FedEx Ground made a major business decision that may have repercussions for quite some time. The package delivery carrier terminated its largest contractor just hours after suing him. This has been a contentious situation for months and now it is officially a legal battle.
FedEx and its largest contractor, Spencer Patton had been locked in a contentious battle over how to handle rising costs.
As reported by Business Insider, this past Friday, FedEx took the unprecedented lead by filing a lawsuit against its largest delivery contractor. The suit filed on Friday, August 26, 2022 seeks “permanent injunctive relief and monetary damages” related to “false and misleading statements” about FedEx Ground.
“I am being forced to pull our small businesses out of the communities we serve, but we are working hard to re-home our employees,” Patton said. The logistics part of Patton’s business has 225 employees in 10 states. The lawsuit is directed at Patton’s consultancy for the delivery businesses Route Consultant Inc., which the case claims is the true beneficiary of all Patton’s efforts to date.
“We can confirm FedEx Ground exercised its rights to immediately stop contracting with a small number of service provider businesses owned by one individual,” a FedEx Ground spokesperson said in a statement. “While those businesses operate in several locations, they constitute less than 0.5% of the approximately 60,000 total routes across the FedEx Ground network. We have contingency plans in place and do not anticipate any impact to service based on these contract actions.”
The lawsuit filed this past Friday by FedEx Ground was a dramatic ending to a fight that got serious back in July, when Patton warned that FedEx Ground’s unwillingness to address the concerns of the 6,000 independent contractors who deliver its packages was driving many out of business and putting its network in “peril.”
Patton for his part has moved to form a trade group to represent contractors and talked about getting the small businesses franchise status. He has encouraged his fellow contractors to be wary of FedEx’s pay offerings for the upcoming holiday season and said that if FedEx didn’t make operational and contractual changes by November 25, he would shutter his delivery service — a threat that is now meaningless and one has to question whether Mr. Patton “shot himself in the foot.”
FedEx of course has insisted that their Ground Delivery Network is sound and that it will consider any attempt at collective bargaining a breach of contract.
Looking back on how we actually got to this point, are the following facts:
- FedEx Ground contractors have had various long-standing grievances. High on the list is FedEx’s move to seven-days-a-week service which started back in May, 2019. Several contractors felt that there has never really been enough demand for Sunday deliveries to make it profitable.
- Adding to that point, things deteriorated last winter when FedEx overestimated package volume for the 2021 holiday season. The huge disparity between projected volumes and actual volumes created a situation where many contractors didn’t make enough revenue to cover the cost of ramping up their operations, and many told ”Industry Insider’s” they still have not recovered financially.
- This past January, 800 contractors signed a joint letter to FedEx Ground detailing their problems with rising costs, especially fuel, and diminishing returns. “We need help fast!” the letter read. Contractors said that from 2020 to the 2021 holiday season, their payouts decreased by 20%, although package volume was roughly the same. Vehicle costs were up $10,000, and wages were 30% lower compared to the prior year.
- In a March 18, 2022 letter to contractors, FedEx Ground’s CEO, John Smith, said the company took a look at the gas and diesel compensation for contractors and decided no special action was necessary. “Our data indicates that service providers operating with either type of fuel are seeing weekly fuel-related payment increases that are commensurate with the recent market fuel price changes,” Smith wrote.
These factor’s, and we believe the final one regarding fuel was the straw that broke the Camel’s back. “What really lit this powder keg,” Patton told Business Insider last week, was “when FedEx released and highlighted in their earnings report that they had successfully passed through fuel surcharges to the US consumer, and then did not pass through the entirety of those to their contractors.”
Recently, more than 4,000 FedEx contractors — representing roughly two-thirds of the FedEx Ground network — convened in Las Vegas for a conference Patton hosts every year. He used the venue to declare that he would shut down his delivery service if he didn’t see operational and contractual changes by Thanksgiving.
Patton also encouraged his fellow contractors to take a hard look at FedEx’s contract offering for the holidays, calling the deal a chance for the company to “restore the faith of their contractors.” If a critical mass of contractors rejects the deal, that could affect FedEx’s capacity to cash in on its busiest season. “It is one of the most powerful forms of leverage that me and my independent business is able to exercise with FedEx Ground,” Patton said in a conference session last week.
“My heart is in this to see FedEx Ground make lots of money,” Patton said during one of two keynotes he gave at the conference. “I just need to see the contractors make money as well.”
In its lawsuit, FedEx accused Patton of creating a “fictionalized crisis” between FedEx Ground and its contractors “as an advertisement for the purported need for Route Consultant’s consultancy and other services.”
In a statement issued after the suit was filed, Patton said, “I am not afraid of a lawsuit from FedEx.” He also told Insider in July he knew that losing his contracts was a possibility.
“For years FedEx Ground has used bullying tactics when interacting with their contractors to create an environment of intimidation,” he said Friday evening. “This move to cancel our contracts is a clear case of a $60 billion corporation silencing anyone with a voice.”
Where things go from here is anyone’s guess. Have questions, give us a shout and we’ll do our best to answer them.
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