Spencer Patton’s company is one of the largest FedEx Ground contracted service providers in the United States — or it was, until his outspoken criticism of FedEx Ground led to the company canceling his contract and filing a lawsuit against him.
Patton’s trucking operation, Patton Logistics based in Nashville, Tennessee, had about 225 employees and 275 trucks on the road across 10 different states, and in recent months he's been vocal and public with criticisms of how FedEx Ground treats its contracted service providers. But FedEx Ground's legal challenge accuses him of creating a "fictionalized crisis" to drive business to his own consulting company, Route Consultant.
Patton has been an outspoken advocate for the roughly 6,000 contracted service providers that deliver packages for FedEx Ground, alleging that FedEx Ground has expanded its profit margins through proceeds from fuel surcharges without allowing contractors to share in those proceeds. He also says that FedEx Ground has not adequately addressed other strains on contractor profits, such as Sunday deliveries.
His frustration with challenges being faced by FedEx Ground contractors and other independent service providers in the last-mile delivery space led Patton to start a separate business, Route Consultant, which advises and provides resources for FedEx Ground and other similar contractors. Its website offers FedEx and Amazon routes for sale. It also features a disclaimer that it is not endorsed by, recommended by, sponsored by, approved by, or associated with FedEx or Amazon in any way.
FedEx Ground Responds
Things apparently came to a head after Patton's remarks during the Route Consultant’s 2022 Contractor Expo in Las Vegas Aug. 20-21, an event Patton said drew 60% of all the FedEx Ground contractors in the United States.
FedEx Ground filed a lawsuit on Aug. 26 against Route Consultant for disparaging FedEx Ground through a series of alleged false and misleading statements about its commercial activities. Hours after filing the lawsuit, FedEx Ground terminated all contracts with Patton Logistics. FedEx maintains that it has contingency plans to replace those routes and that service will not be interrupted.
In a 29-page complaint filed Aug. 26 in U.S. District Court for the Middle District of Tennessee, FedEx said Patton has misrepresented the financial hardships of FedEx Ground contractors. The suit contends that Patton is urging ISPs to renegotiate their deals with FedEx Ground as a way to drive business to his company, Route Consultant. It also alleges that Patton is overestimating the number of service providers in financial distress and that FedEx Ground is consenting to mid-contract negotiations with ISPs, contrary to what Patton claims.
“For years FedEx Ground has used bullying tactics when interacting with their contractors to create an environment of intimidation,”, Patton said in a statement. “This move to cancel our contracts is a clear case of a $60 billion corporation silencing anyone with a voice.”
Patton had set a date, November 25, Black Friday, as a deadline for FedEx Ground to make changes, or he, the largest contractor would pull out. He dubbed it “Purple Friday.”
Other contractors, he said, would take the same action, because “the overwhelming majority, more than 50% of FedEx Ground contractors, are operating at a loss right now,” he told Chris Brown on the Fleet Forward Fast Forward video podcast, recorded before FedEx responded with legal action.
The message to FedEx Ground, Patton told Brown, was, “you have to restore the financial viability to the ownership of routes. Right now, I am losing money in my daily operations of my own FedEx Ground routes. And we’re subsidizing FedEx Ground’s business. And that is just not a viable path forward.”
In a Wall Street Journal article, Satish Jindel, president of the research firm SJ Consulting Group, said FedEx needs to listen to feedback its contractors — but that contractors also need to improve the way they explain their operations and expenses to the company. If the conflict persists, “the winner will be the competition,” Jindel said.
The Person in a FedEx Ground Truck is Not a FedEx Employee
In the Fast Forward interview, Patton offered more information on the association and insights into the world of a FedEx Ground contractor.
“Most of the United States has no clue that the person coming into your door wearing a FedEx uniform, driving a FedEx Ground truck, is not actually a FedEx Ground employee,” Patton said. “FedEx Ground contracts out 100% of their entire network to about 6,000 small business owners across the United States,” most with somewhere between 10 and 25 employees.
Those constracting with FedEx own delivery territories, both for last-mile delivery and linehaul.
The problem with this model, he said, is that “we don't have any control over our top line revenue. Most other transportation businesses, when your input costs go up — things like fuel and wages and vehicle costs, stuff that all of us are experiencing — there’s at least the optionality to pass that through to a customer. That’s not in the cards for us as contractors for FedEx Ground, because we have operating agreements that last 12 to 18 months. We have no ability to pass through increased costs, so we are 100% at the mercy of FedEx Ground to make, in extreme cases like this, mid-contractual adjustments.”
Patton said historically, the relationship between FedEx Ground and its contractors was kept in balance because FedEx Ground relies entirely on contractors, “if they allow their contractors to financially struggle to the degree where they collapse, then so, too, does FedEx Ground’s entire delivery network. But that has not been the case over the last nine months.”
He contends that the situation is so bad for contractors, “FedEx Ground’s very network is at risk, and it is far more severe than what anyone has any idea about.”
Purchasing Power and a New Last-Mile Association
Approximately 3,500 independent FedEx ground contractor, industry analysts, delivery services professionals and special guests were on hand at Route Consultant’s 2022 Contractor Expo to discuss “the inflation-based and contractual challenges facing the network of small business owners that power the FedEx Ground network,” according to a news release.
Patton says the 6,000 FedEx Ground contractors spend about $15 billion per year collectively in procurement – buying vehicles, fuel, uniforms, etc. — but there is no collective purchasing power. “We will literally go to a Ford dealership and buy a step van at the same price as any listener here would be able to get that same step van. So one of the things that we announced at our expo was the Route Consultant Purchasing Alliance.”
The alliance has five inaugural vendors that, through the purchasing alliance, can offer lower prices on purchases such as fuel and tire services to FedEx Ground contractors and other similar businesses.
Also during the expo, Patton introduced the Trade Association for Logistics Professionals, which he said will advocate for small business owners in the industry, including owners of last-mile delivery routes and linehaul runs, “based on their shared experiences, successes and challenges.”
The association is not just for FedEx Ground contractors. For instance, he said, Amazon has about 2,300 delivery service partners, or DSPs, which operate on a similar model.
“There’s a trade association for really small industries,” Patton told Brown on the podcast. “There’s a basket weaving association. But incredibly there’s just not a trade association, especially for FedEx Ground contractors, but even for the broader last-mile industry.”
Although the association was Patton’s vision, it is taking nominations for an elected 10-person board to direct its initiatives.
With reporting from Chris Brown
Originally posted on Trucking Info