Raj Subramaniam

0:00At Wells Fargo, we have been extremely active in providing capital for the broader AI ecosystem. Today, we'd like to share some perspectives. Let's jump in. 1.8 billion users around the world. You just need so much more compute for these AI data centers. The AI story is really a power story. With a 7 trillion need, really all the pockets of capital are going to need to be tapped. To learn more, visit www.wellsfargo.com slash CIB slash insights slash perspectives.

0:32One of the most legendary corporate founders of a company in the United States in the last 50 years was Fred Smith. He started FedEx. When he got ready to retire, he picked one of his 400 ,000 employees to succeed him. The employee is Raj Subramaniam, who is an Indian immigrant, a graduate of Syracuse, and somebody I had a chance to sit down with recently to talk about what it's like to run FedEx and to succeed the legendary Fred Smith. So in the old days, 25 years ago or so, if I wanted to send a letter overnight, make sure it got there, I would do a FedEx and you package it up and you send it and it would get there the next day.

1:09But today with the Internet, do you really have many letters going overnight to people? No, letters are a very, very small piece of the business. And I think you send some letters, so thank you about that. But if you open up our airplanes and look at them, imagine we can fill it up with letters. That's a lot of letters. So it's actually, you know, we move the high-value economy of the world. In fact, last year we moved roughly$2 trillion worth of goods across the world. And there are pharmaceuticals, aerospace, defense, you know, textiles. You just think about the ones, the value per pound of something is very high.

1:47They usually go in our system. How do you envision your business growing in terms of more customers? You've got a pretty good business already. where are you going to take a market share, from UPS or from new entrants to the field? Well, I think the market itself is growing, and I think, you know, I feel like our industry, what we do as an industry is pretty significant and somewhat, you know, underappreciated, actually, because it's been taken for granted. Especially now, in this day and age, what we do as an industry, whether it is, like I said, two or three players that we have, I think there's a lot of value.

2:24And within that, I think the market itself is going to grow. The opportunity for players who really have standout capabilities in this is now significant. And I think I'm confident in our value proposition that we can compete very effectively and win share as well. And how many trucks do you have delivering all these things? We have 200 ,000 motorized vehicles around the world. And are you going to have any trucks that are driverless at some point? We already have. We are working with a partner in Texas where we have autonomous driving being tested, and we'll see how that goes. Do the packages get there quicker or slower?

3:02No, it's the same speed. The important thing is the infrastructure we already have. We have 638 facilities right on the highway. So we can go facility to facility on the highway and then can be a human driver. So that is an important component of this because I don't think we are yet able to see an autonomous truck driving down the street outside here. How is your business going to change with AI? Is AI going to make it easier or harder for your business? AI is going to be great because the fact that I told you, we have two petabytes of data every single day. We realized back in 2020 that the data that we generate is a valuable asset on its own.

3:39So we had gone about really engineering and creating a platform using our data and creating a digital twin of FedEx. And then comes the revolution in AI. And then suddenly that now we're able to use that AI to now supercharge our data. So, of course, we're going to use to improve our efficiency, our network efficiency, and so on. That's great. We'll do that. That's the base layer. but we're also using it to differentiate and create new value for our customers so they ship more packages. And when they ship more packages, there are no AI delivering packages. There are more jobs. In fact, last year, we've added about 29 ,000 jobs in America.

4:19You know, we are also looking at how do we use these insights that we have to orchestrate global supply chain. So there's opportunity for us to leverage the insights that we have from our data and do different things with it. Now, with all the data that you have, you've got as much data as much in any company and where the U.S. economy is. Do you see a recession anywhere in the near future? I'm more optimistic. There is a stealth industrial growth in this economy that's coming up, and we're seeing growth in the B2B sector. We'll see how it goes, but if you go back from September 2022 to the next three and a half years, The industrial, the ISM index was down pretty much 35 or 36 months.

5:08It was a very tough time. But I think we're starting, you know, there's probably some green shoes. If I say I have a package and I want to deliver it to the Middle East right now, can you deliver packages to the Middle East because of the war going on there? Is that a problem for you? Yeah, the short answer is we can. We have a large hub in Dubai. And obviously, we can fly FedEx airplanes into Dubai, or we have an operation into Riyadh. So those things, no, we can't fly, but we are now using other carriers to move traffic in and out of Middle East. It's operational, but not the same way that it was before.

5:47So today, what do you want to accomplish the most? We have changed our focus very clearly. and when we had the Investor Day back in February, we laid out goals of 4 % revenue growth, which is modest by historical standards, but something, again, focused on this high-value verticals. But generate 14 % bottom-line growth because of CAGR, because of the transformations that we're doing, and generate$6 billion of free cash flow. So those are our financial anchors that we're focused on. So I noticed that when you, sometimes you have brought the pandas to the National Zoo, and you've shipped some back.

6:30Is that a profitable business, shipping those? They are the VIPs. They're very important pandas. So, you know, this is something that we have done for some time now, because we can do it. You know, we have done, I think, 15 or so pandas, and we are looking at another one from Atlanta as well. So that's something that we do. And we have, you know, we have actually the delivery of the plane is called the Panda Express. Do you do other animals like elephants or things like that? Well, you know, we used to do animal charters way before. But right now, this is more of a, let's call it, diplomatic move.

7:07What is the biggest challenge that Wall Street sees you as having as the company? Wall Street analysts are always wanting more revenue, more profits. What does Wall Street mostly say that you should be doing that you're not yet doing? You know, some of the investors are frustrated about, you know, lack of generation of free cash flow, for example. But you have to have investments in capital to get the network that we have built so far. So the fact that we're here and we're turning a corner and then, you know, I'm not anticipating at this point going to moon or Mars. You know, we have this planet pretty much covered and the investments that we need are more incremental at this point.

7:48I think that realization is starting to sink in. And so maybe the frustration is starting to ebb somewhat. And I think we also have the job to do then to put points on the board and demonstrate success on a consistent basis on this foundation. I think we'll be able to. At Wells Fargo, we have been extremely active in providing capital for the broader AI ecosystem. Today, we'd like to share some perspectives. Let's jump in. 1.8 billion users around the world. You just need so much more compute for these AI data centers. The AI story is really a power story. With a$7 trillion need, really all the pockets of capital are going to need to be tapped.

8:24To learn more, visit www.wellsfargo.com slash CIB slash insights slash perspectives. Let's go through how you became the CEO. So where were you born? I was born in India in a small state of Kerala, right down the southern, the Florida. of. And were you always interested in distribution as a boy or something? I wouldn't know what that was. No, it was a very straightforward, you know, middle-class childhood focused heavily. Luckily for me, education plus sport. Sport's very important in my life. Were you a big athlete or something? I was pretty good. You were in cricket or something? Cricket and badminton and athletics.

9:10Everyone knew good education was a ticket to success. So you're in India, in the Florida of India, and you decide you want to go to a cold weather college, Syracuse. How did you wind up at Syracuse? A very good school, but how did you wind up there? Well, first of all, you have to imagine a world where there was no Google or information was, let's say, much scarcer. So there was a well-worn path. You go in India, you get into the Indian Institute of Technology, a very competitive school. And once you're through that, there is usually a path to get a scholarship to come to America. And all you get really information is about rankings of top 20 schools in America.

9:51And Syracuse was in the top 20 for chemical engineering at that time. I got a scholarship. Well, two ranks below, which also got a scholarship, was Florida. Oh. So, and I don't, because this was two ranks about, I took Syracuse. And I remember going to the consulate in Mumbai or Bombay at that time. And the lady says, you know, it's going to be cold over there. And I said, yeah, cold, whatever. And now you're at a rumber. I had not seen temperatures below 75 degrees in my life. Had you ever seen snow? So when I got to snow, no, no, no chance. So I got to Syracuse the first day I'm walking to school.

10:29It was 70 degrees and sunny. and everyone's telling me, nice day, and I'm freezing. So it went downhill from there. Did you ever consider transferring when you saw snow? It's kind of crazy because by the time the next six months came around, my blood was thick and I was like in 45 degrees. I was in my T-shirt. Today, actually, I can deal with cold pretty good. When you graduated, did you say, I want to be the CEO of FedEx, or what did you want to do? When I joined FedEx in 91, and I barely knew Memphis. I didn't know anybody in Memphis. If someone had told me that this is the job I would be doing then, I would have said I had a much better chance to play for the Indian cricket team.

11:10So how did you get the job? You just interviewed for a job after college? I had to get my MBA. I was on campus in Austin, Texas. It's kind of a story around it, too. I was, so I came home one afternoon and my apartment mate was on the phone and he's basically on the phone and said, no, I can't do that. You know, he was leaving the country. So I said, who's on the phone? He said, that's FedEx. He said, they're, you know, coming to campus, we want to interview him. And so, but he's not going to be there. So I said, give me the damn phone. So I call over and I say, you know, you just talked to my roommate, but he's not going to be there, but I'm going to be here.

11:47Can I fax you my resume? I sent him over. I said, OK, come on over for the interview. So now this was a time when recession was pretty deep in 91. And also I didn't have a green card. And that had become an issue from other interviews. So when I got to the interview, my euphoria had already come back down again. So I see these two gentlemen, very nice people across the table. And I say, I didn't say good morning. I didn't say hello. I said, I don't have a green card. I said, if that's a problem, then I don't want to waste your time or mine. And they look at me like, what is this, a strange kid.

12:25And say, son, let's first figure out whether you have what it takes to do a job at FedEx and let's worry about the paperwork. So you got hired? And what was your job? I was the associate marketing analyst for international marketing at FedEx. So it can go lower for the staff position, no. All right. So what year was that? That was 91. All right. So you worked your way up over a series of jobs, and eventually you became the president or chief operating officer? Well, yeah. In 2019, I was the president and COO of FedEx. Okay. So you're president and COO, and Fred Smith, the legendary founder, is going to be there forever, people thought.

13:09Did he call you one day and say, guess what? I want you to be my successor? her. One day he calls over and says, I'm going to Los Angeles tomorrow. I've looked at your calendar. You're doing nothing. I want you on the plane with me. And so it was, I think, the day before Valentine's Day, whatever it was. So I'm there. So he walks into the plane. And even before he sits down, he turns on and says, so would you like to be the president and CEO of FedEx? And I'm looking at him and said, I'll be honored, sir. And he sat down for the next because we can't get out anymore. We've got a four and a half hour flight.

13:52So you became the president and CEO. Yeah. And then how many years later before you became the CEO? It's three years. When you become the CEO, you say to Fred, look, it's a nice company you built, but I want to make some changes, dramatic changes. was that hard to do? Because you made a lot of dramatic changes. Well, no, Fred was very, very clear about this. This is the greatest thing about Fred. And I mean, I'm just counting myself one of the very, very fortunate persons on this planet that I have spent so much time with him. It was very, very clear that once the mantle shifted over that, okay, you know, he'll give me all the input you want, but the decision making was mine.

14:30That meeting with him lasted about two minutes. All right. So when you became the CEO, one of the things you did was to focus on profitability. And one of the ways you did that is you began to, I guess, consolidate some of the divisions. Can you explain there were four divisions at FedEx? Yeah. So we were set up in a way to operate independently with multiple operating companies and also multiple networks. So four parts, right? FedEx Express, FedEx Ground, FedEx Freight, and we had FedEx Office and things like that. But three main companies. The main thing was in the United States, there was a reason the way it was set up this way.

15:08And again, we talked about, you know, we were started off in the air express business, but in the ground parcel business, we were tiny. At the turn of the century, we were only 10 % market share. So we had to make inroads and we need to be a differentiated play. So that's what, you know, we basically, you know, grew our market share for many, many, many years in a row. but the profile of the traffic was changing and we needed to consolidate our networks. So that was the impetus. It was an evolution, really. And so the time had come to do that. And I don't think there was any debate whether we should do it or not.

15:44So we started moving in this direction. So we consolidated networks, consolidated the operating companies into OneFedEx. And this is a tough, long process. So the consolidations occurred and I think the market capitalization is up about 63%. The stock is up 73%, but the revenues are roughly flat. Well, that's not the way it worked, because at the turn of 2019, before the pandemic, we were about$69 billion in revenue. The next two years, we grew$25 billion, so we've got$94 billion. Then it went down to 88, the shadow of the pandemic, and now we are back. So when you say we're back, yes, but if you look at the longer picture, we've grown about 5 % CAGR since about 2019, or 6 % CAGR.

16:27For us, part of the culture that Fred drilled into our brain is that change is the only constant. And if you don't like change, you will absolutely hate extinction. Fred Smith always said that the FedEx employees were like part of his family and it was a really family atmosphere. What do you do to make sure that people feel like they're part of a family organization and part of a company that's really doing something useful for society? High performance team. That's what he would say. And we are always a people-first company, and our philosophy is crystallizing people's service profit. You take care of your people, they provide outstanding service for our customers, it generates profit for our company, we invest back in our people.

17:08This unending circle is what has been guiding FedEx from the very, very get-go. And it's not an ethereal theory. In a service business, we have 500 ,000 team members around the world. The difference between those 500 ,000 team members doing just enough not to get fired versus doing an outstanding job for our customers and delivering what we call our purple promise. That's the difference between failure and success. And so this philosophy is embedded into all of us, and a great thing about FedEx also is that this culture prevails globally. Anywhere in the world you go, the language of the country may be different, but the language of FedEx is the same.

17:49That, I've told, and I promise Fred this for sure, We may get new people, buy new companies, new technology, but the culture ain't going to change. That's what's guiding us going forward. Your parents are in their early 90s, and do they call you and say they're proud of you? They're very, very proud, and they could not have imagined anything close to this. And so my dad's advice always to me is keep working hard, keep working hard, don't let them down. So keep moving, yeah. And what about your children? Are they proud of what you've accomplished? They are, yes. So when you are introduced to people, people say you're the CEO and you are the CEO of FedEx.

18:28Are they surprised that somebody that came from India is running this company that is legendarily built by Fred Smith? I was introduced to this minister from an African country. He just could not digest this fact. He was like double-take and triple-take. You are the CEO? You are the global CEO? So there is a little bit of that sometimes, but I think, you know, it's not, that's maybe rare at this point. So what do you do when you're relaxing, if you're not, you know, looking for, you know, where your package was or something like that? I'm not looking for my package. You never have to look for your package.

19:14So, no, yeah, I think for me, I mean, at this point, either family time or tennis. Are you a tennis player? So that's my meditation as well as relaxation. And do you ever play with, like, of your employees? Do you beat them? I assume you can beat them pretty readily. No, I do. We actually have, because Memphis, of course, you know, there's a lot of FedEx folks. And so we play, but nobody gives me a quarter on this. So I can assure you that they're not giving up. In fact, I would be upset if they didn't. Fred Smith came up with this idea years ago, and obviously it's built a big business and so forth.

19:48But are you worried that some young Fred Smith somewhere else is going to come up with something that replaces your business? For us, part of the culture that Fred drilled into our brain is that change is the only constant. And if you don't like change, you will absolutely hate extinction. And so we are constantly with that mantra in place. Now, having said that, the physical network that we have in place, and I keep repeating this, is you can pick up a package or a shipment from any one part of the world and get it to any other part of the world. It has taken us 53 years to build this incredible network.

20:28That is going to be very, very difficult to replicate. So unless someone is inventing a beam-me-up Scotty machine and moving through Ether, This is going to get very, very difficult to replicate. So I think there are certain things that are clear modes for us. But then the question for us is how do we innovate and change, continue to keep that energy up and move forward? All right. So today, if somebody wants to get a job at FedEx and rise up, what's the best way to get a job at FedEx these days? Well, it depends on what job you want. Because they want your job. No, that's not open right now.

21:10But I think starting off at FedEx, if it's an operational side of the house, obviously we hire a lot of people every single day. Like you said, we had 25 ,000 in the last year. And the great thing is a lot of people who start around as frontline careers have had a fantastic career. And in fact, several of them rise to executive level positions in this company, and there's a long history of that. And then, of course, the staff jobs as well, because I feel we are in a very exciting time period here. and the word's getting around, so the interest level is actually as increasing. And whether it's different functional jobs or especially in technology and the ability for FedEx to leverage what we have today and have a different view on how we can leverage technology to drive AI.

21:59So we are getting a lot of interest in FedEx for that. As I mentioned earlier, your stock is up about 73 % since you took over. So, you know, probably you can't do much better. So would I be better not to buy the stock now, would you say? No, I think that's not the way to look at it. You've got to look at it from what's coming next. And so what are you going to do to make it even more profitable? So I think our financial goals, I told you, are very exciting and but also most importantly achievable. The transformation that's underway at FedEx today, whether it is our network transformation, whether it's organizational transformation or digital transformation, those are real levers for us.

22:40And we can create new businesses which lay us on on top of our existing physical business in a way. And so it's very exciting. We're all excited at FedEx, and we think there's a lot more to go. How do you spend your time as CEO? I've thought about it carefully because, you know, the first year was like, I mean, I realized that the most important asset that I have is time. So I actually sat down and thought about it and said, what's my job? And so one, of course, is to guide the strategic direction of where the company is headed, make sure that I have the right set of people around me to execute, have an execution framework but not get involved in every aspect of execution, and represent the company well internally and externally.

23:19And once I kind of got clarified in my own mind that this is what my job is, then I actually went through my calendar and I just very disciplined put back and got some segment. I would say about three out of the five days I'm traveling. What's the most enjoyable part of your job? Oh, by a wide margin, is actually interacting with the FedEx team members. Not interviewing like this? Oh, I'll play a second, maybe. No, I think it's the team members. They just, you know, really, it's an incredible set of team. It doesn't matter where you're in the world. And what's the least enjoyable part? Because we are in every part of the world and very, very kind of, you know, these days I got to get up in the morning and say a little prayer before I look at my phone.

24:05So, you know, because I don't know what's happening. And so that, you know, just the unpredictability of it. Now, you met your wife at FedEx. Yeah, just in the same time frame. And she joined FedEx about six months after we got married, yeah. You had to be a FedEx employee to be married? Other way around. I need to have a job before she married me. You are now 60 years old? Yes. 60. You have virtually no gray hair. Why is that? That's a secret that's going to remain with me. Well, maybe you could whisper to me later. You've done a great job for your shareholders and your employees as well, and I'm sure Fred would be very proud of what you've done.

24:49Thank you. Thanks for listening. To hear more of my interviews, you can subscribe and download my podcast on Spotify, Apple, or wherever you listen.

25:03Thank you.