FedEx Logo FedEx Corporation Annual Report 2008
[Introduction]
[Financial Highlights]
[Message from the Chairman]
[FedEx Overview]
[Expanding Possibilities]
[Message from the CFO]
[Board of Directors]
[Senior Officers]
[Corporate Information]
[Financials & PDFs]
MESSAGE FROM THE CHAIRMAN

TO OUR SHAREOWNERS:

At its core, FedEx is an extraordinary collection of unprecedented networks. These networks connect individuals and businesses to new ideas, customers and markets around the world. As the reach and influence of our networks expand, people's lives improve, communities grow and the global marketplace thrives.

And the more we connect, the better they do.

Simply put, FedEx networks make new opportunities possible. Let's take a closer look at our powerful FedEx networks.

FedEx Express has built, by far, the largest intercontinental air express network. It connects, door-to-door, more than 90 percent of the world's economic activity in one to three business days. It augments the highest service levels in the industry with a broad array of complementary services, including FedEx Trade Networks and new domestic express networks within the U.K., China and India. Through the FedEx Express network, we give customers around the world more choices, more flexibility and more access than ever before.

The FedEx Ground network now offers the fastest origin-to-destination lanes in the ground parcel business nationally, in both the commercial and home delivery sectors. In fact, in the last five years, FedEx Ground has reduced its transit times by at least a day in more than half of its lanes. And FedEx SmartPost is now the industry leader for low-weight packages delivered by the U.S. Postal Service.

The FedEx Freight network offers compelling value in its service levels, information capabilities, and delivery options in the regional and long-haul sectors of the less-than-truckload freight market. FedEx Custom Critical expands the freight capabilities we offer our customers through its expedited and special-handling services.

In our FedEx Services group, our advanced technology capabilities have no peer. Over the past 30 years, we have revolutionized the entire logistics industry's information capabilities. We are leading the way in tracking deliveries, pinpointing packages, and communicating key information to our customers. Likewise, our FedEx Office retail network and FedEx Global Supply Chain Services offerings complement our core transportation networks with an array of business services for everyone from the occasional package shipper to the most sophisticated global corporate customer.

With these networks, no one is better positioned to offer more services to more people locally, nationally and globally. No one.

Coming off a record fiscal 2007, we planned an aggressive fiscal 2008 despite the challenges of high fuel prices. We initiated new domestic express services in China, re-engineered the Watkins acquisition into FedEx National LTL, built new "smaller footprint" FedEx Office centers, added FedEx Ground hub capacity, and initiated additional Expressfreighter intercontinental routes.

We managed various challenges to FedEx Ground's independent contractor business model while continuing to improve service levels and the customer experience in every respect. At the same time, we converted the California owner-operator system to multiple-route contractors. We also offered new incentives throughout the United States to our FedEx Ground contractors to encourage them to expand their businesses and to reinforce the outstanding entrepreneurial spirit of these important members of our FedEx Ground team.

We did all this with the expectation of meeting our earnings growth target of 10 to 15 percent. During FY08, however, the headwinds of rapidly rising oil prices (which nearly doubled over the 12 months) and economic problems in the financial services, housing and automotive sectors put our earnings goal out of reach for FY08. Despite these multiple challenges, we ended the fiscal year with substantial cash flow, well-funded pension plans and a very strong balance sheet.

Our strategic planning has put us in a strong position moving forward. As we closed out the fiscal year, FedEx National LTL was rapidly gaining market share; our new China domestic express service had grown by leaps and bounds; and the customer experience at our retail locations had improved greatly. Our competitive positions across the board had grown stronger.

With the decision to rebrand to FedEx Office and prudently reduce the ramp-up of new locations, given challenges in the U.S. economy, we took a noncash charge in the fourth fiscal quarter at FedEx Services for the Kinko's trade name and lower goodwill valuation.

Entering FY09, we are initiating several major cost-savings measures in light of the challenging economic environment. We are also redoubling our sales and marketing efforts to produce acceptable returns and cash flows, as we adjust for the new realities of high fuel prices and modest U.S. economic growth. Our plan is to execute on these tough measures in the current fiscal year in order to resume our earnings growth trajectory in FY10. After all, we know how to do this - we've survived three previous oil crises. The first, in 1973, almost smothered FedEx in its infancy. We went through it again in 1979 and 1990-91. In addition, we weathered other "meltdowns" in 1987, post dot-com and after 9/11.

Also in FY09, we are initiating a corporate-wide re-invigoration of the renowned FedEx quality management system. Combining the best practices of all of our operating companies' systems and state-of-the-art methodologies adopted from other high-performance organizations, our new Quality Driven Management initiative will further solidify our relationship with our customers.

Our biggest advantage is our team of FedEx people - 290,000 strong worldwide. They are completely committed to keeping our Purple Promise - "I will make every FedEx experience outstanding!" In turn, FedEx is committed to our team members. I want to express my great appreciation to our team members. You play an essential role in the success of our company.

The connection between how we treat our customers and how we treat our team members is unshakable. It's why we are consistently regarded as one of the best places to work. For example, in the past fiscal year, we've made FORTUNE's "Most Admired" and "Best Places to Work" lists. We've ranked number one in customer service in our industry on the University of Michigan's customer service index. And we took first place in our industry on Institutional Investor's list of "Most Shareholder-Friendly Companies." These accolades are not only a source of pride for all of us but essential to achieving our corporate mission of producing superior shareowner returns.

Furthermore, we continue to support our communities and our environment. Respect for people motivates us to continue delivering supplies to disaster-torn countries and to continue supporting programs such as Safe Kids Worldwide. Respect for the planet - our commitment to a cleaner, healthier world - drives us toward the energy-efficiency programs you'll find described later in this report.

As we have in the past, we will effectively manage through these turbulent economic times and emerge "on the other side" as a stronger company and one that is positioned to take full advantage of future opportunities.

If past is prologue, our future is limitless.

Sincerely,
Frederick W. Smith signature
Frederick W. Smith
Chairman, President and Chief Executive Officer

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