On Saturday afternoon, Spencer Patton, head of efforts to improve the number of contractors who pick up and deliver packages for FedEx Corp. (NYSE: FDX) ground delivery, will address a gathering of about 3,000 contractors in Las Vegas. Patton, who has warned of severe strains on FedEx Ground’s contractor network that will require the company to make major changes to address the problem, is expected to speak for more than an hour.
Satagura Atwala will not be there to hear it. The contractor, who goes by the last name “Singh,” will likely spend the weekend overseeing his California territory, which includes Riverside, Ontario, Mira Loma and Rancho Cucamonga. Atwal, which has been a contractor for FedEx Ground since 2005, is preparing to add nine trucks and six to seven delivery routes as part of its franchise expansion. He operates 60 to 65 trucks on approximately 60 routes.
Troy Fulsom will also not be in attendance. The Fresno, California-based contractor covers the city of Fresno and the fast-growing surrounding cities of Bryant and Madera. He operates 24 trucks with 25 drivers, four of whom are assistant managers of sorts. Fulsom said his volumes are high, though nothing like the 2020 pandemic. As traffic slowed the following year, Folsom said he reset his expectations, adjusting his operations to match changes in demand. Fulsom’s business is still growing and profitable and is being sold on a contractor model.
“I wouldn’t be able to live this lifestyle if it wasn’t for FedEx Ground,” said Fulsom, who started as a contractor in September 2009. He decided to skip this weekend’s event because “the subtext of the whole movement is don’t sit with me if I’m so lucky [as a contractor]Fulsom said. However, he added that he doesn’t blame Patton or others who share his troubling view of the relationship between FedEx Ground and its contractors.
Atwal and Fulsom are aware of media reports suggesting thousands of contractors are in such dire financial straits that they may not last a year without financial support from the division. They are also mindful of the burden placed on contractors by the sharp and rapid cost increases for almost everything. They also know that some contractors suffer and will quit, which happens at FedEx Ground even in the best of times.
But neither that nor the other will go anywhere. The model has proven itself over 25 years and in difficult times, they noted. Everyone made a lot of money when e-commerce shipping volumes skyrocketed during the pandemic. At the same time, fuel and equipment costs were low.
Part of the current problem, they argue, is that some contractors have failed to adjust to the reality that the parcel delivery boom periods of 2020 will last forever.
Today’s pain will eventually pass and contractors will regain some operational respite, Atwal said. Noting his recent expansion efforts, he said that “if I didn’t believe in the business, I wouldn’t be in it.”
A few years ago, when Amazon.com Inc. (NASDAQ: AMZN) was building its delivery network, a somewhat panicked colleague asked Atwal if he would switch to Amazon, whose driver contractor model is similar to that of FedEx Ground.
“That thought never crossed my mind,” Antwal said. “We have been doing this for more than 20 years. We didn’t just start.”
Both men decided to talk to FreightWaves in part because they were concerned that negative media coverage would affect the value of their franchises, which can be bought and sold in a niche aftermarket. Ironically, Patton, a 10-state contractor based out of Nashville, Tenn., is also a franchise broker whose ability to maximize revenue and transaction profits may be undermined by the negative publicity that largely stems from his efforts.
Look in the mirror
Neither Antwal nor Fuls like Patton’s proposal — which he has since downplayed — that FedEx Ground should increase payment to contractors on a per-stop and per-haul basis to offset rising costs. Instead, contractors should prepare for the realities of doing 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.
Atwal said that universal wage increases create a sort of moral hazard.
“If a company raises wages today, what’s to stop people from coming back tomorrow and asking for more?” he said. “Where is the end?”
Atwal added that FedEx Ground annually provides contractors with additional wages during the peak season to offset additional labor and equipment costs during the busiest time of the year.
Athwal and Fulsom are just two of the 6,000 contractors who work exclusively for FedEx Ground. Every contractor’s situation is unique, and the level of difficulty remains in the eye of the beholder. Just as one can find any number of contractors in financial difficulty, it is just as easy to find contractors like Atwal and Fulsom who recognize that the macro environment is hardly optimal but are doing well enough to keep it going.
At any given time in its quarter-century, FedEx Ground is estimated to employ about 10% of contractors dissatisfied with the status quo. Patton has heard talk that the percentage of contractors at risk could be as high as 35%.
One option for contractors is to renegotiate their contracts, which are usually 12 months, although some extend to 18 months. According to FedEx Ground, since January, about 10% of all agreements have been submitted for review. It does not say how many of those contracts were actually renegotiated.
Patton said FedEx Ground has rejected his repeated requests to renegotiate the contracts. Fulsom, on the other hand, was able to renegotiate his contract. He said his new deal, which took effect July 16, gives Fulsom additional buffers to offset its rising costs.
While FedEx Ground said it was willing to renegotiate with individual contractors, it would not discuss or bargain with third parties representing a contractor or group of contractors and acknowledged the cost pressures they face. At the same time, the company noted that over the past four years, contractors have doubled their annual revenue to $2.3 million on average.