FedEx Ground faces off with its contractors
FedEx Ground is facing an uprising by the contractors that provide its delivery and linehaul operations. The hard-pressed contractors have a number of grievances and an articulate, media-savvy leader who has orchestrated what could be a showdown in November.
In an hour-and-a-half speech on Aug. 20 at a Las Vegas conference of FedEx Ground contractors, Spencer Patton enumerated the problems he and others are facing. As a FedEx Ground contractor, Patton employs 225 drivers and delivers packages in parts of 10 states. His company, called Route Consultant, based in Brentwood, Tenn., is also a broker for the FedEx Ground routes that contractors have to buy.
Patton’s Las Vegas audience didn’t exactly carry him off on their shoulders, but they applauded his remarks, especially when he was critical of FedEx Ground.
Huge profits, starving contractors
FedEx Ground needs to provide financial relief for many of its contractors, something the company is refusing to do, Patton said. Most contractors are small business owners, many with just 10-25 employees. They have been overwhelmed by recent price increases, especially for fuel.
Patton claims Pittsburgh-based FedEx has posted a 30% profit increase even as contractor profits shrank or vanished.
Much of the increase came from passing fuel surcharges on to customers while withholding some from its contractors, who actually pay for the fuel, Patton said. So far, FedEx has refused to reveal how much fuel surcharge revenue it retains.
“FedEx Ground has been unwilling to address the dramatic cost changes in 2022, putting the entire network in peril,” Patton recently told Fox Business. He has told other outlets that FedEx Ground’s contractor business model is collapsing.
Patton knows how to get good publicity. Besides Fox Business, his campaign for change at FedEx Ground has been covered by other major business media, including The Wall Street Journal. FedEx has gotten comparatively little press on its side of the issue.
FedEx is unhappy with Patton to say the least. A few weeks ago, when Patton announced formation of a trade group to represent FedEx Ground contractors, FedEx Ground President and CEO John Smith sensed something like a union in the making. According to Patton, Smith sent a letter stating, “any effort by service providers to negotiate financial terms as a group is a breach of the contract with FedEx Ground.” A threat is implied, if not defined.
Not Black Friday, but Purple Friday
At the Las Vegas conference, Patton responded with a more specific threat of his own. He said his FedEx Ground contracting business is in such bad financial shape that without help from FedEx it will cease operations on Friday, Nov.25 – the famous shopping day after Thanksgiving often called Black Friday. In a reference to FedEx Ground’s logo, Patton is calling it Purple Friday. In his speech, he hinted that other contractors should consider doing something themselves. Though Patton would probably never use the word strike, he seemed to be suggesting some kind of action.
Patton also encouraged contractors to withhold what is called contingency help. Contingencies at FedEx Freight are instances in which one contractor is asked to cover for another who for one reason or another cannot make deliveries or perform linehaul. FedEx pays a premium for contingency work, even making millionaires of some contractors, Patton conceded.
Of course, FedEx Ground would need contingency help to cover Patton’s routes should they stop doing business with him. But that might not be easy. Even if he no longer delivers FedEx Ground packages, Patton may still have a relationship with the company.
In his speech, Patton introduced the Route Consultant Purchasing Alliance, a buying cooperative intended to reduce costs for FedEx Ground contractors. Program participants include Bridgestone Tire, a health insurance provider, a truck leasing company, and a company that helps contractors apply for federal tax credits. The centerpiece is the self-titled RCPA fuel card, with discounts of from 10 to 50 cents per gallon.
The Amazon effect
Contractor discontent has been brewing for a while. What is now FedEx Ground began in 1985 as Roadway Package Service, better known as RPS, which used a contractor-only model to lower driver pay and eliminate benefits altogether. That enabled RPS to low-ball rates and cut into the business of UPS, among others. FedEx, an air-freight carrier at the time, saw an opportunity. They bought RPS in 2000 and rebranded it FedEx Ground.
For a long time, FedEx Ground contractors did well, even if the drivers they hired did not. Contracts were more lucrative in the early years, when most shipments were from one business to another, and drivers often delivered more than one shipment at a stop. There were relatively few residential deliveries then.
That changed as Amazon and other online retailers attracted more shoppers. FedEx Ground handled more and more residential deliveries, which tend to be farther apart and usually only one package per stop.
That meant contractors couldn’t deliver as many packages a day. Then in 2019, FedEx Ground inaugurated Sunday delivery service. Sunday operations have been an unprofitable, chaotic disaster for contractors, according to Patton.
Contractors also complain about poor performance at FedEx Ground terminals where their trucks are loaded. Workers there are not properly scanning and loading packages leading to departure delays and longer days for drivers, he said.
Patton has suggested that FedEx Ground’s contractor model should be changed to a franchise model. That would require more disclosures from FedEx and give franchisees at least a bit more power.
Showdown
So now there is a clock ticking – at least Patton’s clock. A showdown is shaping up, but my guess is that a shootout is unlikely. It’s more likely that FedEx Ground will move to renegotiate individual contracts to provide some relief. That would drain support for Patton before Purple Friday. FedEx Ground, which usually raises rates on an annual basis, could conceivably impose a special midyear hike. The last rate increase of 5.9% took effect on January 1.
Meanwhile, FedEx has to deal with the force that is Spencer Patton. If they can’t be rid of him altogether, they could appoint him to a FedEx board or a part-time consulting position – maybe to work on the very issues he has raised. It has been done many before by other companies.
Unfortunately, whatever happens to Patton and whether the contractors get a better deal or not, the drivers who work for them will have little to say about it and will probably gain little if anything at all. LL
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