Two weeks before the Black Friday shopping craze hits, it appears the scenario of large-scale defections by financially troubled FedEx Ground delivery driver contractors — and the potential damage such departures could have on the FedEx Corp. unit’s peak-season operations — will not come to pass.
Some profit-squeezed contractors have walked away from their routes, and more than a few are unhappy with lower levels of financial incentives offered by FedEx (NYSE: FDX) to allow it to hire drivers and upgrade fleets for the peak period. By and large, however, the warnings about as many as 35% of the unit’s 6,000 contractors dropping out of the network by the end of the year due to financial difficulties have not become reality.
“There is zero chance of a ‘Purple Friday,’” said a source close to the situation who spoke on condition of anonymity in referring to an informal timeline set by Spencer Patton, a former FedEx Ground contractor, to ensure contractors had the wherewithal to stay afloat to provide holiday deliveries. Purple Friday is a reference to FedEx’s primary logo color used on its vehicles and aircraft.
Patton, who led a very public effort to highlight the financial perils facing many contractors, was stripped of his routes in late August. The Trade Association for Logistics Professionals (TALP), which Patton established to represent the needs of contractors, did not respond to FreightWaves’ request for comment.
On a mid-September earnings call, FedEx President and CEO Raj Subramaniam said 96% of the unit’s contractors had signed on to the peak incentive program, which was ahead of last year’s pace at that time. FedEx Ground’s service levels, which have struggled over the past few quarters due to acute worker shortages, had reached pre-pandemic levels as of mid-September, Subramaniam said.
That doesn’t mean everything is rosy. FedEx, in general, is experiencing even lower demand than it originally forecasted in mid-September, when it preannounced subpar fiscal 2023 first-quarter results due largely to a sudden and unexpected drop in traffic at its FedEx Express air and international unit. Last month, FedEx Ground told its contractors that peak domestic volumes would be weaker than expected.
As a result, the peak incentive payouts to contractors will be less than in recent years. This, in turn, will put the onus on contractors to fund any peak-season expansion plans, the source said.
Many contractors have grievances over the state of the relationship. FedEx Ground executives have been meeting with contractors around the country to discuss those concerns.
Under the FedEx Ground model, contractors receive compensation from the company to run their own businesses, which includes buying equipment and hiring and firing drivers. Contractors can sell their routes on the open market. Patton runs a company called Route Consultant that brokers the sale of delivery routes. FedEx Ground operates about 60,000 routes nationwide.
Another potential flash point, though one unlikely to emerge during peak, concerns liability issues in the event of an accident. As part of a three-year cost-cutting plan, FedEx has said that by its 2025 fiscal year, which begins June 1, 2024, it plans to have shaved about $1.1 billion in operating expenses from FedEx Ground. Part of those savings will come from what company executives called “reduced liability costs.” The source said this could trigger disputes over how much, or even if, the company will provide financial support to contractors in the event a driver is involved in an accident.
Low profile
Patton has kept a low profile since he was stripped of his routes. Yet his impact on the carrier-contractor relationship remains front and center, according to the source. Patton ensured that top management at FedEx Ground, which has had the reputation for being too far above the contractors to be aware of their situations, knew what was going on out in the field. Patton “gave a voice to contractors” who may have felt their concerns were being ignored or given short shrift, the source said.
There were also those, however, who thought Patton was in it for himself and his myriad of businesses that sell to contractors. There were also questions over whether Patton was speaking for a critical mass of contractors. In September, TALP mailed a survey to the contractor network with the central question being if contractors had confidence in John Smith, FedEx Ground’s CEO. Of those who responded, 97% said they had no confidence in Smith. However, only 1,200 of the 6,000 contractors actually responded.
Patton’s influence may be felt in other ways. FedEx Ground has floated the idea of a “tiered” compensation system based on the “gold, silver and bronze” Olympic Games medal formula, according to the source. Medals would be awarded based on each contractor’s safety and efficiency performances, according to the source. Gold medalists would receive richer compensation packages, while bronze medalists would be effectively weeded out, the source said. A FedEx spokesperson declined comment.
The source said the initiative, if it passes muster with contractors, would be implemented sometime in 2024. According to the source, Patton was not the catalyst behind the endeavor.
“This should have been implemented a long time ago,” the source said.
Jack Lawrence Smith
FedEx freight is hurting right now. Just slide them over to ground. Better drivers anyway.
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I have been a contractor for over 11 years now. It has never been this bad. FedEx is urging contractors to pursue ERC credits to stay in business. Trust in Fedex is gone, money has dried out and demands increased. We have been negotiated down using density as a tool but now that density is gone Fedex doesn’t care. Efficiency can not be achieved if you can’t pay for proper training and equipment, safety suffers since we are forced to hire anyone willing to work for low pay. As soon as I receive my erc credit I’m out just like many others. FedEx has devalued our business and you can’t even sell them on an open market any more.
Lisa Scott
The whole company is a joke and needs to realize that humans are not robots. FedEx Ground has unrealistic business plan that needs to change now. Coming from an Operation Manager they make you fail you can never win and the numbers are always off. If the CEO would listen to the PH, Ops Manager, QA and Drivers they would know what works and what doesn’t. They rip people off fire good hard workers and promote ph, P&D who they know is ripping the company off. They make people part timers Force them to work off the clock. People get hurt the company covers it up and always finds a way out. I could go on but they always win.
Until then the horrible company will continue!
Delivery Guy
It’s sad and I’m sure many delivery companies follow similar Methods!!
It’s not about what you did but what you can do for me now !
What the public doesn’t see is the stress and pressures felt and put on delivery drivers daily by there companies!
Goals and incentives are great but also come at cost !
Corporate greed off the back of hard working people!
Profits over people !!!!!!
Rich
Drivers or other people that do manual labor should never be salaried employees. Labor is hourly, management is salary. These drivers are being made to do 12 hours worth of work, possibly more, for 8 hours worth of pay. This should be illegal!
Jean Grant
FedEx is a horrible place for contractors, one of the worse business models around! Financial incentives never cover your cost and the peak season incentive program is a joke!