The Business of Independent Service Provider Contracting

Many CSPs are quickly moving into 2024 with cautious and measured optimism, mostly aware of the challenges that lie ahead. It will not surprise most that Network 2.0 is dominating the root causes of most of the concerns.

But with these challenges come large opportunities and solutions, so as forward looking teams leap into 2024, these are the things to prepare for and how to excel in the new year.

6 Challenges & Their Solutions

So, what are the biggest challenges facing CSPs in the near future? 

Without question the largest disrupting changes will result from FXG accelerating the Network 2.0 initiative. Margin management, driver re-training and hiring and a significantly more complex operating model remain some of the largest hurdles for contractor teams.

Often, as a result of package pressure, an overlooked element of being a Contracted Service Provider is the difference between the revenue that is realized by performing services, and what generating that revenue costs.

          We’ll call the difference between the revenue and expense: operating margin.

We’ve seen the early participants in Network 2.0 be faced with some significant challenges managing this margin. 

The most common & significant expense increase comes from adding delivery capacity to service the time definite deliveries. Doing this adds capacity, but it also adds cost, which reduces operating margins. A general business rule to consider is that before any new capacity is introduced, current capacity needs to be maximized.

Some operations, with the help of our operations engineering consulting, are avoiding “margin-squeeze”  by learning to manage the added expense associated with the complexities of time definite deliveries and same-day on-call pickups. While there is an initial shock to the system, it appears most well-led teams are figuring out how to achieve the lofty service expectations of their parent company, without giving all the monetary gains away.

This is a complex topic that we’ll no doubt have to dive into in much greater depth as time goes on, but to try to state it briefly, it is of paramount importance that the Time Definite incentives offered by FXG be realized (paid to you).

We have spent significant time and money developing new functionality in the OPTIX App that enables CSPs to manage this new aspect of the business. Most everyone using it is doing so daily to reach a successful outcome (98.5% Service Achievement).

We’ve talked about this before, but either CSPs will adapt and thrive in the new environment, or they won’t. 

This is such a broad topic and will take so much attention that we had to have a separate seminar about it in September in Huntsville. We’ll likely update it and do it again soon.

From managing by the hour instead of by the day, to driver training, to setting driver expectations, we’ve already seen this tax on existing CSPs. It can be done, but it is “different”.

The demands of Time Definite service will literally transform how CSPs operate. So far, the most successful CSPs are the ones that embrace the culture change and see it as the future of their business. 

As you’ve probably know, the complexity of  your business increases as time commitments enter the picture. 

The operation changes from a “load-the-van-and-go” situation to a “constant monitoring & communication” situation. This has been ushering in a whole new way AOs and BCs approach the planning and execution of day to day operations.

Monitoring the operation, in real time, will quickly become the standard. It is true that in many ways, this already happens, but now monitoring the operation takes on a whole new meaning. In Network 2.0, every stop matters.

The thought that once a van is loaded and dispatched, it is gone, and that little can be done at that point must change. Drivers' actions will need to be monitored and managed much like a dispatcher does in other transportation industry situations. 

We have been working with FXG for over a year now to come up with the tools you’ll need to facilitate Contracting 2.0. The first application to get a major makeover is our new OPTIX app. It gives you the ability to manage your time definite stops, in real-time, so that you can ensure FXG delivery standards.

There are several reasons your contract negotiations will be taking on a new importance in 2024, not the least of which is optimizing your contract for Time Definite Deliveries.

From what we’ve seen, the addition of FXE stops creates a lost revenue opportunity, especially when a MESO offer is selected. These extra stops artificially change the characteristics of every work area. When this happens, it’s likely that your contract was negotiated with a completely different set of characteristics.

The bottom line is, your revenue per stop is adversely affected when you begin your time definite operation. 

We suggest, since we know it’s coming, to renegotiate BEFORE you start unknowingly losing much needed revenue. You just can’t afford to let this happen without doing something about it before it does. 

Since we have clients that have already seen this additional volume, we can help you analyze and optimize your contract like no one else can. Let us help you avoid leaving money on the table!

Increased operational complexity will require greater operations monitoring, which will require more time to execute.  

Where will this time come from?

You and your management staff will have to find time to make all the magic behind Network 2.0 happen. New tasks will not necessarily be replacing old tasks. Rather, they will be needed in addition to what already happens.

So you’ll be faced with another decision. You can decide to just work longer, or, you can eliminate some burdensome, time consuming, administrative tasks.

We suggest you look to create extra time for yourself by utilizing our White-Glove Services. This will give you the time to focus on making your Time Definite operation shine. This, in turn, will increase your revenue from achieving your time definite incentive, and increase your business value by providing the contracted service standards for FXG.

Your investment into White-Glove services will pay for itself many time over!

While this subject is always a concern, this year, as Network 2.0 comes your way, there will be the need to replace attitudes and cultures, before FXG replaces CSPs.

FXG must protect the brand by ensuring that contractors will be able to provide service levels that FedEx customers have come to depend on.

We’ve only seen a few instances where TD service may have played a role in contract termination, but rest assured, once the trial and learning phases are over, FXG will begin to weed through operations that can’t get it right. You know they will.

We talked about changing your business culture above to accommodate the new complexities of your business. In most cases, your drivers will feed off of  the culture of your business.

Nobody cares too much for change, but most will pick up on new policies and procedures. Helping your drivers through the transition by over-communicating with them about it will pay large dividends later.

Since FXG is incentivizing you to protect the brand by offering a monetary payout for superior service levels, we think it would be good business to extend this opportunity to the people that will actually make this happen. Of course, this will take some administration, but don't worry, we are working on this for you through our Payroll Administration service in our White Glove package.

Pro Tip: Our most successful clients continuously recruit drivers, whether they need them or not. This way, they are NEVER put into a compromising position by not having suitable replacements when needed. They budget for it and let us do it for them.

This year and for the foreseeable future, continuous recruiting is a smart investment into your business.

What do you think will be your biggest challenge in 2024 for your business? Tell us below!