How Are FedEx Ground Contracts Structured?
Learn About How the FedEx Ground Contract is Structured
As a new FedEx Ground contractor, you may find contract negotiations overwhelming. There are a lot of moving pieces to the puzzle, and the contract contains many different important elements that control how you operate as a contractor.
Following is a quick overview of the charges included as part of your agreement with FedEx Ground as well as some other elements that you need to be aware of.
Contract Charges
When we talk about charges here, we are talking about how much FedEx Ground pays you for the services you provide. You are charging FedEx Ground for your services as an independent contractor.
P&D
For P&D, the money you earn for your services comes in two forms: a fixed revenue portion and a variable revenue portion. The rate of each charge is determined by the volume and expense projections of your specific territory. How much of your contract is fixed revenue or variable revenue will be negotiated between you, the contractor, and FedEx Ground. All of these charges combine to determine the weekly cash flow into your business.
It’s critical that you understand how and when these charges occur. And how you can increase your cash flow!
Service Charge: This is a fixed amount of money that is paid every week. Think of this like your base pay.
Stop Charge: This is a variable component that is the base amount paid per stop that each driver makes.
Surge Stop Charge: Every contractor has a daily stop threshold or a contractual maximum number of stops that FedEx Ground says that you (their ISP) agree to make per day. Any stops your team makes above your daily stop threshold earn you an extra charge, on top of the regular stop charge. Contractors negotiate the surge stop charge with their agreement.
Per Stop Fuel Surcharge: FedEx Ground helps subsidize fuel costs. This variable charge is paid per stop and fluctuates with current fuel prices.
Package Charge: This is a charge that is paid per package delivered; you negotiate what that charge will be per package as part of your contract.
Large Package Mix Charge: FedEx Ground specializes in large packages (sometimes these are known as incompatible packages or ICs). If your operation delivers a package that falls into the large package category, determined based on weight and dimensions, a surcharge applies.
Apparel Brand Promo Charge: ISP contractors receive a flat rate amount per pay cycle to encourage their team to wear appropriate FedEx Ground brand apparel.
Vehicle Brand Charge: ISP contractors receive a flat rate amount per pay cycle for every vehicle they operate that has a FedEx Ground logo on it.
eCommerce Stop Charge: This charge accounts for all SmartPost stops. This eCommerce (SmartPost) charge is offered at a discounted rate compared to the regular Stop Charge.
eCommerce Package Charge: For every SmartPost item delivered, FedEx Ground offers a discounted rate compared to the standard Package Charge.
Linehaul
The charges of the linehaul contract are much simpler. Unlike P&D where contractors are paid per stop and per package with various negotiated rates, linehaul contractors are paid for each mile traveled. Linehaul contracts also include a fuel surcharge that fluctuates with the cost of diesel. The key for linehaul, though, is the more miles you travel, the more revenue you make.
Other Items
In addition to the rates and projected revenue, the CSP contract contains all other compliance requirements related to:
Service
Safety
Vehicles
Technology
And more
The contract will also detail the responsibilities of both parties, arbitration rules, and all the other legal requirements.
Contract Lengths
Now let’s talk about how long your contract is good for. Just like the rates of the contract, the renewal process of your contract is different for P&D and linehaul.
P&D
For P&D contracts, as long as you have met the terms of your agreement, you will retain exclusive rights to your territory when your contract expires. In the months leading up to your contract expiration, you will negotiate a new contract with updated rates and any compliance changes set by FedEx Ground. P&D contracts are either 1-year agreements or 2-year agreements. This allows FedEx Ground to adjust the negotiated rates to account for growing package volume, fluctuations in the economy, and new initiatives set by FedEx Ground.
Linehaul
Linehaul contracts, again, are very different. The linehaul contract is an evergreen contract that automatically renews every August. During this period, the mileage rates are adjusted and any necessary addendums are made to the agreement.
Whether you have a P&D contract or a linehaul contract, as long as you meet the standards set by FedEx Ground, you will have a secure agreement that you can rely on.
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