FedEx ISP Transition

Today marks a major milestone for FedEx contractors system wide, as FedEx transitions its remaining U.S. districts to the ISP model. This will be great for business and offer longer contract terms for contractors. The big take away for potential buyers is you have to own at least 5 routes or hit the 500 stop threshold, numbers are lower at rural areas.

January 28, 2016 – FedEx Route Sales
Since 1985, FedEx Ground has successfully contracted with thousands of independent businesses to deliver outstanding customer experiences. Today, we are announcing an important step forward. FedEx Ground will transition its remaining U.S. districts to the Independent Service Provider Agreement (ISP Agreement). All U.S. P&D contracted service providers (CSPs) will operate under an ISP Agreement by the end of May 2020.  This move will provide competitive advantages and will enable FedEx Ground to stay ahead of evolving market trends. The explosive growth of e-commerce and the demands of customers for differentiated service have created a mandate for increased service capacity and operational flexibility to serve both commercial and residential markets. Experience shows that businesses operating under an ISP Agreement can better adapt to these dynamic market conditions and customer expectations.

Transition timeline and options
All U.S. districts in non-ISP states will transition to the ISP Agreement by the end of May 2020. Several districts will transition each year, beginning summer 2016, in waves based on district-specific timelines. A tentative schedule of district transitions will be on MyGroundBiz.com in February, with dates subject to change based on market or regulatory needs. A transition generally takes between 12 and 24 months to complete.

Once a district-wide transition begins, all P&D and Home Delivery Operating Agreements in the district will be non-renewed, and CSPs will have the option to pursue an ISP Agreement, or assign or transfer their service areas and pursue other opportunities. Separate options will be available for CSPs that provide spotted trailer service under a P&D Operating Agreement. CSPs will have ample time to review options and decide the best path forward.

ISP Agreement and contracted service areas

An ISP Agreement is a negotiated contract between a CSP and FedEx Ground that includes a range of financial and non-financial terms unique to the CSP’s business and contracted service area, with a term of up to three years. Tenets of an ISP Agreement also include:
Generally larger, stop-based “contracted service area” (CSA)
Optional vehicle and apparel Brand Promotion
Right to decline package volume in certain circumstances
CSAs are larger and/or denser than traditional primary service areas (PSAs).

For transition purposes, a CSA is an agreed-upon combination of Ground and/or Home Delivery PSAs operating out of a single station, co-location or close-location designated by FedEx Ground, contracted by a CSP operating at “minimum transition scale.” Minimum transition scale is a defined number of PSAs or P&D stops. While generally 5 PSAs or 500 stops, minimum scale may be lower in smaller stations as designated by FedEx Ground.

Among other operationally-driven agreement terms and regulatory obligations, greater service continuity and contingency planning provisions are hallmarks of an ISP Agreement. A key objective is a mutually beneficial vendor relationship that promotes efficient daily operations and smart business growth.

Opportunity for overlap of Ground and Home Delivery stops
CSPs forming their first CSAs under an ISP Agreement have a pivotal opportunity to contract for geographically overlapping Ground and Home Delivery PSAs. Overlapped stops generally create denser service areas, enabling more efficient use of vehicles, fuel and personnel. Customers benefit from operational flexibility to meet their needs and from the convenience of Monday-through-Saturday service. Network resources, such as co-locations and P&D systems, are being aligned to better support these six-day operations.
In recognition of these dynamics, the amount of Ground and Home Delivery overlap in a CSA will be a positive differentiator for CSPs moving forward.

FedEx Ground may consider the mix and overlap of stops as a factor in future contracting. Additional considerations can also include the capacity of the business and its vehicles to handle anticipated volume, especially with rising residential pickups and deliveries.

For CSPs interested in creating more overlap as they pursue minimum transition scale or move to negotiate an ISP Agreement, district operations engineering specialists (DOES) will be available to help measure overlap across existing PSAs. FedEx Ground is committed to working with businesses to achieve mutually beneficial outcomes.

ISP Agreement negotiations

Once minimum scale is met and other conditions are satisfied, negotiations begin, electronically and by phone, between CSPs and FedEx Ground negotiators. Each side has ample time to submit and evaluate proposals and counter-proposals to reach a final agreement. Negotiations typically last four to six weeks.

Available incentives

Incentives are available to eligible CSPs after each district’s transition is announced, regardless of ultimate execution of an ISP Agreement, to include:
Financial transition incentives in exchange for executing a Limited Release and Operating Agreement Modification

Financial growth incentives for acquiring eligible PSAs

CSPs that consider acquiring PSAs before growth incentives are offered in their district may also consider that FedEx Ground will continue to offer Enhanced Contractor Customer Service and Service Capacity Settlement for the remainder of the terms of existing Operating Agreements.

Next steps
We recognize that change may not be easy. To facilitate smooth transitions, additional information and resources are available on MyGroundBiz.com, including a sample ISP Transition Workbook that provides more detail about options, incentives and milestones, and a sample ISP Agreement. (While it should be similar, the negotiated agreement at the time of transition may set forth some different terms and conditions from the sample agreement.)
FedEx Ground will continue to provide information and transition-related resources throughout the process. As always, please reach out to station management or contractor relations with concerns or questions.

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