Recently, reports have come out about FedEx’s dispute with Spencer Patton, one of its independent service providers (ISPs). On Saturday, August 27, 2022. FreightWaves reported that FedEx had cut ties with the contractor. Patton was FedEx’s largest ISP, and oversaw a network of 275 trucks and 225 employees. Patton says that FedEx is bullying and silencing their contractors. He warns that many are going to have to shut down if they continue to operate under their current contract with FedEx. Patton threatened to shut down his routes by November 25, 2022 if the terms of his contracts with FedEx were not adjusted. FedEx in turn, has terminated their agreement with Patton. They have also sued him, arguing that he is making misleading claims.
Notably, Patton is also the owner of Route Consultant. Route Consultant brokers FedEx routes and provides educational and consultative services for FedEx and Amazon independent contractors. Patton is advising other ISP’s to renegotiate their agreements with FedEx. On his website, he provides a free template for making the business case to do so. In this article, we will discuss the context for the dispute and what it might mean going forward.
When FedEx was founded in 1971 by Fred Smith, it initially focused exclusively on shipping via air (express shipments). FedEx expanded to ground services in the 1990’s by purchasing Roadway Package System (RPS). They rebranded RPS as FedEx Ground in 2000. The introduction of a ground service option was done to remain competitive with UPS which was founded in 1907, who had begun as a ground shipping provider. They introduced shipping by air in 1953 and introduced Next Day Air in 1985.
FedEx and UPS provide many similar services but the way they structure their business is very different. UPS’s has its own employees deliver its ground shipments (outside of very rural areas) while FedEx delivers its ground shipments via a network of independent service providers. In total, there are over 6,000 small businesses who contract with FedEx to deliver FedEx’s ground packages. This is in contrast to FedEx air packages which FedEx delivers via its own employees (even the delivery to the final location, which is done by truck, is done by FedEx employees). One result is that as of this article (8/2022) FedEx ground and air packages are not combined into a single delivery. (Factors such as how the different department are governed have played a role in maintaining this structure.) This distinction is why you will see trucks that specify “FedEx Ground” or “FedEx Express” but will not see this distinction on UPS trucks.
While FedEx generally negotiates its agreements with individual contractors, conversations with people familiar with the agreements identified some of the elements of the contract structure:
To this point, the carriers have responded in a number of ways. Both carriers apply Residential Delivery Surcharges to shipments which are in the $5 range depending on the carrier and service but can be negotiated. To this point, this charge does not remotely cover the efficiency losses that take place in the delivery. UPS often will provide different rates from ground commercial and ground residential, but again, this does not make up for the difference in costs.
It is not immediately clear why the carriers have not increased residential delivery rates to mirror their costs. Speaking to former FedEx and UPS employees, a number of explanations were raised:
Everyone involved in the discussions agreed that there will likely be both short-term and long-term implications. Some of the points raised include:
The clash between FedEx and Spencer Patton is still at its early stages, as FedEx cut tied with Patton and has sued him while Patton’s company, Route Consultants meanwhile, recently hosted a conference with thousands of FedEx Ground contractors, industry analysts and others in attendance where he called on FedEx to end Sunday delivery and pushed back on recent contractual changes among other issues. The local impact on Patton remains unclear. We may see other FedEx contractors speaking up. More likely, it will push other contractors to open a private negotiation with FedEx about their terms, which would not cause the public uproar, but will likely result in higher prices of customers across the board, with an emphasis on those in eCommerce and B2C.
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