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Business leaders review the news on video on FT.com. This week Fred Smith, FedEx chairman, president and chief executive. Watch the video interview
FINANCIAL TIMES: Thank you very much for joining us Mr. Smith.
FRED SMITH: Glad to be here.
FT: We’ve recently had quite a political turnaround in the midterm votes. I wonder if you feel that that might lead to a wave of protectionism coming from Capitol Hill?
SMITH: Well, there’s no question about the fact that a lot of the successful candidates ran on populist and even protectionist platforms, but that’s easy to do as a candidate, much harder to do as a legislator. There are tremendous amounts of vested interests in the international trading system. Over a quarter of the entire economy in the US is related to international trade. The US remains the largest exporter in the world; and while it imports a great deal, that too has given a lot of benefits to this society in terms of low product cost and a variety of manufactured goods and so forth. So I think they’ll be obviously some political rhetoric about it, but I would be very surprised if there’s any roll-back of the existing system. Whether there’s further liberalisation, that’s another matter.
FT: As you enter your peak shipping season, you must have a unique perspective on the robustness of the US economy. What is your outlook?
SMITH: I think the US economy is OK. I think it’s continuing to grow at a reasonable rate, not nearly as high as it was last year or the year before. The run-up in oil and commodity prices has gone through the economy like a pig in a python; the Federal Reserve, here and elsewhere, has raised interest rates; and so those interest rates sectors have responded, in the case of housing, with a significant reduction in housing turnover, and the same thing in the automotive sector. Too much capacity, too many automobiles, too many big fuel-inefficient automobiles and they are going through a correction. But I think the economy is resilient enough and flexible enough now that it can move through this with a so-called soft landing, and I suspect that the Federal Reserve, if the landing appears to be too soft, will adjust interest rates, which will help those interest rate-sensitive sectors.
FT: And do you think the internet and more sophisticated supply chain managements can contribute to softening that recession if it is indeed ahead of us?
SMITH: Oh, no question about it. If you look at the amplitude, the depth of economic correction since the start of this century and plotted through today one of the things you’d find is that they are becoming much more shallow; and on the horizontal axis they are becoming much shorter in duration. In large part that is because there’s so much better information available at the point of sale and so much better visibility all the way back to the supply chain. So when you have a reduction in demand, that’s quickly transmitted back through the entire business process and it makes it more flexible and much easier to adjust to temporary slowdown.
FT: You recently cancelled your Airbus order. What do you see as the future of that company?
SMITH: Well, I think Airbus is a great company. We operate more Airbus-wide bodies than any other company in the world. We have a wonderful relationship with them. The Airbus A380 is a great airplane and the issue is not technical at all. The issue was a production problem. And in our particular case, we have such an enormous international system carrying millions of pounds of traffic per day, as it grows the requirement for additional uplift or additional airplanes becomes very important to meeting our customer demand. So after the first delay we sort of said “Well, we’ll have to live with that” and the second and third one, that became a different matter; and we had to take care of our customers and our share-owners and that’s why we cancelled the order. But it wasn’t because we didn’t like the plane. We had to have the lift to meet our customer demand and Airbus has acknowledged that.
FT: In the airline business, US Airways is now making a bid for Delta. I wonder what your perspective is on consolidation in that sector in the United States?
SMITH: Well for many years people have said that the US airline industry should be further consolidated and there are some advantages of scale in that, so I suspect that it will happen. It’s very difficult to integrate the labour forces because they are mostly seniority-based and unionised labour forces. There’s often a lot of disparity in the equipment being operated, which is a very big issue for people who operate commercial airplanes, so it’s hard but I think the economic forces out there are greater now after the airline shake-out, which will force everyone involved in the process to say “we probably should consolidate the industry to some degree.”
FT: You’ve recently finalised an acquisition in India and you’re close to finalising one in China. What do you see as the potential of those two emerging giants, and if you had to make a bet, where’s the greater potential, in India or in China?
SMITH: Well, China has the lead because they’ve been more focused in manufacturing for a longer period of time. India has come on strong since they’ve liberalised their economy; so both of them will be very substantial growth markets. And you’ve got 2.7bn people I think, maybe 2.6bn … but very large numbers of consumers. So I think both of those economies now that they’ve been opened to global commerce will be big opportunities.
FT: Thank you very much.
SMITH: My prediction is that despite of all the past conflicts between Europe and the US and others over the Iraq issue, you’ll see in the coming months an understanding on a broad swath of the world that this problem has to be solved and you’ll see other countries coming to assist in stabilising the situation there, which is, I think, not obvious yet, but I think that will occur in the foreseeable future.