Will Black Friday be purple this year?

On August 20th and 21st 2022, executives from over 3,000 logistics companies met up in Las Vegas, Nevada for the 2022 Contractor Expo. Collectively, they represented 60% of the contractors providing delivery, pickup, and linehaul services for FedEx Ground. These contractors buy their own equipment, pay for their own fuel, and hire their own drivers. They are not franchisees, so they don’t have direct insight into the data FedEx uses to make annual and seasonal projections.

Listen on Dial P for Procurement: FedEx Ground’s Contractor Woes

Trouble has been brewing among the FedEx Ground contractors for years. This is partially due to the fact that the operating unit was originally Roadway Package Service (or RPS), a low cost service provider founded in 1985 to compete with UPS.

When FedEx bought RPS in 2000 and rebranded it as FedEx Ground, most of the volume was commercial, with multiple deliveries per stop.

Then...

• Amazon happened, and the contractors were asked to take on residential and weekend deliveries.
• The pandemic led to a surge in residential deliveries and a drop in commercial ones.
• FedEx ended their ‘SmartPost’ arrangement with the USPS in 2021, and the contractors took on that volume too.
• During the 2021 holiday season, FedEx overestimated volume and their contractors hired and invested in ways that weren‘t necessary.
• Fuel costs are up 52 percent over where they were at this time last year.

The entire low cost model has been turned on its head – with the potential for profitability coming into question. CNN has reported that 30% of contractors are at risk of financial distress: wages are up 37%, the cost of trucks is up 30%, and the contractors are now competing with FedEx for drivers because of labor shortages.

Enter Spencer Patton… the man who has become the public face of the friction between FedEx Ground and its contractors.

Spencer Patton is the Founder & President of Patton Logistics, FedEx’s largest ground contractor with 275 trucks and 225 drivers covering 10 states in the Midwest. In 2021, his company delivered 6.5 million packages, 0.5% of FedEx Ground’s 60,000 routes. He and his consulting firm Route Consultant were the hosts of the event in Las Vegas, and they have become a lightning rod for FedEx’s response.

"I knew this was a David vs. Goliath story, and that this outcome was a possibility when I stood up to a company that makes billions and is used to doing things their way. They built their company on the backs of these small business owners, and yet they are wildly unresponsive to the very real financial struggle facing most contractors today."

- Official Statement from Spencer Patton

On August 26th, FedEx sued Route Consultant and cancelled Patton Logistics Ground contracts. FedEx’s federal lawsuit alleges that Patton was creating a [quote] “fictionalized crisis” among other Ground contractors in order to promote his consulting services.

Fictionalized or not, Patton is getting attention for his point of view. He is calling for a Purple Friday instead of a Black Friday this year, a day for FedEx Ground contractors to demonstrate their leverage nationwide.

If Patton is trying to organization a union-like movement, it constitutes a breach of his contract with FedEx. At the same time, the contractors are not allowed to strike; it would be a violation of antitrust law.

FedEx has taken steps to help its contractors deal with rising costs. It provides advice on route optimization, access to low-cost fuel hubs, and information on lower priced fuel in each contractor’s operating area. The company has also renegotiated some contractors’ agreements.

And FedEX is dealing with its own financial troubles.

On September 16th, FedEx announced that it had missed its quarterly revenue expectations. FedEx Ground alone came in $300M below forecast. Shares fell 19 percent in after hours trading and 21 percent the following day, the biggest one day drop in value since going public in 1978.

To offset declining package volume, FedEx announced plans to close 5 corporate and 90 retail locations, is grounding some aircraft, and will suspend Sunday deliveries in some rural areas.

FedEx’s most recent fiscal year ended in May 2022 and operating profit was down by 17 percent even though revenue has soared 60% since the start of the pandemic. FedEx Ground was the least profitable of the three FedEx operating units (Express and Freight being the other two).

Even if some or all Ground contractors decide to stay with the company, will they be profitable again in 2023? If not, how long can this disconnect last? The number of FedEx contractor businesses up for sale has increased by 65 percent year over year and asking prices have decreased by 8 percent as a percent of revenue.

Will there be a Purple Friday on November 25th? I have no idea, but you can be sure I’ll be watching.

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