Multiple Contract Question

Discussion in 'FedEx Discussions' started by Trakker, Dec 29, 2015.

  1. Trakker

    Trakker New Member

    Hi, I'm new to the thread and have a question about expansion. Currently my company has 7PSAs + 1 Supplement in our home terminal. We are looking to expand and purchase 7PSAs +2 Supplements at a different terminal. Since the quarterly bonuses are capped at 10 routes per Company (V Number), I'd like to know how 'super-contractors' structure their corporations and position 'New Co.'s', to take advantage of the full bonus caps as they grow their companies? Do they set up Umbrella (parent) Companies or Sub Corporations, or do they run each company (V Number) completely separate from the others? Any insight would be appreciated. Thanks!
     
  2. Ex-Ex

    Ex-Ex New Member

    Why Why Why do any of you run a supplemental you are doing nothing but buying top shelf golf balls for the sales force to go have fun with.
    Contracting (one sided) with Ex is a scam and a supplemental is a scam within the scam.
     
  3. bacha29

    bacha29 Well-Known Member

    Trakker: What is a supplemental? If they are going out there every day it is not a supplemental . It's noncontracted route and will be until you simply quit sending them out. Ask yourself this question. What would be the incentive for X to convert a noncontracted to a contracted route when the desired effect is being realized for $30,000 a year less.?
     
  4. Trakker

    Trakker New Member

    Guys, I couldn't agree more. The supplements are a drain to the overall profitability. For now and for the sake of this discussion, let's just say it's for political reasons, and unrelated to the present issue. Nonetheless, any insight regarding the corporate structure of additional companies and acquisition of additional PSAs would be greatly appreciated. Thanks again!
     
  5. It will be fine

    It will be fine Well-Known Member

    Check with contractor relations. In ISP when we operate out of multiple buildings we have separate contracts for each building. This may be the case in IC as well. If not and the money is worth the hassle setup another corp. If you start fresh your work comp will be affected so that could be a big factor. You'll need 3 years of loss history before you can escape Marsh.
     
  6. bacha29

    bacha29 Well-Known Member

    Trakker: Whatever you do do not adopt the "too big to fail" mindset a lot of large route contractors have adopted. It does not matter whether you have 40 routes or 1 route you all operate under a unilaterally drafted and implemented contract that renders a contractor completely powerless while granting X absolute power and if unintended consequences moves contract terms in favor of the contractor, X simply changes the contract language or the interpretation of the existing language in a way that always favors them. I wish you well but it looks like you plan to put a lot of additional capital and it sounds like it's borrowed at risk and the fate of that capital is completely in the hands of X not you. These are unpleasant realities and if you close your eyes to their existance your odds of success are greatly reduced.
     
  7. Crozz

    Crozz Member

    You need to start a new entity period you will cap at 10 no matter what. I'm in two terminals I learned the hard way. 10 cap isn't the only reason for splitting the entity's up.
     
  8. Trakker

    Trakker New Member

    Thank you 'Crozz', 'Bacha29' and 'It will be fine': I greatly appreciate the insight and candor. It's all true about the contracts being skewed heavily to X. We've experienced both the good and the bad side of contracting. In my experience, the contracts are very similar to other franchise contracts I've owned. The issue always stacks the deck in their favor. The only factors you can truly control are your local operating expenses (I.e. labor, maintenance, equipment). Our capital is a straight cash investment, rather than any type of financing. Loans and SBA don't work well with this business model, as the margins are too slim. We also purchase our fleet vehicles outright. We manage our maintenance and fuel very frugally and pay our senior drivers well, to reduce turn-over. If you can keep your drivers well trained and happy, you'll be more likely to hit your CCS bonuses and maximize your profits. We are still under the IC model here and have each of our contracted ground routes matched up with the same territory of our contracted home routes, so that we're well positioned for the impending ISP transition. We're looking to acquire a very similar set up in another nearby station. The problem is that we will need to put these under a completely new corporation, in order to benefit from the quarterly bonus caps. We're looking for clever but allowable ways to structure this, so that we can take advantage of certain consolidated processes, such as payroll, accounting, fuel accounts, management and others. Additionally, we're trying to gauge whether officers of our company can be part of both, or if we have to set up individual AOs each time we create a new company and purchase additional routes in other areas. Also wondering if FedEx allows a "Parent Company" or "Umbrella Company" to oversee or own multiple "Inc.s" under it. The only reason I haven't contacted Contract Relation yet, is that we're early in the process and don't want our plans known just yet. Thanks to each of you for the helpful input!
     
  9. bacha29

    bacha29 Well-Known Member

    Good afternoon Mr. Trakker. Where in the language of the operating agreement does it say anything about a "franchise"? Fedex is too smart or should I say sleezy to grant you a franchise because having a franchise might actually give you a snow balls chance in hell of actually succeeding in litigation. In addition ask It will Be Fine what X does to ISP"s when an ISP buys out another contractor HD or G who is located in the same area. No matter how cleverly you try to structure your organization it doesn't matter because Fedex and I was told this personally by a company executive does not consider any term or condition set forth in their unilaterally drafted and implemented contract to be binding upon itself which means that their is no way to legally protect the additional capital you are investing. And don't overlook the fact that the additional employees you're taking on makes more important the fact that they are entitled to collective bargaining especially if you offer no employer paid health care or pension plan and believe me the pay and benefit disparity between what employees at other operating units are getting and what drivers for contractors on average are getting is becoming a source of growing tension at a time of continued downward pressure on settlements. I wish you well.
     
  10. Trakker

    Trakker New Member

    Agreed. There's a lot of merit to what you're saying. As far as the 'franchise' comparison I made, I was referring to national franchises I've owned in the past. While there are greater legal protections for the franchisee, should there ever be a major dispute, the verbiage and structural characteristics are very similar. The agreements are always written to favor the issuer and to stack the deck completely in their favor. Basically, the house always wins. The only difference between FedEx 'contracts' and other major franchise agreements, is the legal risks and liabilities, but you only encounter these when there's a major dispute. Otherwise, the intent is that if you're heavily invested, you try to find the best way to operate 'within' the existing structure and to make the most profit and leverage the most benefit possible. I agree it's a terrible contract that only benefits X, but the only alternatives are to sell, never go into business with them in the first place, or find the most efficient way to operate within the confines of a bad contract. We happen to be the latter. Believe me, I'll go toe to toe with anyone who wants to debate the hypocrisy and one-sidedness of the Corporate-Contractor 'relationship', as it relates to fairness. There isn't any! But X's position is basically "...then don't sign our contract, we'll find another sucker". I don't see them changing this position either, because it works for them. I've come to the mindset that if we as a company remain in this business, we have to be satisfied with 23% to 25% profitability (and that's if we really manage our service and expenses closely). Before buying routes, I dabbled in route brokering, along with my franchise businesses. What I realized was that, on average, wherever you go in the country, the FedEx model works out to 23-25% profitability. It's eerily accurate. So, despite the crappy contracts, we're strategically planning, projecting and budgeting for a 25% net margin and using that figure as our long term anticipated ROI (pending the annual renewal of our contracts). We invest the cash, and when that investment has broken even, we plan to reinvest in additional routes and grow slow and steady. We hope to find the best way to manage that growth in the most efficient and clever way possible, within the lines of the contracts, so we can become more effective as we grow and be structured smartly, to maximize our profitability. We're still in an IC area, but ISP is an eventuality here. We're also considering the pros and cons of Line Haul.
    I really appreciate the views and discussions, it's a great way to vent and share ideas at the same time.
     
  11. bbsam

    bbsam Moderator Staff Member

    Just come out and say it. You don't believe Trakker exists.
     
  12. Trakker

    Trakker New Member

    I have debated this with myself on a regular basis. We have had supplements in the past, which have converted to routes, and it benefitted us to have been operating it successfully for some time, when I submitted the RFI for conversion. However, there's no guarantee that X will ever convert an existing supplement into a PSA. For us, we own matching ground and home route areas, which is somewhat unique. One of the match ups is a supplement and helps during peak, heavy times and in dealing with ICs (incompatibles). It also positions us very well for an impending ISP conversion, because we have the coverage and experience with that area. We only have one regularly running supplement, which isn't a major drain on our group of other PSAs, since we have a good size group. We also pay a lower rate to our supplement driver. I guess we could give it up, but someone else would just run it, and then we wouldn't have the convenience of assisting or occasionally shifting resources between our PSA in the same area. I know some contractors who only have 2 PSAs and are running 2 regular supplements. I think those contractors are hurt far more by maintaining such a structure. Nonetheless, I still regularly consider the ups and downs of keeping our one.
     
  13. Trakker

    Trakker New Member

    LOL. I exist. I'm a contractor, and I'm actually typing this!
     
  14. Trakker

    Trakker New Member

    You make an interesting point on the employees and collective bargaining. It's one of the reasons were looking for a better way to structure our growth and debating various corporate entities. Since this is mostly anonymous, I don't mind sharing that we pay our Ground / Home drivers $650/wk and offer supplementary insurance and 1 to 2 wks paid vacation. Our senior drivers/coordinators make $700/wk. We have the added advantage of being in a market where this wage is very competitive and turnover is minimal. So far, the numbers work, but there's always unexpected pitfalls. I've looked into other contracted carrier possibilities, but the margins didn't seem much better and the volume consistency was less stable. IMHO.
     
  15. bacha29

    bacha29 Well-Known Member

    Mr. Trakker. Thank you for your candor and honesty. That $650 per week you stated is about the average nationwide but when your employees start getting that 2.5% of gross income penalty for no actual health insurance they will be looking elsewhere. In addition when and I'm sure you know this you convert to ISPthe days of Ground bringing in company paid temps and company paid rental trucks to cover volume spikes will be over. That will reguire you to keep extra trucks on site and a list of people you can call out on a moments notice to help cover you. Either that or pay them a retainer to stay available because nobody is going to sit by waiting for the phone to ring. The Ground business model does not exist for the purpose of creating equity for contractors. It exists entirely for the purpose of providing trucking and labor at below average market costs for purpose of maximizing returns for Fedex. You as a contractor have only one customer and as long as you continue to feed it's addiction to cheap trucking and cheap labor you will be alright but once the additional overhead required by ISP kicks in you may discover that the addiction has become impossible to placate especially if you can no longer find people willing to work for fast food wages. Deciding if the risk/reward ratio will be satisfactory in the future is the tough decision you alone must make.
     
  16. Trakker

    Trakker New Member

    I agree with your assessment and the negative aspects. But what's the solution? Other than to operate in such a way that you can exist inside their predetermined framework... You're still a contractor, so you must have found a way to still operate profitably, albeit slim profits, correct?
     
  17. It will be fine

    It will be fine Well-Known Member

    No, Bacha bailed, he financed the sale so the new owner has all the responsibility for service but Bacha gets the profits for a few years.
     
  18. Trakker

    Trakker New Member

    Aha! Now I understand. Well, to be honest, we look to hold on to these for only about 3 to 5 years and then sell. LOL. Thanks Mr. 'It will be fine'
     
  19. Ex-Ex

    Ex-Ex New Member

    Exist inside THEIR predetermined framework??!! Pretty much hits the nail on the head!
     
  20. Ex-Ex

    Ex-Ex New Member

    You sir are one of the most knowledgeable and articulate posters on this site! Its sad to think how many of the current "contractors" do not heed your advice and wisdom.
    Everything that you quote and post on here is exactly why I sold as well.
    Anybody that thinks ISP is going to make things better is inhaling unicorn farts.
    These greedy b@st@rds will never, never, never give the "contractors" one iota of autonomy or ability to negotiate anything.
    If anybody thinks that is not true then explain why they have spent untold millions trying to defend this cash cow in the courts, all the while admitting the model was flawed.