FedEx contractors feels the squeeze

The Washington Post reports that US FedEx contractors that deliver its parcels are feeling the pressure of its price rises. These price rises come as margins fall for the company and competition at the top end of the market intensifies. 

FedEx has announced plans to start a Sunday delivery service, deliver more small e-commerce packages, and and improve its handling of larger parcels. It uses contractors, who are being forced to buy expensive handheld computers from outside vendors, operate onboard cameras and for the contractors to take over vetting of drivers.

“Obviously, the future is pretty scary right now, with the e-commerce issues and what they’re going to pay,” said Tracy Toothman, whose Grand Rapids, Michigan-based company has delivered for FedEx since 1998, when the package giant expanded from air service to include ground deliveries. “The expenses have been going up exponentially. I’m just hoping the income will be there.”

The delivery contractors, who are effective franchises, are unlikely to walk away from FedEx due to the changes thanks to building their businesses on the FedEx brand. The pressures on them increase however as FedEx goes from delivering for Amazon to competing with it, and also competing with arch rivals UPS.

Financial pressures have been increased as margins are squeezed on e-commerce parcel delivery. E-commerce involves just one or two deliveries per drop while B2B deliveries often involve several packages per drop, costing less per delivery. 

FedEx’s stock price is falling thanks to its operating margin sinking to 6.5% in 2018, down 1% on the previous year. This compares unfavourably with a 9.8% margin for UPS which relies on a unionised workforce of company drivers and even while sometimes battling with the unions has a better balance sheet.

“The margin compression is what Wall Street is focused on,” said Loop Capital analyst Rick Paterson. If FedEx’s margins get squeezed much more, “they’ll be under a lot of pressure from Wall Street.”


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