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  • By The Financial District

FedEx Partners Threaten To Stop Holiday Deliveries

People hoping to get their holiday shopping delivered on time could be caught in the middle of a growing battle between FedEx and thousands of contractors who deliver most FedEx packages, Chris Isidore reported for CNN Business.


Photo Insert: Many of the contractors used by the company's FedEx Ground division say they are losing money, even as revenue at that unit soared more than 60% since before the pandemic.



Many of the contractors used by the company's FedEx Ground division say they are losing money, even as revenue at that unit soared more than 60% since before the pandemic.


As a result, a group of contractors is threatening to shutter their operations right before Black Friday. FedEx Express depends on FedEx (FDX) employees to move its shipments, but FedEx Ground depends on a network of more than 6,000 independent businesses to make deliveries.



Many of them have dozens, or even more than 100 drivers. Most consumers probably don't realize the FedEx Ground drivers stopping at their doors, wearing FedEx uniforms, are actually working for the contractors, not FedEx itself.


Higher costs for fuel, trucks, and driver pay have as many as 30% of those contractors losing money, according to an estimate from Deutsche Bank.


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Many of the contractors are in the process of forming a trade group to pressure FedEx to improve the terms of the compensation packages they receive. Talk of a pre-Black Friday shutdown is spreading among the contractors who are most vocal about the need for change.


"My business is losing money every day," said Spencer Patton, one of the largest contractors and the most vocal critic of FedEx Ground's relationship with its partner network.


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"And my business will not be able to continue operation past Nov. 25. Peak season is one of the highest cost of operations time of the year. I have to double the number of trucks, hire drivers. I will not do so if things don't change."


His suburban Nashville-based company, Patton Logistics, has 275 trucks serving hundreds of FedEx Ground routes spread across 10 states in the central US. His trucks delivered about 6.5 million FedEx packages last year.


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He said the wages he needs to pay to keep drivers are up 37% in the last year, while truck prices are up 30%.


Although the average price of diesel is down 14% from the record high hit in June, it is still up 52% compared to a year ago, according to AAA. "Fuel prices have come down off a boil, and that undoubtedly has been a benefit. But wage pressures remains boiling hot," Patton said.


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"We are actually competing against FedEx for drivers." Patton has been a contractor for 10 years. He started making his own deliveries on a single route before growing the business. He said historically he had about a 10% profit margin excluding interest, taxes, depreciation, and amortization.


Now he said he's losing 5% to 10% on that basis. Meanwhile, FedEx reported that revenue at its FedEx Ground unit increased $2.7 billion, or 9%, to $33.2 billion in the fiscal year ending in May compared to the previous fiscal year, although its operating profit fell 17% to $2.6 billion.



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