The Business Of Independent Service Provider Contracting

WHY Is FXG Transforming Its Biz?

Posted by Jeff Walczak on Jun 30, 2019 10:33:52 AM

We’ve established for quite some time that the Transformation is coming, and now we’ve seen that it’s here.

Delivering Transformation

The entire transportation industry, especially the last-mile small package segment is undergoing swift transformation.

In order to compete and even survive, FXG, and you, are going to have to accept and embrace change as it sweeps through the industry.

But why change the business model, and what does changing the model mean?


It’s pretty simple:

Intense, continued pressure on all, especially FedEx Express margins means action must be taken:

https://www.yahoo.com/news/fedex-fiscal-4q-earnings-snapshot-202515050.html

The good news is they’ve seen this coming for quite some time. The bad, or what ultimately should be looked at as good news, is that fixing this problem means you will need to transform your business as well.

What Was Old Is New Again

Today’s FedEx Ground was once RPS (Roadway Package System). RPS was able to break UPS’ formidable death-grip on the small package delivery business by offeringRPS Truck technology (which was soon matched) and other critical components that ultimately led to the ability to survive and actually thrive in the once impenetrable market dominated by UPS.

RPS utilized contractors to provide the actual transportation for its delivery network. The use of contractors, while extremely difficult to manage, provided a cost advantage that UPS couldn’t match. It also meant that RPS couldn't be priced out of the market.

Fast forward to today and you will see that it appears that this strategy, with some twists, is now being implemented, likely across the entire FedEx empire.

https://www.commercialappeal.com/story/money/industries/logistics/2019/06/27/fedex-ground-ups-amazon-residential-deliveries/1572910001/

In fact, FedEx President Raj Subramaniam recently stated that FedEx expects Ground: “to become the low-cost last-mile provider in the industry” in a recent call with investment analysts.

You can bet, and of course we’ve been saying, that if the new strategy is to adopt the old strategy, that you can expect your business to grow rapidly as FDX moves more of its volume your way and as the overall corporate strategy is implemented.

Okay, But They Are Not Going To Use Contractors?

One of the important differences between the old RPS low cost "contractor model" and the new FedEx low cost strategy is the use of small to medium sized "transportation companies" (instead of "contractors") to provide transportation services . Small transportation companies can be nimble, operate autonomously and be super-efficient. While still needing some form of corporate structure, training & administrative support (see eTruckBiz), these smaller operating units can benefit from low overhead while not having to be burdened with non-operating costs, such as sales or accounts receivable administration and more.

This move is grounded in the lessons learned over 30 years of utilizing contractors for transportation. Many smaller contractors didn't really understand what owning and operating a business meant.

This led to problems up and down the operational ladder while RPS / FXG had to compensate for the lack of business savvy of its "contractors".

The majority of the single van type contractors thought they were really employees, and worse, acted like it. This led to a multitude of problems and made this business model very difficult to manage from a corporate (RPS / FXG) standpoint.

winnerSo enter the ISP agreement and the 500 stop minimum. This move was aimed at eliminating many smaller, “lifestyle” type businesses. 

An attempt is now being made for any operation that survived this cut, to be transformed into a transportation company.

In fact, most of the remaining larger operations today have grown and still have many roots from very small operations, and are still being run like lifestyle businesses.

So beware, the thinning of the herd continues.

They’re Betting The Farm On You

In order for Ground “to become the low-cost last-mile provider in the industry”, it is going to have to depend on small to medium sized Transportation Companies to provide the power to make the network function.

FedEx is too big to utilize individual contractors, which is already known to be troublesome.

FDX is betting that you can Transform your Lifestyle Business into a super-efficient Transportation Company.Rolling The Dice

The transformation has been underway for years now, but you just didn’t know it. You’ve felt it getting harder to run your business, but didn’t know why.

Now you do.

In order to match what now appears to be the new overall strategy, which is to adopt the old RPS strategy, FDX needs to use highly efficient “Small Transportation Companies” to provide the means necessary to make it all work.

They are betting that there are enough of you out there that will be able to transform.

Keep in mind that transforming your business cannot be done by buying iPads for your drivers.

Transforming your business is a process that will take time, and money, and significant effort to accomplish. But it can be done.

We are here to help you do so.

First, you must ask yourself if you really want to make this change.

 

 

 

 

 

 

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