Buying a FedEx Route? Understand Why Contractors Sell

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FedEx Ground contractors cite many reasons for selling their FedEx Ground routes. Many of our sellers are ready to retire, spend more time with family, or focus their business efforts elsewhere.

We also often post FedEx routes for sale that represent only a portion of one contractor’s business. They are not leaving the business, but rather making materials changes to their portfolio for a variety of reasons.

Other times we do sell a collection of routes because of poor performance: a contractor failed to operate efficiently or (rarely) lost their contract with FedEx Ground.

Industry Impacts on Routes for Sale

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Sellers may sell routes,

To raise capital for other areas of their FedEx route business

To avoid change or capital expenses

Due to poor performance

So they can retire, relocate, or focus efforts elsewhere

Understanding a few aspects of this industry will help you understand how and why someone might sell FedEx routes for sale.

operation Scale requirements

With a transition to an Independent Service Provider (ISP) model in recent years, FedEx Ground put into place scale requirements for contractors. Each business must have a minimum of five routes or 500 stops per day.

On the flip side, every FedEx Ground terminal has a unique scale cap based on the size of the terminal and the geography of the Customer Service Area (CSA). Each FedEx terminal limits operations out of their terminal to between 8 and 25% of terminal stop volume.

The combined operations inside an average FedEx Ground terminal make approximately 15,000 stops per day. As an example, if a terminal has a scale cap of 10% then no entity operating from that terminal should make more than 1,500 stops in a day.

Scale caps exist to prevent massive service disruption in a geographic area if one operation fails.

At times you will see that sellers sell a portion of their routes in order to rebalance their portfolio. This may be in order to come in line with new scale requirements; perhaps they had more than 15% of the routes in a terminal. Other times, a contractor may sell a portion of routes in one terminal in order to raise capital for growth in another.

Linehaul vs. P&D

There are two types of FedEx Ground routes: pick-up and delivery (P&D) routes and linehaul runs. P&D operations deliver to local homes and businesses in a designated territory. Linehaul tractor-trailers move freight from one distribution center to another.

You can think of FedEx Ground P&D routes as the box trucks you see out and about in your community. Conversely, you can think of the FedEx Ground linehaul runs as the semi-trucks you see on the highway.

Profit margins for a FedEx route business range from 15% to 45% depending on the portfolio of routes, with long distance linehaul team runs being the most profitable.

Many FedEx Ground contractors start their businesses in this industry with P&D routes. A Fedex Ground P&D route business allows for a higher margin of error starting out and requires slightly less contingency planning. However, they are less profitable than linehaul runs.

You may find P&D routes for sale when a contractor rebalances his portfolio and needs to raise capital to purchase additional linehaul runs.

Avoiding Change + Capital Expense

Historically, FedEx Ground contractors operated under the Independent Contractor model (the IC model).

In 2016 FedEx Ground began transitioning all contractors to an Independent Service Provider (ISP) model, to complete in May 2020. These changes require ISPs to follow new guidelines, such as scale (referenced above) and overlap requirements.

Further, this past year FedEx Ground announced sweeping changes to ISP operations including SmartPost volume, the large package network, and 7 day operations.

These changes materially change business operations for ISPs, and at times require capital investments.

Additionally, FedEx Ground mandated that as of 2023, contractor fleet vehicles will not be more than five years of age. For current contractors that do not have a “stair step fleet” (vehicles strategically purchased and spaced out), this is another large capital expense.

For some longtime contractors, the pace of change is too exhausting and they are unwilling to make time and cash investments to update. They elect to sell their FedEx routes instead.

Poor Performance

A strong pickup and delivery (P&D) operation has a profit margin between 15% and 20% (on rare occasions near 25%). Linehaul operations have a wide range of profit margins between 20% and 45%, depending on the composition of the linehaul runs.

FedEx routes are fantastic business investments because they have predictable revenue streams. Few variables impact revenue and the e-commerce market continues to drive steep growth in the logistics space.

A strong pickup and delivery (P&D) operation has a profit margin between 15% and 20% (on rare occasions near 25%). Linehaul operations have a wide range of profit margins between 20% and 45%, depending on the composition of the linehaul runs.

As a contractor, you will make and grow your profits based on how well you manage your expenses. If you can control you payroll and your repair/maintenance expenses, you will be profitable in this investment. It’s that simple.

That being said, some contractors make grievous errors or find that their business skills are not well suited for this industry and their businesses are less profitable than expected. This may cause them to sell their routes. Investors that purchase routes for sale with some or significant room for efficiency improvements can often get these routes under market value.

Very rarely, contractors lose their contract with FedEx Ground. This happens after repeated safety concerns or customer service issues with no resolution. In these cases FedEx Ground will give the contractor 30 days to sell the business and they may give sellers even longer.

The upside here is that despite poor service or safety, the selling contractor has an opportunity to recover their investment. And buyers may be able secure routes for sale due to contract termination under market value.

What's Next If You’re Looking at FedEx Routes for Sale?

If you are interested in buying a FedEx Ground route, check out our listing page for operations currently on the market.

If you are feeling like a fish out of water and appreciate the expertise of industry insiders, contact us for consulting. We can walk you through pieces of the puzzle for buying a FedEx Ground route.