FedEx Ground Contractor Dispute: What Now?

He walked out on stage to thunderous applause and through a cloud of smoke that hadn’t yet cleared from the Jabbawockeez dance performance moments earlier. It was a Tony Robbins moment. Indeed, Spencer Patton is the Tony Robbins of FedEx Ground ISPs.

Patton had a message for the 4,000 attendees of the Route Consultant Contractor Expo & Party — his party — in Las Vegas Aug. 20-21. As the largest of FedEx Ground’s ISPs, or independent service providers, he bleeds FedEx purple, and the success of FedEx corporate and that of its ISPs are inextricably tied together. But inflation and the strain on the supply chain have driven up costs to the point that the majority of the 6,000 ISPs are no longer operating at a profit, and that the ISP network is at risk of collapse.

As those ISPs are under contract with FedEx corporate, they’re beholden to FedEx’s contracted rates to deliver the packages. And those rates, according to Patton and ISPs I spoke to at the event, have not kept up with inflation. What could be done? Patton had a plan.

While Patton was onstage, the digital screen behind him lit up with #PurpleFriday. Patton said on Nov. 25, Black Friday, that the operational strains of peak season will force him — and likely many more ISPs — to shut down and stop delivering packages. This could all be avoided if FedEx Ground came to the negotiating table, he said.

#PurpleFriday Looms

At the beginning of the pandemic, when deliveries of everything exploded, it was good to be an ISP. Gas was cheap, the labor pool was large, and vans were waiting for buyers at good prices. Even better, it became clear that America would be comfortable with online purchases and deliveries even after the health scare subsided.

But when the economy roared back, gas prices spiked, the semiconductor chip shortage took hold, there was a seismic shift in the labor market, and vehicles — particularly cargo vans — became harder to get than a Cabbage Patch Doll at Christmas 1983.

Fedex’s Sunday deliveries, instituted in January 2020, dragged down profits further. With fewer deliveries on Sundays, operational costs are higher per package and many driver candidates don’t want to work on Sundays, shrinking the labor pool.

What rankled Patton and the ISP network even more, in response to high pump prices FedEx instituted a fuel surcharge that was passed on to customers, but its contractors didn’t get a cut.

FedEx Ground has set up its relationship with ISPs to negotiate contract terms individually, and it forbids representation by a person or group to negotiate on behalf of the ISPs. As cumbersome as that seems, it’s easy to understand why FedEx wouldn’t want collective bargaining. “I wouldn’t call it a negotiation,” one contractor said at the event. “It’s ‘Here’s what you’re going to get.’”

Onstage, Patton took pains to state that he was only representing his own business regarding the potential for a Black Friday shutdown, and that his fellow contractors “would make their own independent business decisions.”

But what are the legal ramifications of flashing #PurpleFriday and explaining its intentions to 4,000 at a convention, if not to rally the troops? The ISPs are in breach of contract when they willfully stop delivering packages. Patton was, like Tony Robbins, asking them to fire walk with him.

In the eyes of FedEx Ground, Patton did cross the line at that event. Five days after the expo, FedEx terminated Patton Logistics’ routes and filed a lawsuit against Route Consultant. For the moment, FedEx Ground has muted the ISP community’s only advocate. Or has it?

An Exploding Fleet Market

In a larger sense, a subsection of the fleet market — delivery contractors — is still exploding in front of our eyes. Patton founded Route Consultant in 2017 and started the expo a year later. The event grew from a few dozen ISPs in the first year to 4,000 crammed into the convention area of Paris Las Vegas in 2022. Three quarters of the attendees were contractors — half of the U.S. market — while the rest were vendors, along with a small contingent of industry watchers.

The market for delivery contractors also includes Amazon’s 3,000 global DSPs (delivery service partners). At DHL, about 60% of its deliveries are made by contractors. Both U.S. Postal Service and UPS use smaller percentages of contractors. With 100,000 vehicles, FedEx Ground’s network is the biggest. All packages delivered by FedEx Ground are done through contractors.

Patton ran 225 routes in 10 states using 275 vehicles. Most ISPs are small fleets, operating 10 to 25 vehicles, though some 200 to 300 ISPs have more than 100 units. They run mostly step vans, with some cargo van use along with cutaways with delivery bodies. About 20% of the operators in the network are linehaul, delivering terminal to terminal with tractor trailers.

The delivery contractor industry didn’t yet even have an association — until Patton announced the formation of one at this event. The Trade Association for Logistics Professionals (TALP) is presently soliciting nominations for board members. Membership is open to contractors in other companies’ networks.

According to Patton, FedEx is tolerating the association and is allowing ISPs to individually make the choice to join. Yet TALP’s mandate could get messy with corporate. FedEx surely won’t tolerate collective contract negotiations. As trade associations also function as industry advocates by lobbying governmental bodies, would TALP be able to leverage politicians to its demands with corporate?

The FedEx ISPs spend $15 billion annually to run their businesses, including purchasing and maintaining those 100,000 vehicles. And yet, just as they negotiate individually with corporate, they have to individually negotiate purchases of goods and services for their operations.

That is changing too, as Patton also announced the Route Consultant Purchasing Alliance (RCPA) at the event. Members of RCPA can sign up for a fuel card with substantial per-gallon discounts, a lease program with favorable terms, breaks on health insurance, and other benefits.

With Patton effectively barred from the business at this point, can he hand off the reins of TALP and RCPA to another motivated leader?

Late breaking: Patton is indeed continuing the fight through TALP, issuing a statement on Sept. 6 that the association is sending a survey to ISPs regarding a vote of no confidence in John Smith, the CEO of FedEx Ground.

What Happens to the Movement?

Where do Spencer Patton, the FedEx contractors, and the movement go from here?

Patton could countersue FedEx Ground for dropping his routes without cause. From the outside looking in, FedEx designed the contract with ISPs to give corporate a lot of leeway regarding establishment of cause for termination.

He may actually have a better shot fighting FedEx’s lawsuit against his consultancy, which claims he disparaged FedEx Ground “through a series of alleged false and misleading statements about its commercial activities” and he’s only persuading ISPs to renegotiate their deals “as a way to drive business to Route Consultant.”

It will be interesting to see how FedEx argues those “false” statements in court and whether a judge or jury will award monetary damages to FedEx that are taken from a contractor’s business that was already ruined.

Will #PurpleFriday come to pass?

At the event, a few ISPs wore #PurpleFriday t-shirts handed out by Route Consultant, though in conversation they were hard to gauge on whether they’d follow Patton and shut down. With their leader sidelined and the swiftness in which FedEx Ground announced that his routes are already covered, it appears the initiative doesn’t have traction.

9What was equally as interesting at the event was the lack of FedEx branding anywhere, particularly on the shirts and clothing of ISPs.)

What Happens to the ISPs?

The top challenges facing delivery fleets — fuel, maintenance, and labor costs, and supply-chain delays of vehicles and parts — aren’t going away soon. Vehicle prices and availability aren’t likely ease until 2024. As far driver’s wages, they can’t get much lower. Right now, more than 60% leave after the first year.

Fuel prices will soften but aren’t likely to return to pre-pandemic levels. At the expo, this was the prognostication of John Norris, economist for Oakworth Capital Bank, who said that drilling for oil isn’t the issue, it’s refining the oil — and the U.S. doesn’t have the appetite to build the needed refineries on a massive scale.

The ISPs are operating in a unique environment in which they have some leeway to cut costs but no ability to raise their prices. This condition was certainly exacerbated by the extraordinary conditions arising post-pandemic. Their financial welfare is dependent on that FedEx Ground contract. But if they’re getting squeezed by inflation and corporate, what recourse do they have? FedEx has contingencies on individual routes and leaving the contract to start a new career is not a viable option.

Meanwhile, FedEx Ground is under tremendous pressure to widen profit margins. The company is targeting a 10% efficiency gain in its pickup and delivery (P&D) routes by 2027. FedEx expects the Ground market to continue its 8.5% compound annual growth through 2026 but understands the contraction in the labor market’s impact on profits. The company is unlikely to discontinue Sunday deliveries, as they see it as an advantage over UPS, which doesn’t deliver on Sunday.

Even if Patton legally wins his routes back or the right to operate his consultancy, there is so much acrimony with corporate right now it’s hard to fathom that FedEx would even begin a new dialogue with him.

But Patton is still the guy for this group of 6,000 ISPs. Why? In a power vacuum between FedEx corporate and the ISPs, he stepped in to understand their issues in ways that other folks that matter don’t. And he’s offering solutions.

At the event, he got multiple standing ovations. He was able to get motivational on the Tony Robbins level. He tied in the Vegas pool culture with a parable from the Bible about Jesus healing a man at the Pool of Bethesda. He even served up Al Pacino’s famous football coach speech to his players in the movie “Any Given Sunday.”

“Now I think you’re going to see a guy who will go that inch with you. You’re going to see a guy who will sacrifice himself for this team because he knows when it comes down to it, you’re going to do the same for him. That’s a team, gentlemen. And either we heal now as a team, or we will die as individuals. That’s football, guys. That’s all it is. Now, what are you going to do?”

At this point, it’s up to the ISPs.