On Saturday afternoon, Spencer Patton, the leader of an effort to improve the lot of contractors that pick up and deliver packages for FedEx Corp.’s (NYSE: FDX) ground-delivery unit, will speak before a gathering of about 3,000 contractors in Las Vegas. Patton, who has warned of major stresses on the FedEx Ground contractor network that will require the company to make major changes in order to resolve, is expected to talk for more than an hour.
Satagur Athwal won’t be there to hear it. The contractor, who goes by the surname of “Singh,” will likely spend the weekend overseeing his California-based territory, which encompasses Riverside, Ontario, Mira Loma and Rancho Cucamonga. Athwal, who has operated as a FedEx Ground contractor since 2005, is preparing to add nine trucks and six to seven delivery routes as part of an expansion of his franchise. He operates between 60 and 65 trucks over about 60 routes.
Troy Fulsom won’t be attending either. The Fresno, California-based contractor covers the city of Fresno and fast-growing adjacent towns of Bryant and Madera. He operates 24 trucks with 25 drivers, four of whom are assistant managers of sorts. Fulsom said his volumes are strong, though nothing like they were in the pandemic year of 2020. As traffic slowed the following year, Folsom said he reset his expectations, adjusting his operations to align with changes in demand. Fulsom’s business is still growing and profitable, and he is sold on the contractor model.
“There is no way I could have this lifestyle if it weren’t for FedEx Ground,” said Fulsom, who began as a contractor in September 2009. He chose to pass on this weekend’s event because the “undertones of the whole movement didn’t sit right with me when I have been so fortunate [as a contractor],” said Fulsom. He added, however, that he doesn’t fault Patton or others who share his alarmist view of the relationship between FedEx Ground and its contractors.
Rockie York, a Peoria, Illinois-based contractor who runs 36 trucks along 22 to 24 routes in the state, has a history with Patton. York became certified under a program established by Patton to train York’s drivers. York agrees with some of the points that Patton has raised. However, he strongly disagrees with the way Patton is going about it.
York said he’s particularly concerned about the possible formation of a 10-person committee to represent FedEx contractor interests. “I don’t want any third party getting between myself and my ability to discuss matters with the company,” said York, who has been a contractor since 2003.
He added that it is impossible for 10 contractors to speak for 6,000 independent businesses, each of whom has unique situations and characteristics. A better approach is for contractors take their concerns directly to the local terminal manager, and then escalate the matter if they don’t get satisfaction, he said.
York also took issue with Patton positioning himself as the leader of the crusade. While acknowledging that Patton is one of the largest contractors in the network, York wondered “how many people asked him to do this? I didn’t ask him.”
The three contractors interviewed said they are aware of media reports suggesting that thousands of contractors are in such dire financial shape they may not last the year without monetary support from the unit. They are also mindful of the burdens imposed on contractors by the sharply and rapidly escalating costs of just about everything. They also know some contractors are suffering and will throw in the towel, a phenomenon that occurs at FedEx Ground even during the best of times.
But none of the three said they are going anywhere. The model has proven itself over 25 years and during lean times, they pointed out. Everyone made a lot of money when e-commerce delivery volumes went through the roof during the pandemic. At the same time, fuel and equipment costs were low.
Part of the current problem, they contend, is some contractors failed to adjust to the reality that the boom times for parcel delivery in 2020 would extend into perpetuity.
The contractor model is as resilient today as it always has been, according to York. However, macroeconomic conditions have made things difficult, he said. “My business has struggled, and I’ve had to make adjustments,” said York, who renegotiated his contract a couple of months ago to account for an economic climate that had quickly become unfavorable.
Today’s pain will eventually pass, and contractors will regain some operating breathing room, Athwal said. Noting his recent expansion efforts, he said “if I didn’t believe in the business, I wouldn’t be doing this.”
“I haven’t agreed with everything FedEx Ground has done,” said York. “But I wouldn’t be contracting with them, and invested hundreds of thousands of dollars into this business, if I didn’t believe the company was making good decisions.”
Several years ago when Amazon.com Inc. (NASDAQ: AMZN) was building its delivery network, Athwal was asked by a somewhat panicked colleague if he would switch to Amazon, whose driver contractor model is similar to that of FedEx Ground’s.
“The thought never entered my mind,” Anthwal said. “We had been doing this for more than 20 years. We weren’t just starting out.”
The three men chose to talk to FreightWaves in part because they were concerned that the negative media coverage would impact the value of their franchises, which can be bought and sold in a niche aftermarket. Ironically, Patton, a contractor with a 10-state territory out of Nashville, Tennessee, is also a franchise broker whose ability to maximize revenue and profit on transactions could be impaired by adverse publicity largely stemming from his efforts.
“The problem is that (Patton) is under the misconception that” the situation is worse than it actually is, said York. The FedEx Ground model is “self-correcting,” York said. If contractors leave, service will suffer, and the unit will subsequently make it financially desirable for new contractors to step into the breach, he said.
Look in the mirror
None of the contractors support a proposal advanced by Patton–he has since backed away from it–that FedEx Ground should increase contractor pay on a per-stop and line-haul basis to help offset rising costs. Instead, contractors need to steel themselves for the realities of running a business and focus on how to operate more cost effectively, they said.
“You have to look in the mirror and ask yourself how and what you can do differently,” Fulsom said.
Athwal said across-the-board pay increases runs the risk of creating a moral hazard. “If the company increases the pay today, what stops people from going back tomorrow and asking for more?” he said. “Where’s the end?”
Athwal added that FedEx Ground provides contractors with annual peak season pay bumps to help offset the added costs of labor and equipment during the busiest period of the year.
Just as one could find any number of contractors in financial distress, it could be equally easy to encounter contractors like Athwal, Fulsom and York who acknowledge the macro environment is hardly optimal but are doing well enough to keep at it.
At any given time in FedEx Ground’s quarter century in business, it is believed around 10% of contractors are dissatisfied with the status quo. Patton has heard talk that the percentage of imperiled contractors could be as high as 35%.
One option for contractors is to renegotiate their contracts, which generally run for 12 months, though some extend up to 18 months. According to FedEx Ground, since January about 10% of all agreements have been submitted for consideration to be renegotiated. It did not provide details on how many of those contracts were actually renegotiated.
Patton said that FedEx Ground rebuffed his repeated requests to have his contracts renegotiated. Like York, Fulsom was able to renegotiate his contract. He said his new deal, which went into effect July 16, provides Fulsom with additional buffers to offset his rising costs.
While FedEx Ground said it is willing to renegotiate with individual contractors, it will not discuss or bargain with third parties representing a contractor or group of contractors and has acknowledged the cost pressures they face. At the same time, the company noted contractors, on average, have doubled their annual revenue to $2.3 million over the past four years.