention of the modern shipping container, which cut seaborne cost by a factor of about 50 versus loose cargo, which was the model prior to his invention; the advent of wide-body aircraft—certainly the Boeing 747 was a huge boon to global trade, particularly to the air cargo industry when it came along, and that cut overseas travel cost by about 70 percent.

Today our workhorse is the Boeing 777, which I referenced before, which is a tremendous aircraft and it can get you a great payload ratio to its nautical miles that it can travel, so it is a fantastic aircraft. Certainly the creation of FedEx contributed the invention of the 'absolutely positively overnight' delivery system and door-to-door service.

So what do we need to do today? We need to modernize trade rules to really reflect the digital economy. Typically regulation kind of lags behind innovation, and so we need to really modernize in this area and look at our trade rules and look at what's going on in the digital economy ever since the internet as a medium of exchange started to take off, and you're connecting all these buyers and sellers and suppliers across the world in a way heretofore unimaginable in world history. We've certainly got to modernize and stay in front of technology and the changes there.

We have to simplify our US trade rules to allow companies—particularly the small to midsize companies who are now starting to participate in global commerce for the first time and they don't understand the regulatory environment—they need help. We need to make it easier for them to participate, not harder. And then creating the global infrastructure that can handle more time-sensitive, imperishable shipments efficiently.

If you look at the global healthcare industry, it is absolutely booming for a couple of reasons. In the developed world, lifespans are increasing, so you have an aging population, and there is a direct correlation with aging, unfortunately, and the need for more healthcare. In the developing parts of the world, you have these consumer population sets in the billions that didn't exist before. Your old uncle in China who had that bad hip was just going to live with it—well, now they'll get the hip replacement. So you're starting to see these consumer populations really emerge all over the developing world, and so the need for healthcare—and particularly time- and temperature-sensitive goods crossing borders—is increasing exponentially, particularly as some of the therapies themselves get more complex, more sophisticated molecule drugs or sophisticated devices that may embed a pharmaceutical agent in the device itself.

These things have to be managed at the appropriate temperature range, and the regulatory climate is tightening up there. So we have to not only have the regulations in place to help speed those things across borders, but you also have to have the infrastructure in place to support that. We just recently opened about a 30 million dollar cold chain center at our Express hub here in Memphis to facilitate those types of moves and that type of traffic, particularly in the event of a prolonged delay like an agency regulatory hold.

Since the recession of 2008, we've seen slower economic growth around the world and slower trade growth rates as well. For nearly 20 years, trade grew at approximately twice the rate of global GDP. That trend really fueled the expansion of our international business to the end of the last decade, and trade has now settled at a slower growth rate post-recession, though it is on the uptick.

What we saw after the recession were changes in customer supply chains, certainly, and several factors contributed to that. One was looking at the bottom line and saying, 'You know what, I could actually pay a lower rate to move it more slowly, allow my supply chain to get a little leaner and stretched, and I will ship more deferred with you as opposed to priority shipments, or I will ship more heavyweight as opposed to small package, and really allow the supply chains to stretch.' Secondly, you had all of these Boeing 777s, the 787 Dreamliner, the new Airbus models that had a lot of cheap belly capacity in these passenger aircraft, so that further depressed yields in the international air cargo segment. So we've had to adapt, as our competitors have also had to adapt.

You also have e-commerce driving down prices. When a company like Amazon goes out there and convinces consumers that free shipping is a right and then wants to be in the logistics game—it seems a little strange to me—but when they do that, all of a sudden you start to realize the pressures that you're under. Because I can tell you it costs a lot of money to put those hubs and stations and ramps and trucks and personnel, software, equipment, etc. into play in this network that we operate for customers. But we've had to adapt to that. We've had to figure out how to lower the cost to serve in this environment, and we're doing very well in that regard.

The accelerating growth of e-commerce involves another challenge. You see more B2C shipments as opposed to B2B, so that creates more residential stops, and you have to be really efficient in your route management during peak hours because of the roadway traffic congestion across the country. Certainly, I'm sure in this conference we've talked about infrastructure here and some of the challenges there. Well, this e-commerce is certainly exacerbating that, and we feel that pain very acutely—probably not as much as the USPS feels it, quite simply because we have these very sophisticated route optimization engines that tell our drivers the most effective route to run, what roads they need to go down, where they have a pickup and delivery. We don't have to go by every address to see if the arm is up and you've got mail, or even if we don't have anything to deliver you.

So the efficiency gains that we're making—they're offsetting some of that. But make no mistake, the infrastructure congestion and the increase in residential deliveries is a challenge for all transportation and logistics companies that participate in the e-commerce sector. But we continue to evolve and remain strong in the face of those changes.

Now to bring it back home to Memphis—for many, many years we were known as 'America's Distribution Center.' In an effort to kind of take on a more global mantra, we kind of moved towards 'America's Aerotropolis,' and you will see that out at the airport and our signage there. And we've had this whole aerotropolis strategy ever since. An aerotropolis, quite simply, is an area kind of built around a significant airport, but to me, I think you have to take that a step further. To really qualify as an aerotropolis, you have to have all of the primary modes of transportation. So we call it the '4R': ramp or runway, river, rail, and road. And we have those in spades here.

We have the largest cargo airport in this part of the world—number two behind Hong Kong, who just edged us out I think in 2012 in terms of tonnage and overall volume, but still number two in the world ain't bad. Here in Memphis, we have all five Class 1 railroads that converge here, we have great highway connectivity, and I believe the fourth-largest inland river port in the country—maybe fifth, but I think we may be the fourth. So we have all these inherent advantages. So it's no surprise that transportation and logistics is a huge part of our economy here. One in four people work in the transportation and logistics sector, I believe, at last count.

And we have a lot of other advantages too. Certainly tourism is a big industry here because we have great quality of life amenities, which Eric referenced early on in the introduction. Many outstanding healthcare resources—I think this proposed St. Jude expansion is possibly the most significant economic development project that we've seen in a very, very long time. I'm very supportive of that project. It will create a tremendous number of high-wage healthcare jobs and could completely transform the Pinch District. So I think it's outstanding. We're the sixth-most affordable city in the country, and we're fun—barbecue, blues, all sorts of fun things. Good beer—Wiseacre, the fastest-growing brewery in the state and ranked number one, I believe, in the state. A lot of fun things going on in Memphis.

So I think we have a lot going for us. We do have our headwinds—and I'm looking at Maralee here who knows these well—education and workforce challenges. Census Bureau statistics in 2013 said only less than 24 percent of the population have a college degree, the per capita income in 2013 dollars was less than $22,000, the median household income less than $37,000, and persons living below the poverty level almost 27 percent. This, quite frankly, is unacceptable.

We talked about the Chairman's Circle or ISM—it wasn't mentioned in my introduction. I believe the Chairman's Circle is extremely significant in that it is kind of the continuation of the foundation that was laid by the Chamber and groups like Memphis Tomorrow early on that provided a lot of thought leadership. What we did with the Chairman's Circle was we built the army that could go out and execute. We had a lot of generals in there—Pitt Hyde, Fred Smith, Gary Shores—some of our pillars here in the community that were kind of putting the game plan in place. What we lacked, I think, were the troops to go execute. And I think the Chairman's Circle involves a lot of folks my age—I'm 38—my age, younger, some that are older. We take people from all ages, but we built the army that we need to go out and execute on these things. And I think we're making a difference.

We're making a difference in these areas—education and workforce issues. And we have this supplier diversity initiative, which is a big deal, where we want to ensure that the minority and women-owned business enterprises are seeing a larger share of business receipts. Right now it is woefully low, particularly when you consider the sizes of those populations—women, particularly African-American population—relative to the business receipts and the revenues that they pull in. That's something that's got to change.

Memphis is a very charitable city, but I think we also need to invest in teaching people to fish, not just handing out fish. And so a lot of the Chairman's Circle initiatives are designed to do that—the Epicenter, to spur entrepreneurial activity in the region, and so on and so forth.

Certainly public safety and urban blight are big concerns. And I know the mayor of Memphis, Jim Strickland, is very, very focused on this, as is Mayor Luttrell. Jim Strickland is in the process of trying to hire his new police director and is doing a nationwide search. They just announced a Neighborhood Sentinel program down at the City Council where they'll put 70 of these Sentinel cameras that are plugged into the Real-Time Crime Center across the city to help curb crime. And they have been shown to not only help solve crimes when they occur but they actually reduce crime, and studies have shown that.

Another big challenge that everyone gripes about is our passenger air service. But our fares are some of the lowest in the country, and this is really something that I'm very familiar with because moving people around is not that different than moving packages—it's just the packages don't complain quite as much when you pack them in really tightly. But it's the same fundamental principle that applies. You have to look at the origin-destination pairs in the network.

There's a telecommunications principle called Metcalfe's Law, which essentially says that the value of a network is proportional to the square of the number of connected users of the system. So when you look at a node like Memphis in the network and the amount of density in terms of package volume we push through there, it's very, very efficient because it comes from all these origins and goes back out to all these destinations and we route it that way. But when you look at an airport—particularly an airport where you're competing with another hub because you've been acquired by a larger airline and their hub's in Atlanta and Northwest's hub is here in Memphis—they're trying to drive as much origin-destination traffic through that one facility as possible. And it doesn't make a lot of sense to run a lot of direct flights out of Memphis when it's a short flight down to Atlanta and you can route them through the central clearinghouse there and put them back out on airplanes that are more fully utilized.

So that's really the macroeconomic fundamentals that we have going against us in the airline industry. But what I think we have going for us is a lot of exciting development here in Memphis, a lot of activity that I think will well position us to bring jobs and businesses here. And so the more origin points you have, or more people you have originating right here in Memphis that are flying out on those airplanes, the more easily it is for them to justify putting in direct routes for us. So I think this is a solvable issue, and the answer is simply: growth helps to solve that issue, just as it helps to solve our education and crime and blight issues, because the city then has more revenues to work with to combat those things, provided they use them effectively. And I think we've got good leadership that is committed to using those resources effectively as we hopefully grow the pie here.

So I kind of stole my own thunder here talking a little bit about—and this is my final slide—my vision for Memphis and what I think is needed. You hear our pilot program being demonized politically. This is the only weapon we've got. And when you look at North Mississippi, they got an income tax they can use, they've got a lot more tools in their toolkit, and they are very fast, they are very nimble, and they are very hungry. And I think we forget sometimes that we're competing for these jobs and these businesses. So in my view, we need to be more aggressive, not less. We need to look at the EDGE board and we need to really more effectively weaponize that as it was intended, so they can be nimble and they can react quickly. And we don't politicize this process to such a great degree, because in the vast number of cases when you look at these pilots, they have been very, very good things.

I'm talking pieces of real estate that sat vacant for 50 years where the city might have collected $50,000 in tax revenue—now they're collecting at least half a million, and you've created hundreds of jobs, which is always a huge benefit to the area. So I think maybe we need to change the name of the pilot to make it more clear what it is. Sometimes I hear people who think that it's a payment from the municipality to the company, and so they kind of get the pilot program a little bit backwards because they hear that 'payment in lieu of taxes' terminology. So maybe we need to change the name, maybe we need to market it a little better, but we certainly need to explain to people why incentives are a good thing, and we need them if we're going to attract these businesses and companies and grow our way to prosperity and really overcome some of those headwinds I mentioned on the other slides.

Certainly the tax rate plays a factor in that. Our tax rate is almost double that of Nashville, though theirs is going up, and I fully expect it will continue to go up as their growth continues. They're going to have to do something to solve their infrastructure problems up there—an advantage for us. Every time I talk to my siblings who live in Nashville, they complain about the traffic. I tell them traffic here is wonderful—come on to Memphis.

The entrepreneurship initiatives I mentioned—the Epicenter—we want to grow some champions right here in Memphis, just like we did with FedEx and AutoZone and Piggly Wiggly and a number of others. And we want to continue to grow the pie specifically for the minority and women-owned businesses, because we know that if the wealth continues to accrue to just a small subset of the population, that's not going to help us solve our problems. It has to be distributed more equally, and we have to really look at these companies—these minority and women-owned businesses—and figure out how we can help them with mentorship and resources, and how we can throw more business their way so that we can help grow those entities.

And then the continued focus on public safety. If we can execute on these things—and the Chairman's Circle is playing a key role in all of that—I think you could see Memphis transform and the trajectory of this town change in an incredibly dramatic way. Maybe I'm overly optimistic. When I waded into the zoo-Overton Park battle, my father told me I was a glutton for punishment, and maybe I am. But I believe this can be done. I think our leadership believes it can be done. And with that, I will open up to any questions. I'm between you guys and lunch, so you may not have—

All right. Well, there are no questions. Thank you all for your attention, and have a good rest of your day.