- FedEx sent talking points to staff this week amid a “showdown” with delivery contractors.
- In the past two weeks, UBS and Deutsche Bank validated the concerns about contractors’ businesses.
- The activist investor D.E. Shaw is investigating claims that the FedEx Ground network is in trouble.
The conflict between FedEx and one of its largest contractors has heated up to the point that the shopping giant issued talking points to its staff in case they get questions from “employees, service provider personnel or customers,” laid out in an internal memo obtained by Insider.
Spencer Patton, the CEO of Route Consultant and FedEx’s (self-proclaimed) largest contractor, has claimed the FedEx Ground network “is in danger” because of failing contractors. He has called for a per-stop pay raise for the 6,000 contractors that deliver packages for FedEx Ground. He has also announced plans to form a trade organization to lobby state officials to move to reclassify contractors as franchisees, the leaders of which will be elected at Route Consultant’s annual conference in Las Vegas next week.
FedEx Ground leadership has responded by telling all contractors that it would not just reject any attempt to negotiate collectively but also consider it a breach of contract.
The company’s talking points say it has “multiple contingency levers available” to keep service consistent. They add that FedEx has a long history of open communication with contractors and what it calls a “win-win” relationship.
As to the franchise threat, the document says every business “must determine whether membership in any trade association is in their organization’s best interest.” It also says the current service-provider model “does not align with a franchisor/franchisee relationship.”
FedEx responded to Insider’s request for comment by pointing to a previous statement: “We recognize the shifting market dynamics and current economic conditions may pose new challenges for service provider businesses, and we remain committed to working with these businesses to create opportunities for continued success. As each service provider agreement is negotiated individually based on a number of factors, including the unique characteristics of each business’ geographical service area, we have found that the most effective solutions are identified through direct engagement with each independent business.”
Wall Street takes stock of contractor frustrations
Deutsche Bank analysts described the dynamic between Patton and FedEx Ground as a “showdown,” in a note to investors published July 29. The analysts called Patton’s efforts to organize contractors “unprecedented” and “worth discussing, analyzing, and watching.”
UBS analysts wrote in a Monday investor note that the pressure on contractors’ businesses appeared to be real but the extent of the pain within the network was unclear. They added that a structural change to the contractor model was less likely in their view than FedEx simply spending more on contractors.
D.E. Shaw, the activist investor that muscled into two (soon to be three) board seats at FedEx earlier this year and has been focused on FedEx Ground margins, is investigating, too. The hedge fund sent requests for information to contractors last week. In the questionnaires, obtained by Insider, D.E. Shaw asked about unit economics, recent changes in profitability, thoughts on FedEx Ground’s support of contractors, and thoughts on Patton.
D.E. Shaw did not respond to requests for comment. Patton estimated 200 contractors received the email inquiry.
Not all contractors agree with Patton
While Patton expects roughly 3,000 FedEx contractors to turn up for his company’s annual conference in Las Vegas next week, not all contractors agree with his tactics.
Jeff Walczak, the CEO of eTruckBiz, another consultant for FedEx contractors and a broker of FedEx Ground routes, published a blog post last month responding to Patton’s actions with a warning against what he described as “threatening your customer.”
“It is reckless and irresponsible to sow false hope that there is a pill out there to reverse the effects of an entire economy going bad,” Walczak wrote.