FedEx Ground creates 3-tier grading system for driver contractors

FedEx Ground is putting its pickup and delivery contractors through an extensive performance-grading process that could result in some contractors losing their exclusive rights to bid on and negotiate contracts to serve routes, according to a well-placed source.

The U.S. ground delivery unit of FedEx Corp. (NYSE: FDX) has established three performance levels: gold, silver and bronze. Contractors who receive a “bronze” grade, which is the lowest level and in the company’s view reflects poor efficiency, poor customer service or both, will lose their once-exclusive right to negotiate for their routes and will be subject to open bidding for them, according to the source.

This means that those contractors can lose their routes if the company believes that another bidder has submitted a superior price-value proposition, the source said.

Those who are graded as “silver” will effectively be treated neutrally, with no punishments or rewards, the source said. It is unclear what rewards “gold” contractors will receive, the source said.

The evaluations, the first of their kind in FedEx Ground’s history, are currently being rolled out, according to the company. They are expected to be conducted at all of the company’s 600 or so terminals.

Of FedEx Ground’s approximately 6,000 contractors, 5,000 are local pickup and delivery providers. The 1,000 contractors that perform line-haul services are not part of the new program, the source said.

In a statement, FedEx Ground said the process will play out in face-to-face district forums over the next month. The company acknowledged that it is “launching a new data-driven approach to communicating contract-specific results via an online dashboard.” The results can be used to identify opportunities as well as recognize service provider companies with superior results,” according to the statement.

The new approach is “part of how FedEx Ground is adapting its business to evolving market dynamics and customer needs, and has been informed by input from many service provider businesses,” according to the statement. There was no mention in the statement of specific rewards or penalties.

The source disputed FedEx Ground’s contention that the process has yet to begin, saying that at least a dozen contractors have already sat down with senior management at their terminals.

FedEx Ground works with an exclusive network of driver contractors to pick up and deliver parcels across the country. Each contractor operates over routes awarded by the company and is paid on a per-stop basis. In return, each contractor is responsible for hiring and firing drivers, setting routes, and buying equipment and other resources. 

FedEx Ground and its contractors were embroiled in controversy last year after some contractors warned that they might be forced out of business around the pivotal holiday season unless the company provided financial assistance to help contractors offset rapidly escalating costs during a period when delivery volumes had flattened out after a frenetic two years following the COVID-19 pandemic.

The story about the grading story was first reported by Bloomberg.

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