Managing a FedEx contracting business requires more than meeting delivery
deadlines. Behind every successful operation is a business owner juggling multiple responsibilities—from vehicle maintenance to regulatory compliance. While the opportunity for profit is significant, the financial challenges contractors face can lead to overwhelming stress, especially without proper preparation or planning.
We have compiled the following list from data collected from thousands of negotiation consultations and hundreds of business analyses over the years.
If you're a FedEx contractor grappling with financial stress, you're not alone. This article explores the top 10 reasons contractors in this space encounter financial pressure. With insights into these challenges, you'll be better equipped to anticipate, manage, and overcome them.
1. Poor Understanding of Operating Costs
One of the leading causes of financial stress in the FedEx contracting space is a lack of clarity regarding operating costs. Contractors who underestimate the expense of running their operation often find themselves over budget in critical areas. From fuel and maintenance to payroll and administrative expenses, every dollar needs attention.
Solution: Developing and regularly updating a comprehensive operating budget can help contractors understand their true costs and make informed business decisions. Tools like detailed dispatch yield analysis and cash flow analyses should be reviewed monthly to ensure you're on track.
Recommended Business Support System (BSS) Program: budgetIQ program
2. Ineffective Budgeting and Financial Planning
Even if contractors understand their operating expenses, ineffective financial planning or failing to stick to a budget often leads to overspending. Without strategic financial management, unexpected costs can quickly spiral out of control.
Solution
Create an actionable financial plan tailored to your business needs. Break it down into manageable categories, such as vehicle expenses, staffing, and contingency funds. Leave room for flexibility so that emergencies don’t completely derail your finances.
Recommended Business Support System (BSS) Program: budgetIQ program
3. "Nursing" Old Trucks
Fleet vehicles are the lifeblood of any FedEx contractor's business, but they're also costly to maintain. Without diligent maintenance schedules, minor issues can escalate into major repairs, and vehicle downtime can result in revenue loss. Trucks are revenue-generating tools, not time, attention and money-sponges.
Solution
Invest in preventive maintenance to avoid costly repairs. Partner with trusted mechanics, and budget for repairs. Additionally, budgeting for and updating your fleet to include newer, fuel-efficient vehicles can reduce long-term maintenance costs.
Recommended Business Support System (BSS) Program: budgetIQ program, adminIQ
4. Working "In" Instead Of "On" Their Biz
Financially struggling CSPs often find themselves deeply involved in the day-to-day operations of their businesses. This is usually due to the absence of effective systems and processes, which leads to breakdowns in overall business operations.
Solution
Adopt a streamlined management strategy by leveraging skilled, experienced, and cost-effective third-party services to free up the AO's time for higher-value tasks. Regularly monitoring BCs and drivers to ensure the proper execution of their responsibilities leads to greater efficiency and a higher return on time invested compared to a DIY approach.
Recommended Business Support System (BSS) Program: budgetIQ program, adminIQ, performanceIQ
5. B/C Compatibility & Adaptability
Many contractors overlook the critical role a B/C plays in reducing financial stress. The state of your business often reflects the efficiency of your systems, processes, and the leadership provided by your B/C. Network 2.0 is designed to transform the way we think about the B/C role. The question is, is your B/C ready to rise to the challenge?
Solution
Partner with a seasoned advisor with expertise in the FedEx contracting space to conduct a comprehensive assessment of your operations. Leverage detailed checklists and provide targeted training and coaching for Business Contacts (B/Cs), ensuring your team is well-prepared for the ongoing Network 2.0 transition.
Recommended Business Support System (BSS) Program: performanceIQ, adminIQ
6. Lack Of Proper Driver-Methods
The efficiency and seamless performance of a UPS driver stand in stark contrast to that of an average CSP driver. The key difference lies in proper training and accountability. These critical elements form the foundation of a well-executed Pickup & Delivery operation—an area where financially strained operations often fall short.
Solution
Create a structured schedule for observation and engineering rides, ensuring your BC actively participates in these sessions. It’s essential for BCs to develop strong area knowledge while providing drivers with valuable attention and constructive feedback.
Recommended Business Support System (BSS) Program: performanceIQ
7. Resource Under-Utilization
A core principle of business success is maximizing the use of your resources. Idle trucks and drivers during otherwise productive hours can significantly hinder your operations and drain your business’s potential.
Solution
Turn to UPS for inspiration on maximizing resource efficiency. Through strategies like wave dispatches, specialty routes, slip-seating, and remote re-loading, UPS demonstrates how to optimize operations and increase revenue using existing resources. These techniques showcase the potential for smarter resource utilization to drive greater profitability.
Recommended Business Support System (BSS) Program: performanceIQ
8.Not Achieving A High Enough Dispatch Yield
FedEx closely monitors its "Yield per Package," a key metric that tracks the difference between the revenue earned from a package and the cost of its transportation services (you). Contractors should adopt a similar practice, regularly tracking this metric daily or at least weekly. It serves as a vital indicator of your business's financial health and sustainability.
Solution
Review your dispatch yield daily to identify areas that may require adjustments. Consistently focusing on this seemingly straightforward task can lead to significant gains as you refine your approach to maximize efficiency and improve yields.
Recommended Business Support System (BSS) Program: budgetIQ program
9. Reliance On Route Optimization Software
Ineffective route engineering and planning leads to wasted time, higher fuel costs, increased wear-and-tear on vehicles, and possibly, lost revenue. Many contractors underestimate how much inefficient route planning can impact their bottom line. Drivers should no longer need to manually alter their routes themselves.
Solution
Learn how to use and ensure BCs are current with the latest FRO functionality. Old habits die hard and in order to capitalize on Network 2.0, drivers will have to, as closely as possible, follow engineered routes, without alteration.
Recommended Business Support System (BSS) Program: performanceIQ program
10. Exotic Driver Bonus Programs
It’s surprising to discover that most CSPs perform better than they realize—at least until it’s time to pay drivers their weekly bonuses. Many specialized programs allocate 10%, 15%, or even over 20% of total business revenue to driver compensation, which significantly impacts overall performance.
Solution
Adopt an hourly pay structure at a competitive rate, removing unnecessary bonuses. This approach promotes accountability and supports the efficient management of multi-facility operations.
Recommended Business Support System (BSS) Program: budgetIQ program, adminIQ, performanceIQ
What about if FEC just increased settlement? Wouldn't that solve the problem?
It would it be wonderful if FEC increased settlements across the board. But the fact of the matter is doing that won’t solve most of the issues above.
In some cases, settlement increases are justified, particularly due to the logistical demands associated with higher Express volume. This often involves additional resources, staffing, and operational adjustments to meet the time-definite demand efficiently. We’ve already begun to see these changes take shape as businesses adapt to the evolving needs of the market. But it matters little if the challenges above are not addressed
Financial stress in the FedEx contracting space is real, but it’s also manageable with the right strategies and tools in place. By understanding the top challenges and proactively addressing them, contractors can protect their bottom line and focus on growth.
If you're ready to regain control of your finances and streamline your operations, take the next step today. Whether it’s creating a standard operating budget or custom expense plan , small adjustments now can lead to significant improvements down the road.
Want expert help to tighten your financial plan? Get your free customized Operating Budget + Financial Plan with eTruckBiz today.