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.
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A reckoning is coming
Buyers beware! The relationship between FX and its contractors is the most invasive independent relationship you can possibly imagine. They are too big for their own good. Their network is in shambles. They push all the problems and complaints (including their own) onto the contractors. YOU ARE NOT INDEPENDENT. FX controls everything. 90% of new contractors that came on board during Covid are already out because they either sold, or failed and lost their contract, or are miserable, not making any money and actively trying to sell at a loss.
James
Get out now , fed ex will go under with their greed, ground truck look terrible ,dirty vans n dents all over them parts hanging with wires,drivers not in uniforms .FedEx doesn’t pay contractors enough money to pay their drivers.If drivers are paid salaries they work over 40 hours every week not worth it.Glad I sold last year ,now at Ups much better company
James
I sold a year ago rob’s comments r exactly right .The only time I made money were when we were RPS Company, they cared and helped you. When FedEx took over they controlled us stole money with their claims on accidents.My advice is to get out now don’t wait ,with fed ex at control you will go broke
anonymous
I find it funny that Patton complains about contractors and employees being held to different standards when contractors sued In a class action lawsuit to not be treated as if they were employees of FedEx Ground. It wouldn’t surprise me if he was part of those lawsuits.
John Q
One thing I’d like to point out as a previous package handler for FedEx Ground is that at a few stations there is this mindset that is pushed upon package handlers that is quite upsetting. Package handlers are told that there must be a separation between them and contractors/drivers. They are to simply stack packages on a dock and not work with contractors or drivers in anyway as it only benefits them. I disagreed with this because the end goal is having great customer service and the best way to achieve that is to work together regardless if someone is a FedEx Ground employee or a contractor. Each party plays a critical role in the “Purple Promise” and deliberately preventing teamwork leads to less efficiency and longer days for drivers. I must emphasize that this comment is concerning select stations and not FedEx Ground in its entirety. I hope the future holds a better teamwork dynamic where everyone benefits and are appreciated. Blame can’t be placed solely on contractors when there are so many other elements involved.
Preston
I had been a contractor for 5 years. The profits have become thin but my business is still viable. Most of the poor performers are contractors who been around forever but have never adopted new methods and still rely on old ways. Adapt or perish.
Rob
Anyone would be insane to contract with FedEx. I was a contractor for 13 years. FedEx controls everything… your income, which you hire, mandate things which rob you of your profit, etc. They threaten your contract at every turn. There new grading system is just another tool to punish contractors, control them and weed out who they don’t like. The contractors take all the risk and investment, then have the drug pulled out from under them all the time. I know… I learned the hard way, but got out before they broke me. Mr. Smith should be ashamed!
Ted Dossier
I had an option to “buy” contracts from the said broker. I chose to wait it out for FedEx to award me some routes on merit. The wait was painful but it saved my business. Had I purchased the routes at the bloated price, I would have lost my home. I don’t understand why people go to brokers. This is not like real estate.