FedEx Ground is putting its pickup and delivery contractors through an extensive performance-grading process that could result in some contractors losing their exclusive rights to bid on and negotiate contracts to serve routes, according to a well-placed source.
The U.S. ground delivery unit of FedEx Corp. (NYSE: FDX) has established three performance levels: gold, silver and bronze. Contractors who receive a “bronze” grade, which is the lowest level and in the company’s view reflects poor efficiency, poor customer service or both, will lose their once-exclusive right to negotiate for their routes and will be subject to open bidding for them, according to the source.
This means that those contractors can lose their routes if the company believes that another bidder has submitted a superior price-value proposition, the source said.
Those who are graded as “silver” will effectively be treated neutrally, with no punishments or rewards, the source said. It is unclear what rewards “gold” contractors will receive, the source said.
The medal-like evaluations, the first of their kind in FedEx Ground’s history, are currently being rolled out, according to the company. They are expected to be conducted at all of FedEx Ground’s 600 or so terminals.
Of FedEx Ground’s approximately 6,000 contractors, 5,000 are local pickup and delivery providers. The 1,000 contractors that perform line-haul services are not part of the new program, the source said.
In a statement, FedEx Ground said the process will play out in face-to-face district forums over the next month. The company acknowledged that it is “launching a new data-driven approach to communicating contract-specific results via an online dashboard.” The results can be used to identify opportunities as well as recognize service provider companies with superior results,” according to the statement.
The new approach is “part of how FedEx Ground is adapting its business to evolving market dynamics and customer needs, and has been informed by input from many service provider businesses,” according to the statement. There was no mention in the statement of specific rewards or penalties.
For years, FedEx Ground has conducted internal evaluations with contractors over their safety and service quality performance. The key component of the new program is an increased focus on efficiency, according to a contractor who asked to remain anonymous.
In a slow economy, the ability of contractors to operate efficiently has become paramount to the company, the contractor said. Even if a contractor scores high marks for safety and service, the new program could punish the contractor if its operations don’t meet the company’s efficiency standards, the contractor said.
FedEx Ground works with an exclusive network of driver contractors to pick up and deliver parcels across the country. Each contractor operates over routes awarded by the company and is paid on a per-stop basis. In return, each contractor is responsible for hiring and firing drivers, setting routes, and buying equipment and other resources.
FedEx Ground and its contractors were embroiled in controversy last year after some contractors warned that they might be forced out of business around the pivotal holiday season unless the company provided financial assistance to help contractors offset rapidly escalating costs during a period when delivery volumes had flattened out after a frenetic two years following the COVID-19 pandemic.
The story about the grading story was first reported by Bloomberg.
Robert Rosman
Most ignorant disrespectful drivers on the road look out we own the road
Thomas A Early
This is just another way for FedEx to exert control over “contractors” like they were employees of their company without having to actually be required to classify them as such.
John Walker
This is excellent news, I was unaware that FedEx outsourced package delivery. The ground guy in my area and in my son-in-law’s area provides poor service. The guy that delivers in my area his van is always dirty and missing half of the FedEx sign on the back.
Brian McFaden
I was a FedEx Ground contractor for many years but when they changed their business model, I could see the writing on the wall and sold my business. At the time, entrepreneurs outside of the FedEx realm were heavily investing in the model so I was able to capitalize and get out quickly. What they are proposing now was one of my biggest fears, that the new contract “negotiations” would become a way for FedEx to ween out the “overpaid” contractors and bring in guys that are much cheaper. This tier system may have some aspects to it that can be quantified but it will mostly be subjective based on the companies’ desire to continue doing business with certain contractors. In other words, if they like you, you stay; if they don’t, you go. I saw the favoritism first hand. If you’re a ‘yes’ man and you kiss up to FedEx management, you have a place with them, no matter how your performance matrix matches up with other contractors. They look at contractors as pieces of meat that can be moved in and out at their sole discretion. Forget the fact that these men and women have hundreds of thousands of dollars tied up in assets or that they have families or that they have employees that will have new bosses that will pay them less than their current employer. It doesn’t matter to them at all! So glad I got out when I did.
Bruce Scott
Maybe FedEx should say employees and not contractors. That is what it sounds like to me.
Joe Mama
FedEx’s continued inefficiency would be better addressed by investing in it’s failing infrastructure and reducing their top heavy management. Their only goal with these new requirements is to grind away at the ever dwindling profit margin of their contractors. FedEx’s inability to retain customers, maintain their network and drive new business is pushing them to cannibalize the contractors that make their massively inefficient network work.
Deb
This is a misdirected attempted to take away attention from the bloated engineer and lawyer driven company with high paid salaries that need to go away. Go after the guy making the company run. Literally contractors have went bankrupt and literally given their life for this company and now are buried and left their families behind. The company is poorly run and totally out touch The endless promises
Fad away
Neal Hicks
What is this middle school? This is the same type of system car insurance companies have enacted and in no way indicates the performance of a certain contractor or their drivers. Just another attempt by a failing company to justify their poor wages and worse employee engagement. FedEx should be ashamed. This “tier grading system” will be obsolete in a year and UPS will continue to strengthen their grasp on the market.