Contractor-mageddon unlikely at FedEx Ground on the way to climax

With two weeks to go before the Black Friday shopping frenzy broke out, it looks like the scenario of large-scale churns by cash-strapped FedEx ground delivery contractors — and the potential damage such churns such departures would do to the operations of the FedEx Corp. unit in the could have high season – will not occur.

Some profit-pressured contractors have walked off their routes, and not a few are unhappy with the reduced financial incentives FedEx (NYSE:FDX) is offering to allow it to hire drivers and upgrade fleets for peak periods. Broadly speaking, warnings that up to 35% of the unit’s 6,000 contractors will exit the network for financial reasons by the end of the year have not materialised.

“There’s no chance of a ‘Purple Friday,'” said a source close to the situation and speaking on condition of anonymity, referring to an informal schedule provided by Spencer Patton, a former FedEx Ground contractor , was set to ensure contractors had the wherewithal to stay afloat to provide holiday deliveries. Purple Friday is a nod to FedEx’s primary logo color used on its vehicles and aircraft.

Patton, who led a very public effort to highlight the financial perils many contractors face, was stripped of his routes at the end of August. The Trade Association for Logistics Professionals (TALP), which Patton formed to represent the needs of contractors, did not respond to FreightWaves’ request for comment.

On a conference call in mid-September, FedEx President and CEO Raj Subramaniam said that 96% of the unit’s contractors signed up for the Peak Incentive program, which at the time was ahead of the pace of last year. FedEx Ground’s service levels, which have struggled in recent quarters due to acute labor shortages, had returned to pre-pandemic levels by mid-September, Subramaniam said.

That doesn’t mean everything is rosy. FedEx, in general, is seeing even lower demand than it originally forecast in mid-September, when it previously announced underperforming first-quarter 2023 results, largely due to a sudden and unexpected drop in traffic at its air and international unit, FedEx Express. Last month, FedEx Ground told its contractors that domestic peak volumes would be weaker than expected.

As a result, peak payouts to contractors will be lower than in recent years. This, in turn, will place contractors under the obligation to fund any expansion plans during the peak season, the source said.

Many contractors have complaints about the state of the relationship. FedEx Ground executives have met with contractors across the country to discuss these concerns.

Under the FedEx Ground model, contractors receive compensation from the company to run their own businesses, including purchasing equipment and hiring and firing drivers. Contractors can sell their routes on the open market. Patton runs a company called Route Consultant that brokers the sale of delivery routes. FedEx Ground operates approximately 60,000 routes nationwide.

Another potential focus, but unlikely at peak times, is liability issues in the event of an accident. As part of a three-year cost-cutting plan, FedEx has announced it will have saved approximately $1.1 billion in operating expenses from FedEx Ground through fiscal 2025, which begins June 1, 2024. Some of those savings will result from what business leaders have dubbed “reduced liability costs.” The source said this could spark disputes over how much, or even if, the company will fund contractors should a driver be involved in an accident.

Low Profile

Patton has kept a low profile since being stripped of his routes. However, according to the source, his influence on the carrier-contractor relationship remains paramount. Patton made sure that FedEx Ground’s top management, who had a reputation for being too senior to contractors to be aware of their situation, knew what was going on outside. Patton “gave a voice to contractors” who may have felt their concerns were being ignored or neglected, the source said.

However, there were also those who thought Patton was in for himself and his myriad stores that sell to contractors. There were also questions about whether Patton spoke for a critical mass of contractors. In September, TALP sent out a survey to the contractor network asking whether contractors trust John Smith, CEO of FedEx Ground. 97% of respondents said they did not trust Smith. However, only 1,200 of the 6,000 contractors actually responded.

Patton’s influence can be felt in other ways. FedEx Ground floated the idea of ​​a “tiered” compensation system based on the “gold, silver and bronze” medal formula at the Olympics, according to the source. According to the source, medals would be awarded based on each contractor’s safety and efficiency performance. Gold medalists would receive richer compensation packages, while bronze medalists would be effectively singled out, the source said. A FedEx spokesman declined to comment.

The source said that if the initiative is successful with contractors, it would be implemented sometime in 2024. According to the source, Patton wasn’t the catalyst behind the venture.

“This should have been implemented a long time ago,” the source said.

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