Thousands of FedEx Ground contractors are forming an alliance to press for higher per-stop pay to hedge against inflationary pressures ahead of Black Friday, one of the company's largest contractors wrote in a letter to FedEx executives Wednesday.
A 10-person committee will act as “a unified voice” for thousands of contractors within FedEx’s ground shipping arm, wrote Spencer Patton, founder and president of Ground contractor Patton Logistics. Patton, who is also head of contractor broker and consultancy Route Consultant, said the committee will be formed at an Aug. 20-21 event in Las Vegas for contractors.
"Know that my desired outcome here is not to unionize, it is instead to unify both FedEx Ground back with their contractors," Patton said in a video accompanying the letter.
The committee's initial focus will be on negotiating what Patton calls urgently needed changes for contractors by Nov. 25 — right as the peak holiday shipping season heats up. Patton called for pay increases for both pickup and delivery contractors ($0.50 more per stop) and linehaul contractors ($0.20 more per mile), with a reassessment after 12 months. The average rate for contractors is unclear, as it varies based on the routes they run.
If FedEx Ground were to reject the contractors’ requests, the committee will have the authority to make a recommended course of action to contractors, Patton said in an email Thursday. Patton didn’t specify what a potential action could entail.
“Let's hope to goodness that FedEx Ground does not push it to that point,” Patton said. “We've made a strong business case for compensation adjustments — let's focus on validating that.”
In a statement, FedEx said it has found "the most effective solutions are identified through direct engagement" with each contractor due to their unique characteristics.
"We recognize the shifting market dynamics and current economic conditions may pose new challenges for service provider businesses, and we remain committed to working with these businesses to create opportunities for continued success," the company said.
Among FedEx's different subsidiaries, Ground makes day-definite deliveries via contracted service providers, as opposed to in-house employees like at FedEx Express and rival UPS. More than 6,000 of these providers move volume for Ground using their respective fleets, and they earned an average revenue of $2.3 million last year, FedEx said.
Pay increases for Ground contractors are necessary to counter declining service levels and higher default rates that are placing the Ground network "in a significant state of unreported distress," Patton said in his letter.
"Not a single day passes without my phone ringing with the story of yet another contractor who is financially collapsing under the weight of these dramatic cost changes that have gone unaddressed by FedEx Ground in 2022," Patton said.
FedEx Ground contractor costs climb
|Percent of total revenue, 2019||Percent of total revenue, 2022|
SOURCE: Route Consultant internal datasets
Contractors are buckling under the weight of inflation for fuel, wages and trucks, according to Patton — three categories critical to their day-to-day operations. Contractors have had to spend more in these areas to keep up with the surge in home delivery volumes since the pandemic. Ground's average daily package volume grew 10.6% from fiscal year 2019 to 2022.
FedEx Ground offered a six-month contractor compensation increase in 2020 to help them adjust to the COVID-19 pandemic, according to Patton. The economic turmoil in the past 12 months, however, is much greater than what occurred that year and no financial adjustment has been made by the company, he said.
A new alliance between Ground contractors could help cushion the blow of inflation. In addition to the committee, contractors will use their combined purchasing power to acquire goods and services at lower costs. The group, known as the Route Consultant Purchasing Alliance, will also be announced at the August event, Patton said.
In a June investors meeting, FedEx Ground President and CEO John Smith said Ground is making sure financial agreements between the company and its contractors "appropriately reflect market dynamics."
Ground will reduce contractor costs "wherever we can" by leveraging the company's buying power, according to Smith. This includes introducing a third-party option for group healthcare to reduce service providers' out-of-pocket costs.
The investors meeting highlighted Ground's plans to boost profit margins and operational efficiencies under its parent company's Network 2.0 initiative, in which FedEx Express, Ground and Freight will collaborate on shipments more frequently. Part of the plan is to cut pickup and delivery routes in which companies overlap.