Why FedEx Is Suing the Delivery Contractor Demanding a Better Deal
- FedEx and its largest contractor are locked in a debate over how to deal with rising costs.
- The spat intensified on Friday when FedEx filed a lawsuit against Spencer Barton’s company.
- Hours later, FedEx Ground terminated all of Patton’s contracts. This is how we got to this moment.
On Friday, FedEx filed a lawsuit against Spencer Patton, now the largest courier contractor.
Hours after filing a lawsuit seeking “permanent injunctive relief and monetary damages” over “false and misleading representations” on the grounds of FedEx, the Memphis company terminated all contracts with Patton.
“I’ve been forced to pull our small businesses out of the communities we serve, but we’re working hard to get our employees back home,” Patton said. The logistics portion of Patton’s business employs 225 people in 10 states. The lawsuit targets Route Consultant Inc., Patton’s courier business consulting firm, which the case claims has been the true beneficiary of all of Patton’s efforts to date.
“We can confirm that FedEx Ground has exercised its right to immediately cease contracts with a small number of service provider businesses owned by a single individual,” a FedEx Ground spokesperson said in a statement. “While these businesses operate in multiple locations, , but they represent less than 0.5% of the roughly 60,000 total routes in the FedEx Ground network. We have contingency plans in place and do not expect any service impact from these contract actions.”
Friday’s incident was the most high-profile so far in a bitter battle in July, when Barton warned that FedEx Ground’s reluctance to address concerns of the 6,000 independent contractors delivering packages had driven many out of business. , and put its network “at risk”.
Since then, Patton has started forming a trade group to represent contractors and has spoken about acquiring small business franchises. He encouraged his fellow contractors to be wary of FedEx’s compensation for the upcoming holiday season, and said he would shut down his delivery service if FedEx didn’t make operational and contract changes by Nov. This threat is now ineffective.
FedEx said the ground network was sound and it would consider any attempt to collectively bargain as a breach of contract.
Here’s how the controversial partner got there:
FedEx ground contractors have long had various grievances. At the top of the list is FedEx, which in May 2019 changed its service to a 7-day-a-week service — many said Sunday’s demand wasn’t enough to make it profitable.
But things got worse last winter when FedEx overestimated package volumes for the 2021 holiday season. The disconnect between forecast and reality has made it difficult to make enough money to cover the cost of expanding operations, and many contractors told Insider they still haven’t recovered.
In January, 800 contractors signed a letter to FedEx Ground detailing their problems with rising costs (especially fuel) and diminishing returns. “We need help badly!” the letter read. Contractors said their spending decreased by 20% from the 2020 to 2021 holidays, even though the number of packages was about the same. Vehicle costs have increased by $10,000 and wages have decreased by 30 percent compared to a year ago, the letter said.
fire fuel surcharge
In a March 18 letter to contractors, FedEx Ground CEO John Smith said the company looked at contractors’ gasoline and diesel reimbursements and decided no special action was required. “Our data suggest that service providers using both fuels are seeing increases in fuel-related payments on a weekly basis, commensurate with recent changes in market fuel prices,” Smith wrote.
“What really lit this powder keg,” Patton told Insider last week, “was when FedEx released and highlighted in their earnings report that they had successfully passed the fuel surcharge on to the U.S. consumer and then didn’t pass all of that on to the U.S. Consumers. Their contractors.”
In late July, Patton issued his first video request to FedEx, warning of the contractor’s financial health. He called for wage increases and promised to let his contractor colleagues elect a committee of 10 to represent their interests.
Contractors who vote in September will join what Barton calls a trade association for logistics professionals. He later said the agency could seek to reclassify FedEx contractors as franchisees as a last resort.
Responding to Patton’s plot, Smith said any contractors who tried to bargain collectively would be in breach of contract.
In a mid-August employee talking point memo obtained by Insider, FedEx said it had “multiple contingency levers available” to maintain service consistency despite claims the contractor had failed.
As for franchising threats, the document says each business “must determine whether it is in their organization’s best interests to join any trade association.” It also says the current service provider model “doesn’t serve a franchisor/franchisee relationship.” .
Patton threatens FedEx’s sacred cash cow
Last week, more than 4,000 FedEx contractors — about two-thirds of FedEx’s ground network — held the annual Barton-hosted conference in Las Vegas. He used the venue to announce that if he didn’t see operational and contract changes by Thanksgiving, he would shut down his delivery service.
Patton also encouraged his fellow contractors to take a hard look at contracts offered by FedEx over the holidays, calling the deal an opportunity for the company to “restore contractor confidence.” If a large number of contractors reject the deal, it could affect FedEx’s ability to cash in during its busiest season. “This is one of the most powerful forms of leverage that my independent business and I can exercise through FedEx Ground,” Patton said at a conference last week.
“My heart is to see FedEx Ground make a lot of money,” Patton said in one of his two keynote speeches at the conference. “I just need to see that contractors can make money too.”
FedEx Strikes Back
In the lawsuit, FedEx accused Patton of creating a “fictitious crisis” between FedEx Ground and its contractors “to promote the alleged need for Route Consultant’s consulting and other services.”
In a statement released after filing the lawsuit, Patton said, “I’m not afraid of a lawsuit from FedEx.” He also told Insider in July that he knew losing his contract was possible.
“For years, FedEx Ground has used bullying tactics to create an intimidating environment when interacting with contractors,” he said late Friday. “The move to cancel our contract is a clear case of a $60 billion company silencing anyone with a voice.”