FedEx Corp. (NYSE:FDX) plans to help its more than 5,500 U.S. ground delivery contractors achieve carbon-neutral operations by 2040 — assistance that the company is not automatically compelled to provide because the contractors are not FedEx employees.
In a brief statement, the Memphis, Tennessee-based company said on Friday that it will “collaborate” with its ground contractors, which are known as independent service providers (ISPs), to ensure that all pickups and deliveries are executed with electric vehicles within 20 years. FedEx said in the statement that it would “support the inclusion of electric vehicle technology” as part of the ISPs’ business plans. It did not specify what form such support would take.
An industry source said it is likely FedEx will fund the conversion by providing incremental subsidies to the ISPs when their contracts renew every two years. FedEx typically increases an ISP’s service requirements with each contract renewal, the source said.
FedEx operates more than 180,000 surface transport vehicles worldwide. Those include vehicles operated by FedEx Ground, the FedEx Express air and international unit, and the FedEx Freight LTL unit. As part of its carbon-neutral plan, all FedEx Express surface vehicle purchases will be electric by 2030. FedEx Express is company-owned and operated.
FedEx announced March 3 that it will operate a fully carbon-neutral global delivery network by 2040. As part of an initial $2 billion investment, FedEx will spend $100 million to establish the Center for Natural Carbon Capture at Yale University, the alma mater of Frederick W. Smith, FedEx’s founder, chairman and CEO. The center will be tasked with developing methods to extract and store carbon already in the atmosphere, an effort considered even more important — but more costly and complex — than preventing greenhouse gases from entering the atmosphere.
At FedEx Ground, the ISPs employ drivers, managers, helpers and other staff supporting FedEx Ground’s deliveries. On average, 80,000 vehicles are utilized each day to move parcels in business-to-business (B2B) and business-to-consumer (B2C) service. The unit also oversees FedEx’s last-mile deliveries that were once handled by the U.S. Postal Service under a Fedex service called SmartPost, but which have since been brought in-house.
FedEx, which has run the unit through driver contractors since it acquired the parent of Roadway Package System in 1997, began migrating to an ISP model about a decade ago amid costly legal battles over the employment classification of FedEx Ground’s drivers. During 2015 and 2016, FedEx settled multiple lawsuits involving hundreds of drivers who had argued that they performed functions of company employees yet were denied the normal benefits available to in-house workers. According to the source, FedEx spent about $1 billion in aggregate to settle the cases.
Today, the contractors operate with drivers on their payroll, creating a legal buffer between FedEx Ground and the drivers.