A former high-profile contractor said FedEx Ground, the ground delivery unit of FedEx Corp., (NYSE: FDX) must address the expected widening wage and benefit disparity between UPS Inc. (NYSE: UPS) drivers and those in the unit’s network if contractors are expected to attract and retain qualified drivers.
Spencer Patton, who had played a prominent role advocating for 6,000 FedEx Ground contractors until a legal spat last summer led the company to revoke his operating routes, said there has already been 30% to 40% turnover among FedEx Ground drivers in the past 18 months. This was long before a tentative contract between UPS and the Teamsters union agreed to late last month revealed significant wage increases for UPS drivers.
If the five-year contract is ratified — rank-and-file voting ends Aug. 22 — full-time UPS drivers could earn as much as $49 an hour, while part-time drivers would see their wages bumped to between $21 and $23 an hour. All 340,000 Teamster members would get a $2.75 an hour wage increase in the contract’s first year.
By contrast, nonunion FedEx Ground drivers make between $20 and $25 an hour, depending on their tenure and geography, according to Patton. Only about 20% of drivers have benefits, he said, and amenities such as air-conditioned vehicles are hit or miss. “Some contractors provide them, others don’t,” he said.
The wage situation sometimes requires contractors to hire a caliber of driver they might otherwise not consider unless they needed people to get behind the wheel, Patton said.
Patton, who still wields a fair amount of influence among FedEx contractors, said no issue in the past five years has sparked as much interest among the contractor network as the UPS-Teamster contract fight. He said that it was the main topic of conversation at the annual FedEx contractor expo held 10 days ago in Las Vegas and sponsored by Patton’s firm, Route Consultant.
Unlike UPS drivers, who are company employees, FedEx Ground drivers are employed by independent contractors who work directly with the company. The lower-cost FedEx Ground model has been instrumental in FedEx becoming a force in ground delivery since it entered the business in 1998. It is expected to be even more pivotal as FedEx moves to integrate its FedEx Ground and Fedex Express delivery businesses.
FedEx controls just under 15% of the combined total business-to-business (B2B) and business-to-consumer (B2C) volumes, according to data from ShipMatrix, a consultancy.
Compensation bump
Patton said that contractors, whose budgets are dependent on the compensation each receives from the FedEx unit, should receive at least 15% more than they currently get. A $30 base wage would be a good level for the unit to attract drivers who could reliably service its territories and compete with UPS, he said.
FedEx Ground has not taken steps to remedy the problem, said Patton, who has had no contact with the unit since he was stripped of his routes. FedEx also sued Patton last summer on grounds that his comments were damaging its brand and reputation. In March, a federal court dismissed all nine counts against Route Consultant, with the ruling favorable to Patton’s constitutionally protected free speech claims.
In a statement, FedEx Ground said it was “not involved in service providers’ decisions related to compensation or other terms and conditions of employment of these independent businesses. However, we are constantly seeking feedback from service providers and evaluating the terms of our agreements to ensure that they take into account market conditions as appropriate.”
In February, FedEx unveiled a contractor grading program designed to reward high performers and either improve or weed out underperformers. The process awards contractors Olympics-style medals — gold, silver and bronze — based on a wide range of criteria. Gold medalists win the opportunity to negotiate a new agreement. A service provider with that classification may be able to serve more stops, thus earning more money, and can contract to provide lucrative “contingency” services in which one contractor steps in temporarily to serve another’s territory.
Patton made headlines last year when he publicly challenged FedEx Ground to renegotiate contractual terms with contractors to help them offset rapidly rising operating cost inflation. At last year’s expo, Patton, who operated across a 10-state territory of 275 trucks and 225 drivers during non-peak periods, threatened to idle his trucks on Black Friday if the company didn’t provide adequate financial assistance. He also announced the formation of a trade association called TALP, or Trade Association for Logistics Professionals.
The threat to pull his rigs, and the trade group, fizzled out after FedEx Ground revoked his operating authority and filed its lawsuit. “Once I was no longer a contractor, contractors thought if they could do it to him, they could do it to us,” he said, referring to the authority revocation. TALP was discontinued because it was thought that as long as Patton was associated with the group, FedEx Ground would not meaningfully engage with it, he said.
One legacy of his efforts was that FedEx Ground reduced Sunday deliveries by 50%. Patton wanted the unit to end Sunday deliveries altogether, arguing that the volumes didn’t come close to justifying the operating costs borne by contractors.
Fuel is the only operating cost that has declined year over year, according to Patton, who said the pace of inflation for other goods and services has moderated since last year but remains present and elevated. “Instead of 10% to 20% inflation that we were seeing last year, today it’s more like 5% to 6%. We are not seeing a reset to where costs were,” he said.
Patton’s company markets a wide range of services to FedEx Ground contractors. Those include truck leasing, the brokering the buying and selling of routes that they serve, and a contractor buying collective. Among the most successful programs has been a discount fuel card program unveiled about 10 months ago. The program offers an 18 cent a gallon discount on diesel fuel purchases and a bit more than 6 cents a gallon reduction on gasoline purchases. An additional 20% discount is applied if vehicles are filled at any of the program’s preferred service providers.
About 10% of the 300 million gallons of fuel consumed by FedEx Ground each year is currently purchased through the card, Patton said.
Patton’s conference drew about 2,000 attendees, down from about 3,000 last summer. Attendance was affected by the timing of FedEx Ground’s first contractor expo, held in Orlando, Florida, which began last Monday, the day after Patton’s conference ended.