Trade and tariffs have become a major flashpoint in America.
Trade is not something that can be examined in isolation because it’s intrinsically related to investment, capital, currencies, influence, and wealth – not to mention national and economic security.
America’s role as the world’s leading player in trade is closely connected to the dollar being the world’s reserve currency. The U.S. dollar is on one side of 90% of all global trade transactions.
It’s also the reason why we have deep and liquid financial markets, enabling us to finance our budget deficits without interest rates rising.
What is striking is how little we export to China, Japan and Germany.
Exports are hard work but pay big dividends.
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Trade and exports help companies achieve scale, garner critical information about overseas markets, and build a stronger brand with almost limitless growth potential.
No one has done this better than Mr. Frederick Smith, the founder of FedEx Corporation (FDX) (54 years ago), who recently passed away.
What an inspirational life of adventure.
Smith overcame a bone disease as a young boy, learned to fly at age 15 and, after Yale, served two tours in Vietnam, where he was a platoon leader and forward air controller, earning a Silver Star, Bronze Star, and two Purple Hearts.
In the 1970s, after establishing a domestic distribution network for overnight package and letter delivery centered in Memphis, he introduced the first international priority delivery service in Asia, which was more than 300% more profitable than domestic services. Smith stayed at the helm of FedEx until age 77 and passed away last month at 80.
It is almost funny that when he was a student at Yale in 1965, Fred Smith wrote an economics paper that outlined his idea for an overnight delivery system to beat the U.S. Postal Service. His professor gave him a gentlemanly C.
The FedEx elevator pitch was, “When it absolutely has to be there overnight,” which attracted substantial venture capital. The runway was not smooth, and when the company suffered cash flow problems, Smith covered part of the gap using $27,000 that he won playing blackjack.
Tensions with key FedEx client Amazon mounted as the retailer’s business exploded and Bezos built out his own warehouse and delivery operations, even leasing cargo planes. In 2019, Smith decided he didn’t want to deliver packages for a rival – and ended the contract.
Fred Smith was active in politics and brave about expressing that he favors “no tariffs, no subsidies” trade. Mr. Smith highlighted how robust trade played a key role in America’s and the world’s tremendous spurt of progress.
He often sent warning shots to protectionists linking American innovation, deregulation and trade liberalization to a half century of tremendous economic growth and prosperity.
America and FedEx played a leading and central role in this adventure.
Other key developments were the invention of the container and the container ship, which cut the cost of trade by a factor of 50X. The development of fiber optic cable meant communication could circle the globe at the speed of light, creating our global financial market – the engine of capital, investment and economic growth. The U.S. deregulation of airlines, trucking, and rail all led to much lower logistical costs and was the fuel that propelled FedEx. The Boeing jumbo jet alone cut overseas travel costs by 70%.
FedEx now averages about 17 million shipments per business day throughout its 200-country network.
Should you buy this premium logistics stock? It is tempting, as the stock is down 19% this year at 225, down from a high of 300. FedEx has proven its ability to adapt to new trends and technology.
But given trade friction and economic uncertainty, I would put it on your watch list and be a buyer at 200 if it gets there.
I have a better logistics stock recommendation, which I will reveal in the next issue of the Cabot Explorer. It has operations in over 100 countries and employs more than 18,000 people. The company has also raised its dividend every year for more than three decades.
And what’s next for international trade? The sky is the limit. It is entirely in our hands.
But our hands must be strong, nimble and confident, for history shows that great countries and civilizations often fail due to one or more of three shortcomings: a lack of fiscal discipline; a culture that does not promote risk taking, openness and scientific innovation; and international economic policies not grounded in the national interest.
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