A group of FedEx Corp. contractors say they were left financially hobbled after renting trucks and staffing up last holiday season to handle a flood of packages that never came.
More than 800 of FedEx’s 5,000-plus U.S. contractors signed a letter to company officials in January, citing problems with shipping forecasts from FedEx.
The letter, a copy of which was viewed by The Wall Street Journal, said that the package shortfall and new payment terms for the period between Thanksgiving and Christmas yielded less pay during the peak season than year ago, while costs were significantly higher. In interviews, some say the issues with FedEx, coupled with rising costs for labor, fuel and equipment, caused them to lose money during the period when revenue is typically highest.
The letter also said the problems extend beyond what happened during the peak season, and include inaccurate forecasts from FedEx for planning daily routes and staffing, poor loading of vehicles and inadequate communication. They asked for back pay to cover some of the expenses from the peak season, improvements in operations and forecasting and other changes.
“The amount of pain is very significant,” one FedEx contractor told the Journal. “It’s way more than anything I’ve seen before. Contractors that are rock solid are wavering.”
FedEx, which reports fiscal third-quarter earnings on Thursday, declined to comment on specific complaints from the contractors, which are typically small businesses that own FedEx delivery routes across the U.S.
In a statement, the company said it was accelerating some technology and operational initiatives and welcomes communications from the contractors.
“As our industry undergoes new and unprecedented challenges brought on by the explosive growth of e-commerce and rapidly shifting market dynamics, we remain committed to collaborating with service providers to create opportunities for success,” the company said.
FedEx’s delivery contractors are part of the company’s Ground business, which delivers roughly 60% of the packages that FedEx handles daily. Unlike its Express business, which is staffed by corporate employees, FedEx uses independent contractors for Ground deliveries.
By using contractors, the company shields itself from costs such as paying for vehicles and drivers’ wages. Contractors with FedEx Ground typically sign contracts that run from one to two years, with agreements spelling out requirements for service levels, safety and payment. They are generally paid a set amount each week, plus a certain amount per stop and per package picked up and delivered.
Planning for the run-up to Christmas between FedEx and contractors typically starts in July and August, when the company issues forecasts, based on conversations with their shippers. The projection helps contractors plan for the number of extra trucks they need to rent, drivers they need to hire and train and other expenses tied to the peak season.
The market for rental equipment is tight, with competitors like Amazon.com Inc., the U.S. Postal Service and United Parcel Service Inc. all vying for extra vans and trucks. FedEx contractors say they had to take on the rentals in September and keep them, mostly unused, so they could have access to them when the anticipated shipping volume arrived.
FedEx also lays out payment terms for the peak season in an agreement, called Schedule K. Typically, contractors that make deliveries in a single day beyond the threshold established in their contracts receive a per-stop bonus. The extra fee generally adds between 50% and 75% in revenue per stop, said Jeff Walczak, a former FedEx Ground manager who now advises contractors.
“Everyone counts on this extra money to make their year,” one contractor said.
FedEx last year changed how contractors could hit the bonus, making it harder to reach. FedEx previously combined Saturday and Sunday, which are typically slower, with Monday. In the recent peak season, Monday was split off from the two weekend days.
The 2021 holiday season played out like no other. Under the backdrop of the Covid-19 pandemic and supply-chain challenges that threatened retail inventories, consumers shopped online earlier and ventured out to stores for their holiday shopping. Retailers also moved up their promotions, with encouragement from package carriers like UPS and FedEx, to help reduce the anticipated strain on the networks between Thanksgiving and Christmas.
The dynamic eased pressure on delivery networks and helped their on-time performance hold up during the typically challenging stretch. UPS even returned rented equipment and dismissed seasonal workers earlier as the shipping levels tapered off.
FedEx recently paid an additional bonus to contractors who scored high on a safety scorecard. The payment was between $3,000 and up to $25,000, depending on the size of the contractor, according to the contractors, but was far below what they would have made had they received the number of packages that were initially forecast.
“The offering is literally fractions of what they lost in revenue,” one contractor said.
Some contractors say that they are considering getting out of the business. Others are still optimistic about the prospects, given the growth of e-commerce, as long as some changes are made. Those include better data that comes in nightly to plan for the next day’s routes and staffing levels, according to some contractors.
Mr. Walczak, who is the CEO of eTruckBiz Inc., said the issues contractors are having with FedEx may be exposing some inefficiencies that crept into their businesses during the breakneck growth of the pandemic. He suggests contractors, among other things, try to renegotiate their contracts at terms that better reflect what could be slower growth ahead.
“Rising tides hide lots of stumps,” Mr. Walczak said. “Now that the tide may be going out, you have to navigate a lot of stumps.”
This story has been published from a wire agency feed without modifications to the text