The Business of Independent Service Provider Contracting

So your operation has been awarded Bronze, or Silver Trending Bronze Medal status. Should you be concerned?

If you're not, you should be. The majority of Bronze or Silver Trending Bronze-rated ISPs will need and want to shed this rating before the discussion is finalized to not offer a contract renewal.

As you embark on the journey to improve your status, it’s important to remember that Inbound Local Service is no longer, on its own, the best and most immediate way to ensure the happiness of your customer (FXG). The sooner Bronze rated ISPs get comfortable with and embrace a sense of urgency about ALL the metrics that make up their status, the sooner they can make meaningful changes that impact the situation.

By now, most of us have seen or heard the news that FedEx is rolling out a new system for rating contractor performance. 

Initial indications are that there will be three tiers (Gold, Silver & Bronze) and your operation will be classified as one tier or another based on several safety, service and customer experience metrics, on a monthly basis. Word out there is that some operating efficiency data will also be included, so productivity will be a part of this too.

It appears that the days of simply meeting contractually accepted service & safety performance standards to assure continued contracting participation are about to be gone.

So the question being asked is, what does this really mean for contractors?

By any measure, it’s been, and continues to be, a challenging time to be running a transportation business. However, as we often see, there are many opportunities that present themselves during challenging times.

As we look ahead to better times in 2023, it’s important to take a look at where we are currently at and how we got here so that we avoid mistakes of the past.

Our current situation is rooted in the events of 2019. This period introduced the density-stop / ecommerce push from FedEx Ground. As ecommerce deliveries gained traction and increased in number, they fueled the deterioration of contractor per-stop operating margins.

As you know, ecommerce stops are paid at a lower rate and typically include fewer packages per stop vs. commercial stops, resulting in a stealthy revenue per stop decrease across your entire business.

Can anything good come from a grim FedEx earnings pre-announcement?

While the announcement and the withdrawal of next fiscal year’s guidance are ominous signs of storminess to come, there may be a silver lining. In recent months, eTruckBiz has seen a 70% increase in renegotiation requests for its clients being granted, signaling that FedEx may be more willing than ever to work with struggling contractors.

As many of you know from attending our many informational sessions over the years, the contractor model affords FedEx Ground the lowest cost provider of last mile transportation services in the industry.

It appears that now may be the time to unleash the power of this competitive advantage.

THE biggest thing on everyone's mind today is their company's financial health. 

FXG measures it with the Financial Health Assessment, and it is top-of-mind as many must pay keen attention to fluctuating bank balances.

In response to hundreds of requests, and in light of the current crisis, we are happy to announce the launching of our suite of Financial Services designed to help you with this current situation and beyond.

There will be several more specific services coming, but the first and maybe currently most needed is eTruckBiz Capital.

So as you might imagine, there is a considerable amount of chatter out there about some recent, controversial events.

Many want to know what we think about the whole situation.

We’re going to give you some thoughts, but I’d like to point out our perspective on the matter first.

Well, the time has finally come.

FedEx has officially announced the big move that we had known was coming for a long time.

The announcement that they will be combining most of the operating components of their networks will trigger significant operational changes. The plan does include utilizing mostly contractors, even though some are currently struggling.

Many will recall that we have been signaling for more than 5 years that a change was coming. By far the largest issue will be that the demands of the new network will force contractors who operate Lifestyle Businesses into operating Transportation Companies.

The time has come to put old habits behind and embrace change, or get left behind. 

How can one the most attractive elements of FXG contracting be the most detrimental to it as well?

Current economic conditions are uncovering some of the large stumps that have been covered by high tides for many years. 

Business as usual used to consist of volume growth, turnover & recruiting challenges. 

Volume growth meant revenue growth, and this growth usually meant a steady or rising checkbook balance that could be relied upon to make payroll and other bills. Revenue growth also covered up deteriorating productivity and dare we use the term “efficiency”.

Now, growth, at least until FDX unlocks more of the upcoming plan (which we'll be addressing in detail, stay tuned, much more to come on this), is now not there to keep the boat from hitting the stumps.

By now, it’s easy to see that everyone’s operating margins are being seriously squeezed.

In an effort to force some sort of helpful response, some made a plea to FXG asking for assistance in various areas to solve a worsening financial situation. 

Trust us when we say that FXG is very aware of the plight of CSP & TSP’s.

But now, there is another added challenge that has reared its head. This one, along with inflation not seen for generations, is going to create some unprecedented financial problems that will test even the best operators…

So it’s not the 2008 financial crisis, but in the FXG Contracted Service Provider world, it could ultimately prove to be worse.

A combination of events has spawned a crisis that we foreshadowed back in August of 2021 in our post:  the Dark Side Of Density.

What we described in that post has ultimately proven to be true, and is now exacerbated by the quickly deteriorating economic conditions.

As business owners, solving problems is a daily occurance. This one however is going to need full attention, for an extended period of time.

Let's begin our look at what to do about all this by analyzing the root causes of why the issues now exist...

Any investment made into a business should be measured by its return. Simply put, when businesses invest in a product or an initiative, they expect that the profits created by the investment will outweigh the cost of the investment.

This is no different in the transportation industry.

If you take a minute to think about what options you could invest in, that could provide you substantial returns, what is it that comes to mind? New trucks? The latest software package that promises the world? Some other shiny object?

There is one thing, that may not be obvious, that will no doubt provide you with a lasting return on your investment. Most larger companies understand that investing in this one thing provides big time returns, and don’t mind the investment it takes.

And now, this type of investment is available to you…

As you may know, FXG Contractors and their Managers have chosen eTruckBiz University for in depth training for almost a decade. Since our very first class in Huntsville, Alabama, we have received a tremendous response from those who understand the importance of continuous education. Thousands of hours have been spent updating, refreshing, and tweaking our curriculum. Why? Because it's critical to our customers' success.

Training your team is the same as putting fueling in your trucks. Without regularly filling up the tank, your people are running on fumes. 

In fact, FXG requires continuous safety lessons, right? That's because statistics prove when training stops, people assume it's no longer important. Hitting your Service Levels requires fuel in the trucks. Staying compliant with your Agreement requires completed safety lesson. And making your business profitable requires essential, off-site training for your key people.

However, some AO's still want to know why this type of training is important, and, is there a return on this investment? That's a great question.

Well, here are 9 reasons why the question shouldn't be if I should send my managers to the University, but how soon can we attend?

It happens every year.

As the package volume builds, so do CSP / TSP stress levels, as well as the risk of an operation getting out of hand.

We surveyed a large number of our "veteran" clients to find out which tasks cause the most stress. Then, followed that up by asking how they alleviate the pressure and stress.

The results were interesting.

The good news is that the actions needed to relieve the stressors are easily accomplished and readily available.

In this uncertain time, it seems like there was one thing that was certain.

It appeared that stops and volume were marching forward, with no regard for the turbulence and difficulty that we were told surrounds us. 

In a roughly 2+ year environment of growth, the rising revenue tide hid many tree stumps, and kept the good ship Contracted Service Provider sailing happily into the sunset.

All was well.

Until it wasn’t.

Recently, the volume has leveled off and in many cases, retreated.

This dip is not too much different from a “normal” summer, but this time, it hurts...bad. 

Let’s look at why.

What do you get when you combine:

• the current regulatory environment, 
• significant shifts in market demand resulting in large changes in CSA characteristics,
• the demand from Wall Street & investors for increased ROI,
• and a cult following of litigious regulators and attorneys looking for big paydays?

Let’s just say that it looks a lot like today.

All these forces are coming together to bring about what could be the largest, most sweeping change in FXG’s business model ever, which will in turn, drastically change how you monitor and run your businesses.