Just a week ago, FedEx announced some big changes, ones that are designed to make them more competitive with rival UPS and make their overall business more profitable. But almost immediately these new FedEx structure changes became a topic of conversation for FedEx Ground contractors.
What do these structure changes mean in terms of package volume, pay, and responsibility? While there are few definitive answers out there at the moment, here’s what we do know.
FedEx Structure Changes to Combine Departments
Essentially, the new FedEx Structure changes combine FedEx Ground, FedEx Express, and some other FedEx services into a single organization under the FedEx brand. This is a similar model to the UPS strategy, where Express and Ground deliveries operate under the same umbrella.
“Often a Ground driver and an Express driver would stop at the same house, increasing inefficiency,” one driver told us. “It’s a perception issue at best.” The change is set to save the company some 4 billion dollars in operational costs.
“We are building a simplified experience for our customers, who are at the center of everything we do, so they can adapt to the market,” FedEx President and CEO Raj Subramaniam said. “This combination will allow us to provide customers with even greater value, offering the most advanced data-driven insights to help them make smarter decisions for their business.”
For route owners, this definitely means some significant changes are coming.
A New Hybrid Model
There have always been two different employment structures in FedEx: FedEx Freight and FedEx Ground route owners and operators are independent contractors. FedEx Express drivers are employees. This in part has to do with delivery windows and specific contract requirements.
When asked how he would handle the two different employment structures, Subramaniam said simply, “We’ll continue to use a hybrid model of contractors and employees for first and last-mile delivery services.”
What we do know is that the relatively new CEO is bullish on using contractors. Over the last year, more package volume has been shifted from Express drivers to FedEx Ground contractors. The restructuring is set to happen in tiers and is being tested in the Memphis market first, (close to FedEx headquarters).
Subramaniam stated the plan should be fully implemented by June 2024. What does this mean to FedEx Ground route owners?
FedEx Structure Changes and FedEx Ground Route Owners
Facts are few and speculation often runs rampant in these cases, but the simplest answer is, “It depends” We know that the use of contractors is less expensive for the company and adds a layer of efficiency. If Subramaniam’s stance so far continues, the hybrid method will rely heavily on contractors as a vital part of the delivery process.
As FedEx Ground route owners transition to the new normal, workflows may change. Satish Jindel, president of SJ Consulting, recently stated: “The rise of B2C traffic has accelerated a shift of domestic parcels to ground transport and a decline in premium express traffic, which led to the FedEx Ground unit generating higher operating margins than the Express division.”
The higher margins are one thing. Customer service is another. Both customers and shareholders should benefit, Jindel told The Loadstar. “[Customers should} get a four-hour window for deliveries, and within a few years FedEx is going to be able to cut it down to two hours.”
FedEx Ground contractors should likely expect more volume, and many may experience the need to expand their business.
Making FedEx More Profitable
One of the most vital parts of this plan is making FedEx overall more profitable. This profit not only impacts shareholders but customers and contractors as well. A more profitable company with higher volumes means more money to invest in support for contractors and drivers.
It’s likely that a more profitable company means more profit for contractors, and now may be a great time to get into the industry. If you are ready to explore the opportunity of owning a FedEx Ground route business of your own, feel free to contact us at Route Advisors anytime. And as this change develops, we’ll keep you updated with what we know when we know it.
It’s an exciting time to be part of these FedEx structure changes, and we can’t wait to see what’s next.