If you have been a FedEx Contracted Service Provider (CSP) for more than a few
years, you are likely familiar with the shift in how contract negotiations are handled. Long gone are the days of every negotiation being a lengthy, open-ended virtual table negotiation for every single agreement. In their place, we have the MESO program—Multiple Equivalent Simultaneous Offers.
On the surface, this system seems efficient. It presents three distinct (but equal?) options, allowing contractors to choose the path that best fits their operational style. However, after five plus years of this program, a troubling trend is emerging. While the MESO program streamlined the process for FedEx, it may be inadvertently suppressing contractor margins and driving good veteran operators out of the network.
This is the first of a two-part series exploring the MESO dynamic. In this post, we’ll break down the problem: how accepting "convenient" offers creates a cycle of inaccurate data that hurts your bottom line.
The Origin of MESO: Speed Over Specifics
The MESO program was designed with a clear objective: efficiency. Traditionally, renegotiating operating agreements was a time-consuming and expensive process for FedEx. By standardizing offers and limiting the back-and-forth, FedEx drastically reduced the administrative burden of renewing contracts.
In the short term, this benefited the corporation. It saved time, reduced legal and administrative overhead, and created a predictable timeline for renewals. For many contractors, it also felt like a win—getting a renewal done quickly meant getting back to business without the stress of a prolonged negotiation.
But convenience comes at a cost. By simplifying the process, the specific financial realities of individual service areas often get lost in the averages.
The "Validation" Trap
The core issue lies in how MESO offers are formulated. These offers aren't pulled out of thin air; they are calculated based on a set of cost assumptions determined by First & Last Mile Engineering (FLME) and others. FLME looks at a Contracted Service Area (CSA) and estimates what it should cost to run.
Here is the trap: When a contractor accepts a MESO offer purely for convenience or because it looks "good enough," they are sending a critical signal to FedEx. They are confirming that the engineering assumptions are correct.
If LME assumes that the prevailing wage for a driver in your area is $17 an hour, but you are actually paying $22 an hour to retain quality staff, accepting the standard MESO offer validates the $17 figure. You are effectively telling the system, "Yes, this cost model works."
Distorting the Data in an Inflationary Economy
This validation cycle creates a long-term problem for the entire terminal. When the majority of service providers accept the baseline MESO offers, the cost model gets a vote of confidence. The data suggests that current rates are sufficient to run a profitable business.
However, over the last five years, we have navigated a historic inflationary environment. The cost of trucks, parts, insurance, and wages has skyrocketed. If the underlying cost assumptions in the MESO model haven't kept pace with this inflation—and contractors continue to accept them without pushing back—the gap between the offer and reality widens.
As these costs are continually "validated" over time by compliant contractors, the engineering data becomes further distorted. It fails to reflect the actual, on-the-street costs required to service the ISP contract.
Even though the LME engineering models may be using what are assumed to be up to date cost data sets, we are starting to see that there are large discrepancies between "validated third-party" data sources and actual experienced expenses.
The Consequence: A Cycle of Turnover
The ripple effects of this data distortion are severe. When accurate costs aren't reflected in the contract charges, operating margins shrink. This creates unnecessary financial pressure on contractors who are often running efficient, high-quality operations.
Shrinking margins leads to trying to reduce costs by taking "short-cuts" in all aspects of an SP's business. Along with compromised systems and processes, SPs find themselves trying to "do" everything themselves, which leads to less time spent focusing on what is happening in trucks (which is the most important aspect at the core of the business model) in favor of DIY operational & financial administration.
Eventually, the math stops working. We are seeing a trend where experienced, high-performing contractors are choosing to sell their business, voluntarily leave the business, or worse, entirely because the margins no longer justify the effort.
This exit of talent creates a secondary problem for FedEx: turnover. When a good, veteran contractor leaves, they are often replaced by a newer, less experienced operator who may not fully understand the cost model. This new operator might accept a low MESO offer, perpetuating the cycle of bad data.
Ultimately, this leads to service disruptions, higher driver turnover, and instability in the terminal. The administrative savings FedEx gained by implementing MESO are now likely being outweighed by the high cost of contractor turnover and service failures.
Breaking the Cycle
The MESO program succeeded in making negotiations faster and less expensive, but it has likely created a feedback loop that suppresses contract value. By accepting offers based on outdated assumptions, contractors inadvertently contribute to the erosion of their own margins.
So, how do you stop the cycle? It starts with understanding your own numbers better than the engineering model does. In part two of this series, we will discuss the solution: how to approach negotiations with the data and strategy needed to correct the assumptions and secure a contract that reflects the true cost of doing business.
We'll look at what can be done about this in next week's blog post. Until then, you can get even more information below:
