The Business of Independent Service Provider Contracting

This week, it was announced that all Canada Ground operations are going to eventually be converted to FedEx Express Canada over the next year and a half, as part of the larger Network 2.0 operational transformation.

While we don’t know what the plans are exactly for the U.S. network, we can make some logical assumptions about what the move probably means and doesn’t mean for current CSPs.

What It Probably Means

The move had to be consistent with the overall theme of Network 2.0, which is to increase efficiency and decrease costs. When this initiative was announced last June, billions of dollars of savings were cited as the reason for making this effort. So if this move ultimately increases per unit costs, there’s going to be a lot of explaining to do.

It also means that most U.S.-based CSPs are now concerned and questioning their destiny. 

While all small businesses should always be concerned about their short and medium-term futures, the replacement of CSPs with “Employee Couriers” is NOT consistent with the stated goals and objectives of Network 2.0. It’s possible that the lack of density north of the border led to a different cost structure, making the transition to employees more in-line financially with the Alaska and Hawaii markets.

This was an aggressive move in the transformation to Network 2.0 process, which means we should not be surprised when there are (many) more aggressive moves that follow. Wall Street was promised results and the only way to achieve them will be with many more bold moves.

It also means the issue of P&D Optimization will likely resolve itself by creating some sort of hybrid approach  - utilizing both employee couriers and CSP personnel in the last mile space.  We think it is likely that if and when the transformation shows results, there will likely be an additional reliance on CSP- provided transportation in the future. 

What It Probably Doesn’t Mean

We do not believe FedEx will end contracting with U.S.-based CSPs. We know there is a lot of fear and concern out there, but being the low-cost provider of most last mile services has its advantages, and this is one of them. The transformation talked about in most all the Network 2.0 communication is Express going to Ground, and not the other way around.

It also doesn’t mean an end to the melding of most all Linehaul networks together. Linehaul, and the hub network are arguably the most important components to making Network 2.0 become a reality, even in Canada. Linehaul, in its combined form, is most likely immune from an exit from the contractor model.

A Side Note

For those of you who “speak FedEx”, you’ll see some new phrases, like “a market-by-market approach to P&D Optimization” in some of the communication. While we said above that it is unlikely that what happened in Canada will happen in the U.S., this new phase will leave a lingering question in many minds about how it will all ultimately shake out.

You’ll want to keep aware of anything, like a contract modification, that has to do with the optimization of your CSA. Please watch your modifications closely and contact eTruckBiz for any related questions about this you may have!