FedEx: Anytime, Anywhere

Sector

Transportation & Logistics

Background

Staley Cates is the Vice Chairman of Southeastern Asset Management. We cover the history of FedEx and its famous founder, how it integrates seamlessly with eCommerce and the Postal Service, and how to accurately compare its margins and valuation to competitors.

Cover

Date

November 8, 2023

Episode Number

135

Background / Overview

Founded in 1973 by Fred Smith, FedEx revolutionized logistics with its pioneering overnight delivery service. From delivering 186 packages across 25 U.S. cities on its first night, FedEx has grown into a global logistics giant, handling approximately 15 million packages daily. Headquartered in Memphis, Tennessee, its overnight hub processes nearly 500,000 packages per hour, underscoring its scale and operational intensity. FedEx operates three primary segments: Express (time-sensitive air deliveries), Ground (less time-sensitive truck-based deliveries), and Freight (less-than-truckload, or LTL, services). These segments, historically operated independently, are now being integrated under the “One FedEx” initiative to streamline operations.

FedEx employs over 500,000 people globally and has evolved from an air-centric express delivery company to a predominantly U.S. trucking business, with Ground and Freight driving the majority of its value. Its business model is capital-intensive, relying on a vast network of planes, trucks, and sortation facilities. The company’s history includes strategic acquisitions, notably Caliber (now Ground) for $2.5 billion, which transformed its competitive positioning against UPS, and Watkins/American for its Freight segment.

Ownership / Fundraising / Recent Valuation

FedEx is a publicly traded company (NYSE: FDX) with a stock price around $250 as of the podcast discussion. The analysis suggests an intrinsic value of approximately $400 per share, implying significant undervaluation. No specific details on recent fundraising or private equity ownership are provided, but Fred Smith remains a significant shareholder and Executive Chairman, aligning management with long-term shareholder interests. The company faced activist pressure from D.E. Shaw, resulting in two board seats, which has influenced its focus on cost reduction and shareholder returns.

Key Products / Services / Value Proposition

FedEx’s value proposition centers on reliability, speed, and global reach, tailored across its segments:

1. Express: Provides time-sensitive, often overnight, air-based delivery for high-value or urgent shipments. Its value lies in speed and global connectivity, serving businesses needing rapid cross-border or domestic delivery. However, it faces macro headwinds (e.g., declining free trade, volatile fuel prices) and operates at a low 2% operating margin.
2. Ground: Offers cost-effective, truck-based delivery for less time-sensitive packages, primarily in the U.S. Its value is in cost efficiency and reliability for B2B (warehouse-to-warehouse) and B2C (e-commerce) deliveries. Ground is the profit engine, contributing over 50% of operating income with margins recovering to 11-12%.
3. Freight: Specializes in LTL shipping, consolidating smaller shipments into truckloads. Its value lies in high-margin, disciplined pricing, achieving over 20% operating margins, rivaling industry leader Old Dominion.

Segments and Revenue Model

FedEx’s revenue model is straightforward: volume x price. Each segment targets distinct customer needs:

• Express: Generates revenue from premium-priced, time-critical deliveries, often international or overnight. Pricing includes fuel surcharges, which spiked during the pandemic (adding ~$1 billion at peak) but are now normalizing, impacting short-term revenue.
• Ground: Earns revenue from high-volume, lower-priced deliveries, with a mix of B2B (warehouse-to-warehouse) and B2C (e-commerce). B2B is more profitable due to higher route density (~50 packages per stop vs. ~1 for B2C).
• Freight: Focuses on LTL, where disciplined pricing (yield increases) drives revenue despite lower volumes. The collapse of competitor Yellow has boosted pricing power.

Revenue Splits and Mix:

• Segment Mix: Ground contributes over 50% of operating income, Express ~20%, and Freight ~20-25%. This shift reflects Ground’s dominance and Express’s declining profitability.
• Customer Mix: Ground is ~50% B2B and 50% B2C, a shift from 75-80% B2B a decade ago due to e-commerce growth. B2C’s lower route density compresses margins.
• Geo Mix: Ground and Freight are U.S.-centric, while Express is global, exposing it to international macro risks (e.g., trade slowdowns).
• Channel Mix: Primarily direct delivery, with some third-party logistics partnerships. FedEx avoids Amazon’s business to maintain pricing power and avoid channel conflict.
• End-Market Mix: Diverse, spanning retail, manufacturing, and e-commerce, with B2B driving higher margins.

Mix Shifts:

• Historical: Ground’s B2C share grew from 20-25% to 50% over a decade, compressing margins from high teens to a trough of ~7%. Recent stabilization at 50% B2B/B2C and e-commerce penetration at 22% suggests margin recovery.
• Forecasted: Continued e-commerce growth may slightly increase B2C share, but at a slower pace, supporting margin expansion to mid-teens for Ground.

KPIs

Key performance indicators highlight FedEx’s operational efficiency and growth trajectory:

• Last Mile Route Density: Critical for Ground profitability. B2B routes (50 packages/stop) are far more efficient than B2C (1 package/stop).
• Volume Growth: Ground grows slightly above nominal GDP, gaining share from UPS. Freight sees weak volume but strong yield. Express volume is flat, tied to global trade.
• Pricing Power: Ground and Freight achieve 6-7% annual price increases, outpacing CPI (4%). Express pricing is constrained by macro headwinds and surcharge reductions.
• Margin Trends: Ground margins recovering (11-12%), Freight stable (>20%), Express depressed (2%). Consolidated margin target of 10% by ~$100 billion revenue.
• CapEx Intensity: Historically high, now moderating as re-fleeting and Ground asset expansion near completion.

Acceleration/Deceleration: Ground margins are accelerating, Express is decelerating due to macro pressures, and Freight remains stable with pricing discipline.

Headline Financials

FedEx’s financials reflect its segment dynamics and capital intensity. Below is a consolidated view, with segment-level insights integrated.

Long-Term Financial Trends:

• Revenue: Projected to reach $100 billion, driven by Ground and Freight growth. Express revenue is stable but less significant.
• EBITDA Margin: Consolidated margin of 8-9% expected to reach 10%, with Ground recovering to mid-teens and Freight sustaining >20%. Express margins may improve to 7% with cost optimization.
• FCF: Historically constrained by high CapEx (e.g., re-fleeting planes, Ground asset growth from $8 billion to $32-33 billion). As CapEx aligns with D&A, FCF conversion will improve, supporting dividends and buybacks.

Value Chain Position

FedEx operates in the midstream of the logistics value chain, bridging suppliers (e.g., manufacturers, retailers) and end customers (businesses or consumers). Its primary activities include transportation (air and ground), sortation, and delivery.

• Supply Chain: FedEx sources fuel, vehicles, and aircraft, with significant purchasing power. It manages a complex network of hubs (e.g., Memphis) and last-mile delivery routes.
• Value-Add: Reliability, speed, and scale. Ground’s duopoly with UPS provides pricing power, while Express’s global network is harder to replicate. Freight’s high margins stem from disciplined yield management.
• GTM Strategy: Direct delivery to customers, with limited reliance on third-party logistics. FedEx avoids Amazon’s business to maintain pricing discipline and avoid channel conflict.
• Integration: Historically unintegrated (Express and Ground operated separately), leading to inefficiencies (e.g., multiple trucks in the same neighborhood). The “One FedEx” initiative consolidates operations, leveraging Freight to carry Ground loads and optimizing route density.

Customers and Suppliers

• Customers: Diverse, including manufacturers (B2B), retailers, and e-commerce platforms (B2C). Ground serves both high-margin B2B clients and lower-margin B2C customers. Express caters to global businesses needing urgent delivery. Freight targets businesses requiring LTL services.
• Suppliers: Fuel providers, aircraft manufacturers (e.g., Boeing), and truck suppliers. Fuel is a significant variable cost, mitigated by surcharges. FedEx’s scale enables bulk purchasing, enhancing cost efficiency.
• Dependency: Customers rely on FedEx for mission-critical logistics, but Express faces competition from boats and passenger jet underbellies. Suppliers have limited power due to FedEx’s size and diversified sourcing.

Pricing

• Contract Structure: Long-term contracts with annual price increases (6-7% for Ground and Freight, outpacing CPI). Express pricing includes fuel surcharges, which are now normalizing post-pandemic.
• Pricing Drivers:
• Industry Fundamentals: Ground and Freight benefit from a duopoly with UPS, enabling strong pricing power. Express faces global competition and macro pressures.
• Customer Type: B2B clients tolerate higher prices due to mission-criticality; B2C is more price-sensitive.
• Mission-Criticality: Express’s time-sensitive deliveries command premium pricing, though macro headwinds limit upside.
• Mix Effect: B2C growth in Ground dilutes blended pricing, but stabilization supports margin recovery.
• Visibility: High due to long-term contracts and predictable price increases, though Express is exposed to volatile global trade.

Bottoms-Up Drivers

Revenue Model & Drivers

FedEx generates revenue through volume x price, with distinct dynamics by segment:

• Express:
• Revenue Model: Premium-priced, time-sensitive air deliveries. Includes fuel surcharges (~$1 billion at peak, now declining).
• Volume: Flat, tied to global trade. Macro headwinds (e.g., declining free trade, oil price volatility) limit growth.
• Price: Constrained by competition and surcharge normalization. Long-term yield aligns with CPI (~4-5%).
• Drivers: Global GDP, trade flows, fuel costs. Express is vulnerable to boats and passenger jet underbellies for non-urgent shipments.
• Ground:
• Revenue Model: High-volume, cost-effective truck deliveries for B2B and B2C. B2B is higher-margin due to route density.
• Volume: Grows slightly above nominal GDP, gaining share from UPS. B2C growth drives absolute volume but dilutes margins.
• Price: Strong pricing power (6-7% annual increases) due to duopoly with UPS. B2C mix slightly reduces blended pricing.
• Drivers: E-commerce penetration (22% and stabilizing), B2B/B2C mix, route density, and market share gains.
• Freight:
• Revenue Model: LTL shipping with disciplined pricing (high yield). Lower volume but high margins.
• Volume: Weak but supported by Yellow’s collapse, boosting market share.
• Price: Exceptional yield increases, sustaining >20% margins. Pricing discipline is a competitive advantage.
• Drivers: Industry consolidation, yield management, and GDP growth.

Absolute Revenue and Mix:

• Absolute Revenue: ~$85 billion, projected to reach $100 billion. Ground drives growth, followed by Freight. Express is stable but less significant.
• Product/Segment Mix: Ground (>50% of operating income) is the core, with Freight (20-25%) and Express (20%) secondary. Express’s low margin (2%) reduces its contribution.
• Customer Mix: Ground’s 50/50 B2B/B2C split balances profitability and volume. Express serves global businesses, Freight targets LTL clients.
• Geo Mix: U.S.-centric (Ground, Freight) with global exposure (Express). U.S. operations benefit from stable demand and pricing power.
• Organic vs. Inorganic: Growth is primarily organic, with historical acquisitions (Caliber, Watkins) fully integrated. No significant M&A planned.

Cost Structure & Drivers

FedEx’s cost structure is heavily variable (fuel, labor, transportation) with fixed components (facilities, aircraft, sortation hubs). The “DRIVE” program targets $4 billion in cost savings, split across Ground, Express, and G&A.

• Variable Costs:
• Fuel: Significant for Express, mitigated by surcharges. Volatility impacts competitiveness against boats.
• Labor: Ground and Freight benefit from non-unionized labor, unlike UPS (3.3% labor cost increase). Labor is a key cost advantage.
• Transportation: Purchased transportation (e.g., passenger jet underbellies) optimizes Express costs.
• Drivers: Inflation, fuel prices, and route density. B2C’s low density increases delivery costs.
• Fixed Costs:
• Facilities: Sortation hubs and warehouses, with Ground assets growing from $8 billion to $32-33 billion over a decade.
• Aircraft: Re-fleeting completed, reducing CapEx to ~$1 billion maintenance levels.
• G&A: Back-office costs targeted for savings under DRIVE.
• Drivers: Economies of scale and operating leverage. Consolidation under One FedEx reduces redundancies (e.g., multiple trucks in one area).
• Contribution Margin:
• Ground: High for B2B (50 packages/stop), low for B2C (1 package/stop). Blended margin recovering to 11-12%.
• Freight: Exceptional due to pricing discipline (>20%).
• Express: Low (2%) due to macro pressures and high variable costs.
• Gross Profit Margin: Consolidated margin of 8-9%, with Ground and Freight offsetting Express’s weakness.
• EBITDA Margin: Target of 10% by $100 billion revenue, driven by DRIVE savings and Ground margin recovery.

Cost Trends:

• % of Revenue: Labor and fuel are the largest variable costs. DRIVE savings (~5% of revenue) will reduce fixed costs (G&A, facilities).
• % of Total Costs: Variable costs dominate (labor, fuel, transportation), but fixed costs (facilities, aircraft) are significant. Operating leverage improves as CapEx moderates.
• Incremental Margin: High for Ground and Freight due to pricing power and scale. Express’s low margin limits consolidated gains.

FCF Drivers

• Net Income: Driven by EBITDA growth (~$20 EPS to $30 in a few years) and cost savings. Interest and taxes are not detailed but assumed stable.
• CapEx:
• Absolute: Historically high (re-fleeting, Ground asset growth). Now moderating to D&A levels (~$1 billion for Express, similar for Ground).
• % of Revenue: Declining, improving FCF conversion.
• Types: Maintenance (sustaining operations) and growth (e.g., Ground asset expansion). No major growth CapEx planned.
• NWC: Not detailed, but logistics businesses typically have moderate NWC needs. Cash conversion cycle is efficient due to rapid receivables and payables turnover.
• FCF Outlook: Limited currently (CapEx > D&A), but expected to emerge in 2-3 years as CapEx aligns with D&A, supporting dividends (2% yield) and buybacks (3.5-4% annually).

Capital Deployment

• M&A: Historical acquisitions (Caliber, Watkins, TNT) were transformative but challenging (TNT faced integration issues and a cyberattack). No significant M&A planned due to Freight’s market leadership and regulatory constraints.
• Buybacks: 3.5-4% annual pace, a recent shift reflecting confidence in undervaluation ($250 vs. $400 intrinsic value).
• Dividends: 2% yield, growing steadily, balancing shareholder returns with reinvestment.
• Organic Growth: Focus on cost optimization (DRIVE) and network consolidation (One FedEx). Ground and Freight drive organic revenue growth.

Market, Competitive Landscape, Strategy

Market Size and Growth

• Market Size: The U.S. logistics market is vast, with Ground and Freight operating in a ~$1 trillion trucking market. Express competes in a global air freight market, estimated at ~$150 billion.
• Growth:
• Volume: Ground grows slightly above GDP, driven by e-commerce (22% penetration) and share gains from UPS. Freight benefits from industry consolidation. Express is flat due to trade slowdowns.
• Price: Ground and Freight achieve 6-7% annual increases, outpacing CPI. Express pricing aligns with CPI (~4-5%) but faces surcharge headwinds.
• Absolute: Logistics market grows with nominal GDP (~4-5%), with e-commerce and B2B demand as tailwinds.
• Industry Growth Stack:
• Population: Stable, supporting consistent demand.
• Real GDP: ~2-3% growth, underpinning volume.
• Inflation: ~4%, supporting pricing power.
• E-commerce: 22% penetration, stabilizing, drives B2C volume.

Market Structure

• Competitors: Ground operates in a duopoly with UPS, Freight in a consolidated LTL market (FedEx is #1, Old Dominion #2), and Express in a fragmented global market with DHL and UPS.
• MES (Minimum Efficient Scale): High in Ground and Freight due to network scale, limiting competitors. Express requires global infrastructure, deterring new entrants.
• Penetration: E-commerce at 22%, with slow growth expected. B2B remains a stable, high-margin market.
• Cycle: Logistics is cyclical, tied to GDP and trade. Current challenges include trade slowdowns and fuel volatility, but Ground benefits from e-commerce stabilization.

Competitive Positioning

• Matrix: FedEx positions as a reliable, cost-effective provider in Ground (duopoly with UPS), a high-margin leader in Freight, and a global player in Express (though less competitive).
• Disintermediation Risk: Low in Ground and Freight due to scale and pricing power. Express faces risks from boats and passenger jets for non-urgent shipments.
• Market Share:
• Ground: Gaining share from UPS, leveraging cost advantages and route optimization.
• Freight: #1 in LTL, strengthened by Yellow’s collapse.
• Express: Stable but losing share to cheaper alternatives (e.g., boats).
• Relative Growth: Ground outperforms market growth (GDP + share gains). Freight matches industry growth with strong yield. Express underperforms due to macro headwinds.

Competitive Forces (Hamilton’s 7 Powers)

1. Economies of Scale:
• Strength: High in Ground and Freight, where network scale reduces unit costs. FedEx’s $32-33 billion Ground asset base and Memphis hub create cost advantages.
• Impact: Deters new entrants, as MES is large. Supports pricing power in duopoly.
2. Network Effects:
• Strength: Moderate. FedEx’s hub-and-spoke model benefits from higher volumes, improving route density and efficiency, particularly in Ground.
• Impact: Reinforces scale advantages but not a winner-takes-all dynamic.
3. Branding:
• Strength: Strong in Express, built on Fred Smith’s vision of overnight delivery and iconic marketing. Weaker in Ground and Freight, which are B2B-focused.
• Impact: Supports premium pricing in Express, though macro pressures limit its value.
4. Counter-Positioning:
• Strength: Strong in Ground, where FedEx’s non-unionized labor and focus on B2B/B2C balance contrast with UPS’s Amazon exposure and unionized labor.
• Impact: Allows FedEx to avoid low-margin Amazon business, enhancing profitability.
5. Cornered Resource:
• Strength: Moderate. FedEx’s Memphis hub and younger aircraft fleet (post-re-fleeting) are unique assets. Fred Smith’s strategic vision is a historical resource.
• Impact: Provides operational efficiency and long-term planning advantages.
6. Process Power:
• Strength: Strong in Freight, where pricing discipline drives >20% margins. Improving in Ground and Express via DRIVE and One FedEx.
• Impact: Enhances margins and operational efficiency, particularly in Freight.
7. Switching Costs:
• Strength: Moderate. Customers rely on FedEx’s reliability and network, but B2C is price-sensitive, and Express faces substitutes (e.g., boats).
• Impact: Supports customer retention in B2B and Freight, less so in B2C and Express.

Porter’s Five Forces Summary:

• New Entrants: Low threat due to high MES and capital requirements. Express faces more competition from niche players.
• Substitutes: Moderate threat in Express (boats, passenger jets). Low in Ground and Freight due to duopoly and consolidation.
• Supplier Power: Low. Fuel and vehicle suppliers have limited leverage due to FedEx’s scale.
• Buyer Power: Moderate. B2B clients value reliability, but B2C is price-sensitive. Diverse customer base reduces concentration risk.
• Industry Rivalry: High in Express (global competition), low in Ground (duopoly), and moderate in Freight (consolidated).

Strategic Logic

• CapEx Cycles: Historical bets on re-fleeting and Ground asset expansion were offensive, building scale and efficiency. Current moderation is defensive, preserving cash for shareholder returns.
• Economies of Scale: Achieved MES in Ground and Freight, creating cost advantages. Express’s global scale is less defensible due to macro pressures.
• Vertical Integration: Limited. FedEx focuses on midstream logistics, avoiding third-party logistics due to low margins and capital intensity.
• Horizontal Integration: Acquisitions (Caliber, Watkins) expanded scope. One FedEx consolidates operations, reducing redundancies.
• New Geos/Products: Express expanded globally (e.g., TNT acquisition), but challenges (cyberattack, integration) highlight risks. No major new markets planned.
• M&A: Historical successes (Caliber, Watkins) contrast with TNT’s challenges. Current focus is organic growth and cost optimization.

Market Overview and Valuation

• Market Size: U.S. trucking ($1 trillion) and global air freight ($150 billion). E-commerce (22% penetration) and B2B demand drive growth.
• Growth: ~4-5% nominal GDP, with Ground and Freight outperforming (6-7% price increases, volume above GDP). Express is flat.
• Competitive Landscape: Ground’s duopoly with UPS, Freight’s leadership in LTL, and Express’s global competition (DHL, UPS) define dynamics.
• Valuation:
• Current: Stock price ~$250, implying a P/E of ~12.5x next 12-month EPS ($20).
• Intrinsic: Estimated at $400/share, based on sum-of-the-parts (SOTP):
• Ground: $75 billion (13-14x EBITDA, ~20% P/E), reflecting duopoly and margin recovery.
• Freight: $25 billion (mid-teens EBITDA), below Old Dominion’s $40 billion due to scale differences.
• Express: $30 billion (~2/3 of revenue), aligned with DHL’s low P/E due to macro challenges.
• Peer Comparison: UPS trades at a similar P/E, but its Amazon exposure and labor costs justify a discount. Old Dominion’s premium (high teens EBITDA) reflects superior Freight margins.
• Upside: $30 EPS target in a few years implies a P/E of ~13.3x at $400, reasonable for a duopoly with FCF potential.
• Risks:
• Execution: One FedEx integration and DRIVE savings execution are critical.
• Macro: Oil price spikes, trade slowdowns, and geopolitical risks impact Express.
• Regulatory: Potential labor regulations could erode Ground’s cost advantage.
• Amazon: Wildcard risk of market disruption, though unlikely as a third competitor.

Key Takeaways and Unique Dynamics

1. Ground’s Dominance and Duopoly Advantage:
• Ground is FedEx’s profit engine (>50% of operating income), benefiting from a duopoly with UPS. Its 6-7% annual price increases and share gains from UPS drive revenue growth above GDP. The stabilization of B2B/B2C mix (50/50) and e-commerce penetration (22%) supports margin recovery to mid-teens, a critical driver of value.
• Unique Dynamic: Ground’s non-unionized labor contrasts with UPS’s Teamsters exposure (3.3% labor cost increase), providing a cost advantage. Avoiding Amazon’s low-margin business enhances profitability, a strategic counter-positioning move.
2. Freight’s Pricing Discipline:
• Freight’s >20% margins, driven by yield increases and industry consolidation (e.g., Yellow’s collapse), make it a high-return segment. Its disciplined pricing contrasts with historical bundling strategies, positioning FedEx as a leader in LTL.
• Unique Dynamic: Freight’s ability to maintain margins despite weak volume highlights process power, a competitive advantage over peers like Old Dominion (though smaller in scale).
3. Express’s Macro Challenges:
• Express, once FedEx’s iconic segment, now contributes only 20% of operating income at a 2% margin. Macro headwinds (declining free trade, fuel volatility, surcharge normalization) and competition from boats and passenger jets limit its growth.
• Unique Dynamic: Express’s low margin (2% vs. historical 7%) offers upside potential if macro conditions improve or DRIVE savings materialize, effectively providing “free” value at current valuations.
4. One FedEx Integration:
• The consolidation of Express and Ground (Freight remains separate) eliminates redundancies (e.g., multiple trucks in one area), targeting $4 billion in DRIVE savings (~5% of revenue). This enhances operating leverage and aligns FedEx’s 8-9% margin with UPS’s 14%.
• Unique Dynamic: Unlike past integrations (e.g., TNT’s challenges), One FedEx leverages existing infrastructure, reducing capital intensity and improving route density.
5. Capital Allocation Shift:
• Historically capital-intensive (re-fleeting, Ground asset growth), FedEx is now moderating CapEx to D&A levels, unlocking FCF in 2-3 years. This supports a 2% dividend yield and 3.5-4% buyback pace, a significant shift from Fred Smith’s reinvestment focus.
• Unique Dynamic: The transition to shareholder returns reflects confidence in undervaluation ($250 vs. $400 intrinsic value) and a maturing business model, contrasting with UPS’s higher Amazon exposure and labor costs.
6. Long-Term Thinking:
• Fred Smith’s strategic vision—evident in acquisitions (Caliber, Watkins) and long-horizon investments (e.g., 40-year aircraft assets)—has built a defensible network. Rejecting Amazon’s business and focusing on B2B profitability exemplify this adaptability.
• Unique Dynamic: FedEx’s ability to triple earnings over a decade despite volatility (oil spikes, trade crises) underscores its pricing power and market structure, a lesson in prioritizing long-term value over short-term noise.

Conclusion

FedEx’s business model is defined by its Ground-driven duopoly, Freight’s pricing discipline, and Express’s macro challenges, with the One FedEx initiative and DRIVE savings poised to unlock significant value. Ground’s recovery to mid-teen margins, Freight’s >20% margins, and moderating CapEx position FedEx for FCF generation and shareholder returns. Its duopoly with UPS, non-unionized labor, and strategic avoidance of Amazon’s business create a defensible moat, while Express’s low valuation offers upside potential. The company’s $400 intrinsic value (vs. $250 market price) reflects undervaluation, driven by Ground’s $75 billion valuation and Freight’s high margins. Risks include execution, macro headwinds, and regulatory changes, but FedEx’s pricing power and market structure mitigate these. The business exemplifies the power of adaptability, scale, and long-term thinking in a capital-intensive industry.