The FedEx Ground model is a low-margin business with little tolerance for spendthrift behavior. Yet for a business so margin-tight, the FedEx Corp. (NYSE: FDX) unit has always been a party to intermediaries touting expensive services such as the buying and selling of delivery routes, driver and driver contractor training, and ancillary consulting.
Now it appears that FedEx Ground wants to stop, or at least curb, the influence of outsiders. It has begun taking out ads (see below) urging prospective pickup and delivery driver contractors to work directly with FedEx Ground and to avoid the third parties.
The push by the company comes days after it unveiled a program designed to grade the performances of about 5,000 companies that contract with FedEx Ground to provide local pickups and deliveries. The grades, given out in the form of Olympic medals, will determine if contractors are given more lucrative work with the company or are winnowed out due to underperformance.
Gold medalists will have access to more high-margin opportunities, as will silver medalists, though to a lesser extent. However, bronze medalists could see their territories bid out to other contractors unless they improve their performance within three months after being classified as bronze performers.
FedEx contractors work exclusively for the company and are responsible for paying all expenses, as well as for hiring, firing and scheduling their drivers. Contractors get paid on a per-stop basis.
According to a person familiar with the situation, FedEx Ground wants to take more control of the end-to-end process with contractors instead of paying “kickbacks and commissions” to route brokers and trainers to do some of the work that could be done directly between the company and contractors.
“If FedEx Ground can improve contractor training processes, increase transparency, improve upon their volume forecasts, and lastly incorporate 360-degree feedback at the station level, which will hold station management and even package handling to much higher standards, there would be no need for these expensive consulting services,” said the person.
Other companies that work with driver contractors, such as Amazon.com Inc. (NASDAQ: AMZN) deal directly with the contractors and not with third parties, the person said.
The poster child for the FedEx Ground third-party model is Spencer Patton, who has built a mini-empire that includes driving, route consulting where he brokers agreements between route buyers and sellers, training, equipment leasing and tax services. Patton’s businesses continued to thrive even after FedEx Ground in August stripped him of his driving territory. Patton and FedEx Ground were at each other’s throats for most of 2022 after he pushed the company to boost its contractor payouts to offset higher cost inflation pressures.
In an e-mail Friday, Patton said the marketing push is not part of an effort to zero out businesses that connect buyers and sellers. “I think it’s actually targeting a process to allow [the company] to systematically remove the bottom 5-10% of its contractor workforce,” he said.
The new approach runs counter to how FedEx Ground has historically operated, said Patton. In the past, FedEx Ground grew organically with all of its contractors as long as a contractor wasn’t in breach of contract.
Patton likened the changes to the culture adopted at General Electric Co. in the 1980s and ’90s. During that time, Chairman and CEO Jack F. Welch each year routinely terminated underperforming employees, who accounted for about 10% of GE’s workforce. Many inside and outside GE argued that the ranking system, and the workforce reductions stemming from that, were developed and executed arbitrarily.
Patton said the parallels exist today at FedEx Ground.
“Under the new medals program, FedEx will be able to remove its bottom contractors even if they aren’t failing. It will also be able to say that ‘we aren’t going to allow contractors with XYZ medal status to grow their territory.’”
According to Patton, the parent doesn’t subject its employees to the same aggressive performance criteria as does the Ground unit. FedEx holds the ground unit’s contractors to a “very different standard” than employees elsewhere throughout the organization, he said.
Harold Eugene Johnson
At one time, FedEx Ground had a point system. After contracted service providers eventually accumulated too many points, they were automatically out. A few wised up enough to form a new corporation and start over. Others, incorporated each truck, to avoid a total loss. Never cease looking for ways around FedEx management, or lack thereof. The company can not operate without people and trucks to pull their loads. Seems to be the only way they have found to avoid being sued out existence, based on accidents.
Johnny Douhly
Fedex will be celebrating 50yrs in business this year. The company mimicking an Amazon Delivery model should speak volumes about Management and Engineering. Without getting to deep in weeds here, the truth is, the “Fred Smith” Fedex days are gone. Service, Technology, Equipment and Employee’s are all suffering. It’s sad to see really.
MyGround Support LLC
This article unfortunately reflects the ignorance of the author or on the reliance of poor sources of information. FedEx Ground has for years run ads and hosted a site whereby those interested in contracting can go directly to FedEx Ground and get a P&D or linehaul contracts. Opportunities are posted weekly.
There is nothing new here, those wishing to enter into the world of FedEx Ground contracting have never had to buy anything or use any of these so called Brokers.
Author, if you want to really know how FedEx Ground contracting works feel free to reach out to us and we’ll be happy to provide you correct information.
Frank Fuzi
I just want to know how did the united state postal service loose FedEx sounds like an inside Job that are government had a part in it contract everything out so they pay no benefits for driver’s is criminal they need to be taken apart piece by piece and given back to the united states’postal service.
Frank Bettig
I am an outsider looking in. This all sounds similar to the business plan of Lyft and Uber. The company treats contractors as employees without employee benefits so the company has ultimate control. By law and definition, that is not a sub contractor. The parent company, Fed Ex, uses PR to say they treat their contractors as contractors. Fed Ex takes advantage of sub-contractors by hiring the lowest bidder and then taking away as much as they can. They look at contractors as expendable if they are not happy being used. This all starts at the very top executives and board of directors. There is no understanding that eventually the company is hurt because they do Not care about contractors. Some day they will pay the consequences. How much does Uber and Lyft spend each year in legal costs? Drivers used to be paid 80% of the fare, now they are lucky to get 30% at the same time that fares have more than doubled because of close to no competition. Eventually there is a tipping point. I believe Lyft is almost there. Where is Fed Ex in the picture? Business will be hurt, they just don’t know it.
Brad C
No one cares about Spencer Patton anymore, move on Mark Solomon. Of course Patton doesn’t want anyone to know FedEx Ground actually provide territories to people, Patton’s business relies on the uneducated or worse “educated by Patton” that think you have to buy them
Sam
they took Patton’s route away when he complained they all were going broke and he was the biggest contractor in the country