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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Tim
Please people look at FedEx Corp. since Raj has taken the helm. Are things better or worse?
Dave
As a person who was a “last mile” driver working under a contractor for this company you learn real quick the contractors have no real say in pretty much anything and FedEx pulls all the strings as if the contractors are there to just take the blame and financial burden when and if something goes wrong either with a driver or with the trucks. Regardless of what this says you go through a FedEx background check and take random drug test not appointed by d.o.t. or your contractor but by FedEx in their office in the terminal even though their actual employees using their machinery and “handling/throwing the packages do not get tested and get healthcare/ benefits. You are required to do what FedEx says and although it seems like you actually work for them you as a driver/contractor reap none of the benefits (literally no benefits) ie. Healthcare,retirement etc. Training? Here was my training.. I showed up with a driver’s licence after the FedEx background check and the very next day was in a contractors truck blasted with FedEx logos as if they own and maintain it delivering packages wearing a FedEx uniform as if I was an employee representing FedEx. You do something right and FedEx will get the credit and look good do something wrong and the scapegoat/ contractor takes the blame and gets fined for it. Great business model on a one way street.
Tim
If FedEx Ground continues on the current path, the end is eminent. The actual corruption within the management ranks is running rampant. I wish someone would truly divulge all of what is going on within hubs, and the ivory towers. The problem is that you cannot sustain the army of corporate attorneys. The 5,000 plus contractors are currently in a world of financial destruction. They cannot retaliate of fear of reprisal from the corrupt management machine.
Now let’s discuss Raj, how in the world did he become top man. The guy ran FedEx Express and yet he didn’t see what was about to happen with the global economy. The board of directors really need to call for his exit. This man is running the brand into the ground.
People, please take a look at what FedEx use to be and look at what people think of FedEx today. It is not just a Ground issue, this is the FedEx Corp. issue.
KF
In fedex you can go and get in a wreck and still have your job. Deliver something expensive to the wrong person you still have your job. But comment on a Facebook post from a company you buy from outside of work that said company (chewy) goes to your personal profile figures out you work for fedex ground and then fedex DQ’s you. Over a comment, but fedex ground and Spencer are a joke fedex is a joke and they honestly don’t care for the fedex ground employees. No matter what they say they are going to to or changes its still going to be a bad company
Ed
Contracting with FedEx Ground is an actual turbulent task. Local management personnel are not trained in the simplest tasks that contractors do on a day-to-day basis. Their training consists of treating the contractor and or their management staff as if they are not knowledgeable.
If you believe FedEx Ground is for you, please do your research first. Buyer beware!!!!!
Moose
Here is problem with this article, it depict fedex and the contractor as partners. However, that us the farthest thing from the truth. The contractors are paid less then $2 a stop and are instructed by personal that have never done our job, on how to do our job, because of flow charts, power points and whatever else they create in order to justify why they can’t pay more, but only in an “emergency ” they been known to pay up to $5 astop to organizations that have no ties or commitment to fedex, while looking at their contract services and going it’s ok, it’ll be fine.
Sonny Ali
Why is this any different than any other company of similar size? Amazon acts and behave the same way. If you are government contracter, you live through whatever the government standards are. Same thing with TJX or Walmart.
I agree that companies such as Amazon changing metrics or standards during contact period is jot fair! But as a contracter you signed up for that and agreed. If you agreed, why are you complaining?
I still believe that these contracts in logistics are still better than going solo or through freight brokers or starting your own last mile. You can make a good living and have growth opportunities if you are smart business man/woman and focused on your bottom line and not just of amazon/fedex/xyz metrics.
Just my 2 cents.
Pauline
Patton needs to decide what is his pitch. First it was contingency, then it was no contingency, then it was franchisee, now he wants contractors to be treated like employees? I want to smoke what he smokes.