Are FedEx Routes Good Investments?
E-Commerce Continues to Grow
Although it feels as if our world is already dominated by e-commerce, the market is not done growing.
In 2008, e-commerce accounted for approximately 3.5% of Total Retail Sales in the United States. By the end of 2019, roughly 12% of all retail sales were conducted online. At the end of 2022, that number was closer to 16%, (According to the U.S. Census Bureau). The message here is that e-commerce retail in the United States is continuing to grow and will continue to do so for many more years.
Organic growth of package volume for a FedEx Ground delivery operation is around 20-30% in most markets. During the pandemic of 2020, some contractors saw as much as 80-100% volume growth in their business. Many contractors struggled to provide enough resources to service the increase in packages. Even within the existing e-commerce network, package volume is shifting in favor of independent contractors.
In addition to the organic growth of online retail and package delivery volume, FedEx Ground also works to generate more volume into the network through new initiatives and improved efficiencies. The latest of these initiatives is the integration of FedEx Express packages into the Ground network. By consolidating the networks and funneling more volume into the FedEx Ground pipeline, contractors will continue to see volume growth and improved efficiency over time.
E-commerce package delivery is one of the few industries that is inversely related to the stock market. FedEx Ground delivery businesses have had two major tests as reliable investments in the last 2 decades, once in the 2008 recession and again in the 2020 pandemic. FedEx Ground contractor operations remained stable throughout 2008, and in 2020 and 2021, many contractors experienced massive growth—a 50-80% increase in package volume. We see last-mile e-commerce operations typically benefit from economic downturns and struggling brick-and-mortar retail stores. This makes FedEx Ground routes an excellent diversification option and growth opportunity when other business are struggling.
“As big as e-commerce already feels, there is a lot of market share left. ”
You Are Buying a Revenue Stream
FedEx routes have predictable revenue because there are very few variables that impact them. You can model the current revenue stream of a business, opportunities for efficiency, and market growth to understand potential profit.
When discussing profit margins in this industry, the standard is to use an EBITDA value. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Essentially this is the operational profit of the business before you pay any taxes, before you pay any debt service and interest, before you spend money to replace or add vehicles to your fleet, and before you pay yourself. All of these expenses will be unique to every buyer and his or her own financial strategy, so we look at the profitability of a business before those unique costs are taken into account.
Established, healthy FedEx Ground P&D routes, have profit margins generally ranging between 10-20% EBITDA. This means well-running operations with a Total Revenue of $1 million make an operational profit of $150,000 to $200,000 per year. While there can be some exceptions in very rare cases, if a FedEx Ground business for sale is claiming profit margins well above 25%, it should raise a red flag for you to ask more questions.
Linehaul operations have profit margins ranging between 15-35%, depending almost entirely on the mileage of the runs and whether those runs are solo runs or team runs. Successful linehaul operations with a Total Revenue of $1 million should make an EBITDA profit of $150,000 to $350,000 per year. Again, if you see a business touting profit margins in excess of 40% EBITDA, you need to take a closer look at the financials and use caution.
These businesses can absolutely support a lifestyle income if that is a priority for you. It’s just a matter of finding a business that can support the income you need while still maintaining healthy growth. How much income you can take out for yourself will depend entirely on each individual business and your financial situation. Route Consultant can work with you as part of our consulting program to calculate which businesses would be best for you in order to meet your income goals.
The Value of Equity Appreciation
Equity appreciation is the name of the game. As a FedEx Ground contractor, you have assets in a fleet of vehicles and contractual rights to a territory that holds value. While monthly cash flow can be great, the real value and return on your investment happens when you create liquidity events to capitalize on your growth and the increasing value of your business.
As more and more investors wake up to this industry, the value of delivery routes continues to increase. As you continue to add routes to your operation, you will have opportunities to break off portions of your business and sell to other contractors or new investors coming into the space. These partial sales, or carve outs, serve as great ways to source capital for fleet investments, new acquisitions, or money in your bank account if you wish to maintain your business size.
We have seen many success stories of contractors who entered the space with 10 or 12 routes, grew the business through organic growth and initiatives from FedEx Ground, and in a few years, were able to sell a portion of their business for more than what they initially paid for their entire business. After the sale, their operation is back to where it was when they started, and they can begin the growth process all over again with substantial capital in their back pocket.
Want to Learn More?
Dive into the world of logistics and delivery routes with our complimentary FedEx Ground Routes101 E-Course. This course will teach you the fundamentals of delivery routes so that you can decide if this is an industry worth pursuing further. Whether you’re interested in FedEx Ground routes, Amazon routes, Bread routes, or other logistics operations, we are here to help. Enroll now for free and take the first step towards entrepreneurship in the e-commerce space.
