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Although that division’s revenue was up more than 60% before the outbreak, many contractors that use the company’s FedEx Ground division are losing money, he said. As a result, groups of contractors are threatening to walk out of business before Black Friday.
The contractors are not allowed to coordinate the way their workers strike under US labor laws. Such concerted action is considered a violation of antitrust laws, which prohibit different companies from cooperating with each other.
But talk of pre-Black Friday shutdowns is circulating among contractors who are most vocal about the need for change.
Loss of money
“My business is losing money every day,” said Spencer Patton, one of the largest contractors and a vocal critic of FedEx Ground’s relationship with its partner network. “And my business can’t continue to operate past November 25. Peak season is one of the most expensive periods of the year. I have to double the number of trucks, hire drivers. If things don’t work out, I won’t. It won’t change.”
His suburban Nashville company, Patton Logistics, has 275 trucks serving hundreds of FedEx Ground routes in 10 states in the central US. Its trucks delivered about 6.5 million FedEx packages last year.
“Oil prices have come down a lot, and that has undoubtedly been a benefit. But wage pressures are heating up,” Patton said. “We’re actually competing with FedEx for drivers.”
Patton has been a contractor for 10 years. Before growing the business, he started to develop his own shipping line. Historically, it has had a profit margin of about 10%, excluding interest, taxes, depreciation and amortization, he said. He said now I am losing 5% to 10% based on that.
Meanwhile, FedEx reported that revenue at its FedEx Grounds unit rose $2.7 billion, or 9 percent, to $33.2 billion at the end of May compared to the previous fiscal year, although operating profit fell 17 percent to $2.6 billion.
FedEx Ground pushes back
FedEx Ground is refusing to give its contractors the on-board financial relief that Patten and others are seeking. He said only 10% of the contractors had applied for relief since January.
“We recognize that current economic conditions are creating new challenges,” FedEx Ground said in a statement. “We are committed to working with carrier businesses individually to address the challenges in their situations. Our goal is to enable success for both FedEx Ground and carriers.”
None of the contractors who asked for better terms than FedEx Ground were offered, Patton said. Although it said more than 1,600 contractors are in renegotiations or negotiations, FedEx has not said what percentage of contractors have had their contracts revised. Without most of these terms, they would have had to be renegotiated under previous agreements.
FedEx Ground would not comment directly on the threat of some contractors closing during the holiday shopping season.
“We are committed to providing superior service to shippers and receivers,” the company’s statement said.
Survival mode
FedEx Ground provided CNN Business with the names of several contractors who say they are doing well financially, despite the economic problems facing some contractors. But some have expressed concern about what could happen if a significant number of contractors go out of business due to financial difficulties.
“I know there are others who are hurt, but thankfully I’m not red,” said Troy Fulsom, a contractor with about two dozen drivers in the city of Fresno. “Fortunately for me, I have an area where we’re growing and expanding. But our profit margins are slim. Your heart is to make an ultimatum to people in this position. If some people are going to close, that’s a very serious issue. Declining operations and what that does to the business and the customers. They’re going somewhere else. With the talk out there, it’s scary.”
Some contractors who say they are losing money say they have no choice but to try to push through the losses and can’t join any shutdowns.
“It’s not something I can do,” David Dorner, a contractor based in Medford, Oregon, said of the possibility of halting operations. “I’d love to come in. But it would put me in a position where FedEx would come in and take the business away from me.”
Dorner is set to sign a new contract with FedEx in October and hopes it’s enough to get him back in the black. But even if it didn’t shut down in the pre-Black Friday deal, it said it can’t continue indefinitely if it doesn’t become profitable again soon.
“I’m fighting every day to put the trucks out there,” he said. “It would be a shame if nothing changes and we have to close our doors.”
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