Buying a Fedex Ground Route

Discussion in 'FedEx Discussions' started by Xquestionman, Jan 12, 2016.

  1. Xquestionman

    Xquestionman New Member

    Looking to buy a fedex home delivery route as a new biz opportunity. Trying to get my head around a few things here. I would be willing to work in the biz as needed and probably drive a route for the first year so I could learn the work end, then just be a backup with a manager. Naturally, my biggest question pertains to what a fair valuation is? Is it 1.5x net cash flow or 3x net, seems the pricing is all over the place especially when a broker is involved. What type of net off gross % is normal? It seems like X has been involved in lots of litigation relating to this subcontractor model. I get that since 2011 the contractors are now paying the drivers W2, but what is to prevent X from pulling the plug on the contractors and just going to an employee model like UPS? Seems that it might save them a lot of trouble and naturally that is a big concern if investing in a route. Also, who owns the route, I get the impression that X owns it and just contracts it out. What is to prevent local politics at the terminal level from a contractor loosing a route to say...a buddy of the corporate manager etc? Is there a bunch of BS and backroom games with this? I spent 25 years in corporate, so I know how big companies are and the games they play. Also, what is the deal with X giving out new routes as biz grows? Are those bought by contractors or just given via some procedure or politics. Please give me the inside scoop. I am looking for the unvarnished truth from those in the game.
     
  2. It will be fine

    It will be fine Well-Known Member

    Are you in an IC or ISP state? Use the search function on this site, you can find answers to all your questions.
     
  3. bacha29

    bacha29 Well-Known Member

    Friend: I did it for 23 years and understand I wish you the best but all you have to remember is that change is the only constant and nothings binding. It is never more evident than it is at Ground. A few years back one of the few honest executives at Ground took me outside where none could hear us and said "speaking off the record, the company doesn't consider any term or condition in that contract to be binding upon itself". Furthermore I was harshly criticized by others on this sight because I in their opinion didn't grow . What they didn't realize was that I lived and operated in a part of the country that flat out did not need another small box carrier, USPS, UPS and X express handled what little was there just fine. Democraphics must play role in your decision as well as your success is highly dependent or whether or not you can find qualified and dependable people willing to work for about half what the average UPS driver gets and no benefits simply because G simply will never give you enough money to pay them more as much as you may want to. It is an opportunity but it is full of trappings so read the contract terms carefully, get an attorney's help if you need it. Good luck
     
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  4. Xquestionman

    Xquestionman New Member

    I am not entire certain if its ISP or IC. Can you please explain the difference? I know that ISP is the new model with contractors obligated to W2 on the drivers etc. Are not all states going to ISP?
     
  5. STFXG

    STFXG Well-Known Member

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  6. It will be fine

    It will be fine Well-Known Member

    It seems like FedEx is moving all states to ISP eventually, but none of us know for certain. That's an important piece to find out. If they haven't switched to ISP yet you won't know what scale you'll need to be at to keep a contract. Some states it's 3 trucks, it's sounds like most states are going to 5 trucks in the current transitions. You need to be at scale before buying in and you won't know what the scale will be if it's an IC state.
    You should also find out if FedEx is building any new facilities in the area. They can put up a new building, split your routes between the buildings and push you under scale in both new buildings losing your contract, unless you can buy more or trade with another contractor.
     
  7. bacha29

    bacha29 Well-Known Member

    Under current transitions it's 4 routes in small terminals 5 in larger. Perhaps what you're thinking about getting into can best be described by borrowing a term used in stock trading.'This isn't for widows and orphans". Likewise whether you are an IC or ISP one thing remains constant. If someone other than yourself is driving that route and he has no ownership interest he's your employee . If you're going out and borrowing a resevoir full of money to buy an operation make him open up the books and then you may find out the real reason they are selling. And don't forget, your employees are under TaftHartley and collective bargaining so they can vote to go union.Think you're too small for that to happen? The municipal police department where I live all 6 officers are Teamster. Consider also the fact that the IC contractors at the terminal I was at , we were told that the conversion to ISP in our state wasn't even on the table for discussion. Just 5 months later they tell us we're going ISP, despite the fact that the IC contract we were operating under did not expire for 4 more months. Again nothing's binding on Ground.
     
  8. Xquestionman

    Xquestionman New Member

    Good points here and in fact they are building a new terminal 20 minutes away from the one I was looking at. I just found that out. Anyhow, I guess the ISP minimum of 5 which seems to be where they are heading is based on a per terminal? So if you had 3 in one terminal and 2 in another they would cancel your contract, has anyone seen that actually happen? Does anyone other than bacha29 really think that drivers for small independent delivery companies can organize to go union?
     
  9. It will be fine

    It will be fine Well-Known Member

    They don't cancel the contract, they just don't offer you a new one when it's up if you're not at scale. Around here it doesn't come up too much. When guys get split up they sell or trade routes to be at scale. We had a small area, about a half route, go up for bid. No one wanted to buy it from the contractor that was getting divided because there was a chance at getting it for free. FedEx will have a decent idea what will move to a new terminal a few years in advance, getting them to tell you is another story.
    Bacha's right that they can join a union. It's just extremely unlikely. It would be easy to convince them they would all be fired if they voted for union representation. No chance FedEx would continue to contract with a company that has unionized drivers. No FedEx contract means no jobs.
     
  10. Xquestionman

    Xquestionman New Member

    So, are there not other divisions in X that are union, or is it all non-union? If its not union what has prevented the express, freight etc to no go union? Seems to me that X protects the names of the contractors closely. I spoke to a ground manager at the facility I was looking to buy routes in and he would not tell me a thing about whom the contractors were, how many etc etc.
     
  11. It will be fine

    It will be fine Well-Known Member

    They are very anti-union. Express is an airline covered by the RLA, needs a nationwide vote to unionize. Teamsters have tried to get Freight but there's a general lack of interest. They've gotten a few terminals but most of the ones they scheduled votes at said no.
    The FedEx manager is probably scared by legal to say anything about contractors. Just ask the guy selling for some names and numbers, he should be friends with other contractors.
     
  12. bacha29

    bacha29 Well-Known Member

    I hope you will come away from this with a clear understanding that there are some opportunities but they are not all inclusive. One of the things that needs to be brought into these discussions is what appears to be a weakening economy. X stock is down nearly 30% from it's 52 week high.( 185-130) and the transport index at a 2 year low. The resulting unhappiness may make X even harder to deal with. So if you happen to be located in a part of the country that matches this business model you will be alright meaning that if you are in a metroplitian area in a warm climate, a favorable labor market , flat terrain, high population density and high percapita consumption your success will be easier. However if you are in an area that does not offer many or in my case none of those advantages it will be more difficult.
     
  13. Xquestionman

    Xquestionman New Member

    Seems to me that the real risk in buying one of these routes is legislative. I don't see how a fragmented system like ground could be unionized and I presume most of the drivers don't stay in those jobs as careers etc. Seems that with Obamacare, it will only be a matter of time before congress and the lawyers start going after companies that circumvent the requirements to provide insurance to employees via a independent contractor model. There are probably companies right now and maybe even larger X contractors that are splitting up into multiple corps to circumvent it and its 'that activity' that prompts the legislative risk. A broker told me there are contractors with hundreds of routes run by managers with absentee owners. If you have hundreds of drivers, you can be sure they have those split into dozens of separate corps to circumvent obamacare. What are the collective thoughts out there on legislative risk? On a separate note...presuming you started at 5 routes and they split you with a new nearby terminal how hard is it to get other contractors to bail you out trading routes etc? Any issues with that?
     
  14. Bounty

    Bounty Active Member

    Your concerns about who owns the routes and if they can pull the plug are a real concern. Fedex changes the rules all the time, usually to there advantage. You either do it or your contract won't be renewed and you will sign whatever they put in front of you because you spent your hard earned money to obtain the routes. Invest elsewhere!!!!!
     
  15. Xquestionman

    Xquestionman New Member

    Very good points on the importance of the geographics....I guess cities in Florida, AZ, and SO Cal are where its at from that perspective.
     
  16. bacha29

    bacha29 Well-Known Member

    I have often said that the language is the money given the complete lack of equity safeguards in a contract that for all intents and purposes denies the contractor his right to due process. I never feared the company but given how the terms totally favors the company, the amount of money I was willing to put in it would be limited because X completely controls the fate of your equity and given the poor demographics of the area I live in made the risks higher. You are right about turnover. Given the average pay scale these jobs are ofter perceived as transitional employment. Just the job between jobs and you can't have that given the need for precision service. If you are certain that you can manage the risks, the legislative and judicial uncertainty the turn over, X's rigid demands then you can expect a reasonable return on your money but if you are thinking in terms of asset appreciation you better not go there. Just dealing with day to day challenges will be enough to worry about.
     
  17. It will be fine

    It will be fine Well-Known Member

    Legislative risks are real but they don't worry me much. The ISP model has been in place in the most employee friendly states for up to 8 years now. There hasn't even been a challenge yet. Any large change to the model would have to be the result of congressional action that would end up being far to restrictive to business and government in their use of contractor labor. There is far too much money on the side of the status quo for me to worry about it.
     
  18. bacha29

    bacha29 Well-Known Member

    Good point IWBF. I too agree that legiislative action is not coming in this decade . The action will be in the judicial area with court challenges continuing to mount for years ahead. The recent unfavorable comments on the use of third party contractors coming from the U.S. Department of Labor implying that it's nothing more than an attempt to skirt labor law combined with the recent NLRB ruling regarding coemployers the time line before this thing comes to a head may be shorter than you think. IN the end it will come down to taxes and to a lesser extent health care and pensions. I agree, you're in this thing now so there is no sense worrying about it. What happens ,happens all you can do is to try to adapt . I think that we can be proud of the fact that we didn't dismiss his interest but at the same time we didn't sugarcoat it
     
  19. Xquestionman

    Xquestionman New Member

    Presuming you started at 5 routes and they split you with a new nearby terminal how hard is it to get other contractors to bail you out trading routes etc? Any issues with that?
     
  20. It will be fine

    It will be fine Well-Known Member

    For the most part, no. I've been through several new building openings and guys tend to work things out. No one that is around the scale of 5 trucks wants to operate out of multiple buildings so swaps happen. A lot of that happens because of personal relationships though, so if you can avoid it I would. We start working out deals a few years in advance around here, as soon as we hear a new building is opening.
     
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