Before we discuss what’s been recently announced, you need to understand the history of FedEx just a bit as well as explain how most people think about due diligence on routes.
The style of many people’s due diligence and a quick ISP history lesson:
A lot of people think they’re performing due diligence on FedEx routes by going out to the CSA (Contracted Service Area) and determining micro-economic aspects of the business such as seeing who those customers are, analyzing the economic trends of that territory, and then assessing macro-economic aspects by considering FedEx’s health in general, the shipping industry as a whole, and so on. They conclude they’ve seen things from both a micro and macro level and determine they’ve done a good job.
This would work in other business models, but it will not mean a thing when it comes to FedEx routes.
As contractors, striving for understanding FedEx’s next big play is more important than anything else. An example is the ISP transition requiring 5 routes at a minimum. A lot of people think ISP is new and they’re on the cutting edge learning about it.
The reality is that ISP has been a transition that has been ongoing for over a decade now.
Now, ISP has helped contractors achieve economies of scale in their routes, attain better efficiency, and also better Ease of Management (which falls under one of the 3 differentiating classifications of routes I help assess with clients). The reality of growing and becoming better as an organization isn’t always good for everyone though.
I have sadly watched people’s investments into routes nearly vaporize.
I knew of one gentleman who saved up all the money he had to buy a single route, and then got the news that he will need have 4 more routes to be ISP compliant, and if not, FedEx would not be renewing his contract. I suppose he decided to save a bit of money by not reaching out to me first, since I would have told him 2 important truths:
- Buying 1 route in the recent years is total madness and this strategy isn’t an effective “test the waters” idea.
- FedEx will always change the name of the game in the future, and like many businesses, routes have inherent and unknown risks, but can be tremendously mitigated with knowledge.
As an aside, it’s sad when I hear of stories where people didn’t reach out to me so they could save a few bucks. The good news is that I’ve priced things such that it would be totally unreasonable to not grab some time together for someone that is actually serious about acquiring routes (on average my fees are somewhere between 0.01% to 0.1% relative to the total cost of a route business).
Back to the history lesson – the full speculation of ISP standards and requirements was originally supposed to be only enforced in a few states, and back then it was predicted that it was only going to be a 3 route minimum. But times changed and FedEx refined the requirements again,
to require ALL states instead of just a few…
then 5 routes instead of just 3…
and then 5 routes that were adjacent and contiguous, instead of all over the place.
The point is, every time someone was compliant today, they were likely non-compliant tomorrow. Some people didn’t like it and decided to exit and sell, some people saw it as an opportunity to grow and alter their business in a smart fashion.
So, here we are now with Home Delivery merging with Ground. Now, I admire the leadership and business savvy of FedEx corporate quite a bit, but it unfortunately comes with a lot of collateral damage for contractors that can’t pivot and adapt to the new logistics environment that the surge of eCommerce and ever more demanding customers are ushering in.
The changes by FedEx, while sometimes painful for some unprepared contractors, are usually overall a good thing.
And really, you shouldn’t even want a business that you have absolutely no control of (besides dealing with the trucks and employees) to have a leadership that is asleep at the wheel, but thankfully FedEx is alive and well.
So, what does this mean for new people and current contractors?
Contractors will now have to own overlapping Home Delivery routes as well as Ground routes. Like most of FedEx transitions, it’s a memo in the classic FedEx style – vague and convoluted. It’s truly an art form to interpret them accurately. Years ago, I had predicted to some clients this merger would happen in 2020, and looks like the memo states that everyone should be transitioned by 2021. So not a bad call, but the details are still a bit unclear mostly because I think FedEx wants to be able to see how contractors take this news and also tweak requirements over the next several months. While we wait to see the full fall out and clarifications, one thing stands out:
It’s clear that many route bundles in their current form will not be renewed with FedEx.
This is now a massive opportunity for people want to grow their business in a smart way since some contractors will assuredly exit based on this news. If you’re serious about learning whether routes are for you, or ready to dig into a solid methodology of evaluating a specific route, then it’s time to for us to work together to discuss the positive and negative impacts we’re about to see unfold.