FedEx ISP

FedEx has recently announced that it will be transitioning all of its independent contractors around the country to an “ISP” or “Independent Service Provider” model by 2020.  Those states which are not already operating under the ISP model will be transitioning over in accordance with the newly released transition schedule.  This announcement has left FedEx contractors with countless questions, many of which we hope to answer here.  This page is intended to share information we have gathered regarding the FedEx ISP model.  For questions or additional information, please feel free to contact us.

On this page:

FedEx ISP Workbook

FedEx ISP Workbook

ISP workbook created by FedEx helps contractors understand the implications of the new ISP contract.

This book shows tips for a successful FedEx ISP Transition

10 Steps to a Successful ISP Transition

FedEx Entrepreneur of the Year, Saul Lerma, details his 10 Steps to a successful ISP Transition.

10 Steps to a Successful ISP Transition

FedEx ISP Webinar

Recently conducted webinar details tips, Q&A, pitfalls, etc. of upcoming FedEx ISP conversion.  Duration (1hr., 10min.)

FedEx ISP Overlap Letter

FedEx ISP transition schedule adjusted to account for overlap condition with Ground and Home Delivery Contractors.

This workbook has been created by FedEx to help its independent contractors understand the implications of the new ISP contract.  The workbook includes topics such as:

  • Introduction to the ISP Agreement
  • Options and Incentives
  • Conversion
  • CSA Optimization
  • Preparing for Negotiations
  • Negotiations
  • ISP Operations
  • Terms & Definitions
  • ISP Q&A

This book shows tips for a successful FedEx ISP Transition

10 Steps to a Successful ISP Transition

Work Truck Direct recently conducted a detailed Q&A session with Saul  Lerma, FedEx Entrepreneur of the Year, to discuss the upcoming FedEx ISP conversion.  The audio/video of the webinar is available for download towards the bottom of this page.  Below are Saul’s 10 Steps to a Successful ISP Transition:

1: Must sign a Limited Release and Operating Agreement 

  • Saul found out they were going ISP in July 2014. October is when they had to sign the release, so they had 3 months.  As soon as you sign this agreement you are entering into the ISP transition timeline.  Two weeks after signing the Release and Operating Agreement, you may receive an incentive from FedEx.
  • After signing the release, you may have about 5 months to get your business up to scale. If you are not up to scale by the drop-dead date, it’s too late.

Step 2: Get your territory organized 

  • Make sure you’re up to scale. Most terminals may be 5 PSA’s or 500 stops. Certain smaller terminals may have lesser qualifications.
  • You are going to hear about “overlapping” and “condensing” areas a lot. “Overlap” means if you’re a Ground contractor, you need to get Home Delivery routes. If you’re Home Delivery, you need to get Ground routes.  This means if you have to merge with someone, you need to look for whoever is already in your territory geographically.  Ground contractors are going to have to merge with Home Delivery contractors.  The negotiators are looking for contractors that did a good job condensing their areas.  The more organized and condensed you are, the better things may go your final negotiations.
  • If you are already to-scale, you may still need to swap routes with other contractors to consolidate your geographic area. Even if you’re up to scale there are still opportunities to further organize your territory.
  • Overlapping: Everyone is going to be on a 6-day operating schedule because they will have both Ground and Home Delivery. However, as of now, Ground packages cannot be scanned on Saturdays and Home Delivery packages cannot be scanned on Mondays. FedEx is in the process of trying to change this but that is yet to come.

Step 3: Get your Fleet updated 

  • If you purchase another contractor to absorb them into your company, make sure you have the correct corporate ownership on all the trucks. The other corporate entity must not have their name on any of the trucks.
  • The standards for truck condition may be much more stringent under ISP. Most contractors must go through the process of upgrading their fleet before ISP negotiations ever start.  There’s a good chance the regional safety person may be swamped with inspections and may not
get to your terminal until very late in the process. Do not wait for them
to tell you that you need to upgrade your fleet – begin this process early.  Saul said that if he had to go through this again, he would start thinking of upgrading his vehicles immediately after signing the limited release.

Step 4: Background Checks 

  • All the authorized officers, business supervisors, and drivers will have to go through background checks again.
  • The authorized officer will be the first for background checks.

Step 5: Contracted Service Area Definition is Finalized & Acknowledged 

  • You’ll have a sit-down with terminal management to map out your territory. This is very specific – down to the very street. 
  • EX: “My territory starts at this street on the Westside to this street on the Eastside”. The Contracted Service Areas (CSA) will be specifically defined by the streets and blocks.
  • You will not have a long period of time to get this done, so you will need to stay ahead of the game.
  • All the new CSA’s are cross-referenced / reconciled with the other CSA’s in the terminal before being finally acknowledged with FedEx. This process will ensure no ISP “accidentally” gets a territory portion they shouldn’t have. Pay close attention to your mapped CSA before FedEx finalizes it!  You need to make sure it’s clearly defined which ISP particular supplemental routes should go to who.

Step 6: Request for Proposal

  • Draft a Request for Proposal for your entire business. What’s your backup plan if a truck breaks down? Do you have a set mechanic? Etc.

Step 7: CSA Historial Data 

  • Before you get into negotiations, FedEx will send you the data for the past 1 year on how many stops and how many packages your CSA delivered.
  • The accuracy of the historical data is very, very important. is is the data your negotiations will be based on.
  • Look carefully through the data because it may need to be adjusted. Are there any large accounts which have been lost in the last year? Make sure the CSA historical data is accurate! You will use these figures in your rate negotiations down the road.

Step 8: Negotiations 

  • This step lasted about 5 weeks for Saul.
  • This is based on packages, stops, and fuel. These are the key numbers which will be the biggest negotiations back & forth.
  • There will also be safety and service bonuses, but in Saul’s case these didn’t change very much.
  • There are no core zones, van availability, ex program, or quarterly bonuses. These will be factored into an “Annual Service Charge”, which is a fixed cost paid as a lump sum.
  • The CCS Bonus is broken into safety and service.
  • ISP goes by periods which are 4 weeks long. The old monthly bonus will be paid 13 times vs 12 times as before.
  • FedEx will assign a person (“negotiator”) for you to work with. It will be the same person the whole time. This is the person you will examine your historical data with and shoot proposals back and forth with.  Other contractors may have different negotiators, and some will have the same negotiator. YOU will have the same negotiator throughout the process.
  • Saul counter-offered between 22-26 times. The negotiators are TOUGH.  Many other contractors in the terminal settled after only 2-3 proposals because they felt worn out dealing with the negotiator.  THIS IS A HUGE MISTAKE!  Take advantage of the full negotiating time to fully get what you want. Do not procrastinate until the end of the negotiating period to begin! Start early and get as much out of the negotiator as you possibly can.  You have nothing to lose shooting one more counter-offer to them that might get you another 1%.
  • You have to know your numbers before you start negotiating. Every contractor’s negotiations will be different. Some will get paid more for packages and some will be paid more for stops. Saul has a good number of bulk routes with fewer stops, so he negotiated to make more for packages than he does for stops.
  • Your goal with the negotiations should be to make more money under ISP than you did for IC. You need to know your territory and historical data in order to achieve this through the negotiations.
  • When you give a proposal, make sure everything is covered so that that particular truck will be profitable. Break it down by fuel costs, employee wages, no core zones, etc.
  • How often are you changing tires compared with other contractors? Brakes? Fuel? Know your expenses and use this to get a higher pay amount. Fuel pay changes to a per-stop rate. Saul negotiated a rate per-stop which was double what some other ISP’s are because he has mostly bulk trucks.
  • Some guys love ISP and some don’t. What’s the difference? What
did the successful ISP’s do to make the program so much better for them compared with IC? Variable vs. fixed. Saul found the successful ISP’s negotiated 70% of their rates by variable and 30% fixed.   This is what you should aim for.  Every company is going to grow.  FedEx is growing!  When your business grows and you’re being paid variably (as opposed to fixed) then your pay increases. Some contractors Saul spoke to negotiated up to 90% fixed because they were scared of losing revenue. When their business grew, their income didn’t grow in proportion.

Step 9: Insurance will get updated with your insurance carrier 

Step 10: Sign the Contract

  • FedEx will take roughly 3 weeks to actually draft your contract after negotiations are finished.
  • There’s a lot of fear, uncertainty, and everyone hears a lot of horror stories. ISP can be great to the contractors who take the time to prepare and pay close attention to the process. The goal is to be prepared before going into negotiations.
  • From now until you sign the ISP contract, pay extra care to your driver safety, violations, and customer complaints. You should be squeaky clean from now until you sign the contract.

10 Steps to a Successful ISP Transition

10 Steps to a Successful ISP (Webinar Video)

Webinar video discusses 10 steps to a successful ISP transition.  Scroll down below the video for the full transcript of the webinar.

 

10 Steps to a Successful ISP (webinar transcript)

Host Well hello, and thank you, everybody, for joining us today. Obviously, in the past couple of weeks, we’ve been receiving a lot of questions on ISP. Now, what is ISP, what are the steps that can you expect to go through, what are some strategies for the negotiation, etc. And today, we’re not going to spend a lot of time on the question what is ISP? If you log on to [inaudible], there are ample resources available to you, really explaining what it is on paper. Our goal today is to really expand beyond that and help you guys gain some insight from someone who has been through the process already, and successfully made the transition to an ISP from an independent contractor. Another goal of ours is to have each of you build a better understanding of the actual process. What are the exact steps that you can expect to go through, and what do you need to do to prepare beforehand to ensure it goes smoothly? And then lastly, we really want to build your confidence. The ISP is not something new. There’s a lot of other states in the country that have been ISP for several years now, and a lot of those ex-independent contractors who are now ISPs are experiencing success amidst the short-term growing pains that they had to go through.
Host Our presenter today is an ISP by the name of Saul Lerma. He operates out of Yuma, Arizona. And just a quick background on Saul, before getting into FedEx as a contractor, he worked as a branch manager for a bottled water company. He acquired his very first FedEx route in 2000. From there, he added his second, third, and fourth routes, up to 2006. And in 2006, when he got his fourth PSA, he was actually able to pull himself off the road as a full-time driver. In 2008, he added his fifth FedEx route and hired a full-time supervisor. 2009, he actually got nominated for the district-level Entrepreneur of the Year. In 2011, he was nominated for the regional-level Entrepreneur of the Year. In 2013, he got up to eight PSAs, which he currently stands at, or currently stood at until, obviously, transitioning to ISP. In 2014, he was nominated for and won the national Entrepreneur of the Year Award, which is a huge accomplishment, not only for any FedEx contractor in particular, but especially for a contractor with only eight routes. And I think that really speaks to Saul’s persistence and willingness to mentor newer contractors and development of safety programs, which he disperses to anyone who requests them. He’s really done a great job with that, and he earned that in 2014.
Host In 2015, he signed the ISP agreement with FedEx on July 25th, and he’s been hitting the ground running ever since. Some of the content that we’re going to go over today, it’s really 10 steps. And I had a conversation with Saul– for my guys, FedEx contractors that I’ve been talking with, you may have all ready heard this, but I asked Saul, I said, “Hey, Saul, a lot of these guys are approaching us, asking questions about ISP.” And Saul said, “Hey, Ryan. Anyone that you have that has questions about it, go ahead and just send them my way. I’ll talk to them on the phone.” And I said, “Saul, I probably have 200 guys that I could send your way. I don’t think you have time for that, you have a business to run.” So we thought this would be a better structure to help get the information to you guys. But the 10 steps that Saul came up with, that we’re going to go over, are the limited release and operating agreement, which a lot of you may be signing as soon as June of this year to get the process started. After that, we’re going to go over some territory organization. We’re going to talk about the fleet requirements that you need to keep in mind going into ISP. We’re going to talk very briefly about background texts– checks, excuse me, CSA territory finalization and acknowledgment. Talk a little about the RFI that you have to submit, the CSA’s historical data negotiations, insurance, and then actually signing the final ISP contract. So, without any further ado, Saul are you on the line?
Saul Lerma Yes, I am.
Host All right. I’m going to go ahead and mute myself, and Saul, you can go ahead and take it away.
Saul Lerma Okay, thank you, Ryan, and good evening everyone. I’d like to walk you through the transition. But first of all, I just want to say that when we started with the ISP, we found out we were going with ISP, there was a lot of worries, a lot of things. We didn’t know what we were getting into. We kind of heard some good stories, we’ve heard some frightened stories, and those kinds of things, but I do want to show you that it’s not as bad as some people may think it is. It’s actually a good thing. So it’s going to be a positive thing to everybody. But the biggest thing is going to be organization, and that’s the thing that we want to cover and talk about today.
And to get you with step one, the first thing that’s going to happen, when you guys are finding out whether your region or your state is actually going to go ISP next, the first thing that’s going to happen is everyone needs to sign a limited release and operating agreement. This is releasing everything back to FedEx, and that you’re going to go through the whole transition period with ISP. Everyone must sign this. Now, you will be asked to sign, and the thing about this is that this is the first step, but there’s also going to be some incentives about money, and you need to find out exactly what your senior managers– what kind of incentives are for your state. And once you sign the limited release and operating agreement, it takes about two to three weeks before you see your first incentive paycheck.
Now, once this happens, the next step is going to be, you’re actually doing this, is to make sure that your business is up to scale. That is going to be key. Now, in some states, it may be 5 PSAs or 500 stops. In other states or in different stations, it could be 3 PSAs and 300 stops. Again, depending on where you’re at, whether you’re in a large facility or you’re in a small station, it determines so that the other question that your senior manager will let you know how many PSAs for you guys to make scale. The thing about this is that this is where you want to continue to– this is where you want to organize your territories. This is where you want to make the right decision. This is pretty much one of the key points that we want to talk about, and that is [inaudible]. Once you have [minimum?] PSAs, or stops, the biggest thing is getting your territory organized. Meaning that overlapping– this is where the part of overlapping’s going to happen. In other words, if you’re a contractor that only has ground, you might want to start talking to home delivery, who’s in your area, and if you see opportunities there to either swap routes by sale or those kinds of things to reorganize your territory, that’s going to make sense later on as we go through that transition. This is also the time that you want to condense some of your area. Because once you start going into negotiations, you’re going to realize that the more you condense your area, the better off you’re going to be. So the thing here is overlapping, and you’re going to hear overlapping again and again and again.
Basically, our focus and our goal is trying to get away from home delivery and grounds, at this point. Most contractors are going to be more like– they’re going to have home deliveries and they’re going to have grounds. You might hear later on. And I don’t know if you guys are already hearing this, that we may go into a six-day operating schedule, which might be coming in the future. And this is, basically, where they’re talking about overlapping, because once you have ground in-home delivery, it’ll be a six-day operation. Not for all the routes that you may have, but Saturday is for home delivery. Monday is for ground. So if you have home delivery, it might be taken on Monday. If you have ground, it could be taken on Saturday. But that’s coming down the line. But at this point, overlapping a [inaudible] area is going to be the key for you to organize. So there’s opportunities there, you want to take them. You want to talk to other contractors in your area, and see if they’re willing to do this. The biggest thing that happened with that is that everybody was running scared, and nobody wanted them to go from other routes and things like that because they wanted to make sure they were up to scale. So they didn’t swap routes and things like that. And then they realized later on, “Wow. We should have done this while we were going through that transition period.”
Now, there’s going to be some incentives that they’re going to put out there for overlapping and convincing someone in your area to use swap routes or buy another route, or sell another route, those kinds of things. Your senior manager, again, will have that kind of information. But step two, [inaudible] organization. This is one of the key points where you have opportunities, at this point, to organize yourself. In other words, let me give you an example, in our area, we have a lot of [inaudible]. And sometimes we have to go 50, 60 miles out in the counties. There’s no need to have a ground truck there and a home delivery truck there. If the same entity owner owned that area, there’s no need for him to send a home delivery and a ground. So they might either send it all in a home delivery truck or in a ground truck. But if it’s owned by two different entities, then each one is taking their own truck up there. Then this is where you want to overlap because there’s so many areas. So again, you won’t have to take two trucks into those areas.
So swap your routes is one of the opportunities that you want to start thinking about because, again, it’s [inaudible] later on if we get into negotiations. Step three, fleet requirements. It’s going to be another key point. And once you get up to scale, they’re going to give you about, probably, between three and five months because there’s going to be a deadline that you have to be up to scale by. Now, during this process, during this time or transition period, if you’re going to sell and buy or merch with someone, and you’re going to start a whole new entity, you have to have your corporation ready before the deadline of beating the scale. So you want to start working on those dates as soon as possible. Once you [get your mix?], you start going through the ISP transition period. So you have to have those things ready and all that.
So the next step is fleet requirements. And what that means is that we need to take a hard look at our trucks. All of our trucks, even our spare trucks, have to be approved by our safety in order for them to be approved to proceed for ISP. If you have trucks that are pretty old or they’re banged up pretty bad, or a lot of rust, and you feel that these trucks are not going to make it because it’s going to take too much money to really bring them up to par, this is an opportunity to start looking to maybe replace some of these trucks, or to upgrade some of the trucks that you might have, trucks that are too small. This is an opportunity. You don’t want to wait until the last minute and say, “Okay, we have a window of two months.” So you want to start talking to departments at your fleet, know where you’re at. If you have trucks that look good, and all you have to do is a paint job and details, then you’re pretty good. But if you have some trucks that are just old and you know they might not make it, then they’re not going to get approved. So start talking about this and start taking a hard look at your fleet. And either you get– some of you that might need to get a loan to buy the trucks, or get preapproved, or start talking to some dealerships and things like that, so you know exactly what you need to do.
But again, take a hard look at the trucks, because down here, we did have a few contractors that they had to replace their fleet because there was no way they were going to get approved. Once again, some of those trucks were too banged up, and it was going to cost way too much money to get those trucks fixed. So they decided to just buy some newer model trucks and replace those. So again, you don’t want to wait until the last minute. So start thinking about– start looking into your fleet and start seeing, well, you have some trucks, they’re going to cost too much money to get fixed, or it may not get approved. Start thinking about that now. Because as far as the transition period kicks in, there’s going to be deadlines for everything, and that’s probably the biggest trick that we felt we went through that “Wow, at least we went through this period,” which could be two months, could be three months.
And the safety, it’s not going to make it down all the time because they’re going to have other stations they have to go to. So once they call you and say, “Hey, we’re going to go up in two weeks to your station to approve trucks,” you need to be up and running, because they’re going to come back on time to reapprove your trucks again. But again, every truck has to be approved by safety before we can start using them for the [ice team?]. And again, some of the trucks might just need touch-ups, and some trucks might be [inaudible] or safety. So once they approve the truck, it’s going to be image only. It won’t have nothing to with the inside, whether your shelves are falling apart and all that. It’s image, it’s just outside. Image, meaning the paint job, the details, there’s no dents, rust, your rims. Everything that has to do with image. Again, just take that into consideration.
That brings me to step four, step four is going to be background checks. Just by starting all over again, all [inaudible] are going to have to go through a background check. The [aols?] are going to go first, after that your business contact, business supervisors, general managers, or managers, whoever you have, and then all your drivers. Everyone has to go through a background check. People [inaudible] proceed further. So that would be the next step.
Then that brings us to step number five, which is CSA [inaudible] finalisation and acknowledgment. What this is is– everyone, when we sign our IC contract, you have a territory that they already have in the computer system for you, and it tells you from what area to what area belongs to you. Somebody’s may not have been updated, they might be old and maybe someone is [inaudible] service or not showing in the system that that’s in your area, they’re still showing for the private contractor. This is the time that you want to sit down with terminal management and map out the territory. Since it will be defined accurately down to the block, the street, you want to start on this as early as possible also because, again, if you feel that you have so much area it’s not showing, then you want to start straightening everything out and make sure that you map the area and turn it in so they can change it in their computer system. Obviously it’s [inaudible] cross-reference, break this down against the other CSA terminal prior to [inaudible] acknowledgment. So we do want to build this.
If you’re helping other contractors, let’s say you’re helping them for about a year, but it’s not really your area. But you’re in their area helping them because they don’t have either enough fleet to handle that or the manpower to handle that, that’s still going to show in their area. So even though you’re delivering those packages, because of the CSA definition, their territory is still in their area, those packages are still going to show in their area. So it’s important that you want to make sure that whatever you’re doing, whatever you’re serving, that it’s going to be accurate. Because otherwise, if you have a certain area that’s zoned on somebody else’s contract, and it’s actually yours, those packages and stops in that area is going to go to the other contractor when they give them all the historical data information. So it’s very important, sit down with your senior manager or who is the manager in your station that can do this in the system to straighten out your whole defined area and your whole territory to make sure that street by street, block by block, it’s accurate in the system. Because once they submit this, this is the numbers that the negotiators are going to use to negotiate on. So very important, you want to get that in as soon as possible. They will give you a transition period for everything but you want to start on top, you want to start as early as possible, don’t wait until the last minute to say “Let’s start doing the CSA definition.” Start as soon as possible once you know what’s going on. And that’s what we did out here. Once we got our trucks approved “Okay, what’s next? Okay, this is next. Let’s get it going. What’s next? Okay this is next. Let’s get it going.” So you want to [inaudible] to stay on top of things. Again, don’t wait until the last minute.
Once this happens, everyone needs to turn in an [R file?] for the entire [bases?]. Kind of like to say starting all over again, pulling your business back together. Now however, if you start a new contract, I mean– I’m sorry, if you merge with somebody and you’re starting a new corporation, [inaudible] scale, just to make scale, you merge with some other entities and together, you guys came up with a new corporation. You want to make sure that before the scale deadline in the state, that you have the corporation up and running before the deadline to make scale. Very important. And that’s where you want to also– you need to turn in an R5 during that period of time.
Now, when we’re getting back into negotiations, you need to turn in another R5 to go into negotiations. And basically, they will be pretty much the same R5 that you turn in now. If you are already upscale and you don’t need to work with anyone, you don’t need to buy any other routes, you’ve already been upscaled, then you don’t need to turn in an R5 while you’re going through this scale process. And then you’re already there, and you meet the deadline and everything, you don’t have to worry about that. The only time you ever turn in an R5 is before going into negotiations.
That will bring us to step seven. The company is going to send you to [inaudible] CSA historical data. It’s going to show there all your stops combined, your pick-up stops, your delivery stops for the year. Excuse me. Your delivery package and your pick-up package for the year. It is very important that you look at those numbers and make sure that those numbers are correct because those are the numbers that they’re going to use for negotiation. Now, if you are helping other contractors with some other areas, you’re going to have more numbers for the whole year. But because that defined area, that territory doesn’t belong to you, those stops, even though you did them, is actually going to show on the contractor’s CSA historical data. So it’s very important that you check the numbers, that FedEx is actually going to put in the system for you, which will be the [inaudible] where you look up your historical data. You’re going to see the whole year worth of information as far as how many stops you did and how many packages you did for the year. Most important thing, you want to make sure that those numbers are accurate. So accuracy will be very, very important. Future negotiations are based on this data. If you need to adjust it, sit down with your senior manager and make sure you guys make all the proper adjustments.
Also, and this kind of happened to me, I had a big account that when we were going through the CSA or the ISP transition, I had an account that we were serving that we were delivering between 800 to 1,000 packages a day. Well, that account sold out to another entity and no longer did ground [inaudible] so I lost that account. So that was huge numbers. So I had to make a big adjustment to my package count because I could negotiate with the number I no longer [inaudible] that I had. I had to get my senior manager involved and we had to make sure we made those adjustments so that we start going through negotiation, we could compare apples with apples is basically what you’re going to have because losing something like that is going to either hurt you or help you. In my case, it was going to hurt me a bit. So we had to make some adjustments. So look through the numbers carefully and make sure that if you see something that’s not right, that you question it and go to your senior manager to see if you guys can make some adjustments. Excuse me.
And that will bring us to step number eight, which is the negotiation process. The negotiation process is going to be about five weeks. One thing that I want to let you know here, we had some contractors that– Charlie panicked here. They weren’t too sure how strict that we’re going to be. They didn’t know whether they were going to kind of work with you or the horror stories that we’ve heard that if you don’t sign an agreement, you’re going to lose your contract, and you’re going to be out of a job pretty much. Negotiators want to work with you, but in the same token, you have to have all your pay boards. You have to have all your numbers. You have to have all your information. So packages [inaudible] are going to be the key ones to negotiate. At this point, when you’re going for all your numbers, take one thing into consideration. There’s going to be no more [inaudible]. There’s going to be no more availability, next program or even quarterly bonus. So there’s going to be what they call an annual service charge. You want to figure out in your [inaudible] entity what kind of [inaudible] you’re getting as an average, availability, [inaudible] and your quarterly bonus. Figure that out for the whole year, and that’s the numbers you want to try to negotiate with when you’re going through the annual service charge. And we could profit [inaudible] annual service charge, but again packages [inaudible] is what you’re going to negotiate. So the more accurate your package count is for stops, the better it’s going to go for you for negotiations.
Now when you go for negotiations, there’s going to be a [inaudible] they’re going to give you. The keys for success [inaudible] numbers is persistence. They’re going to assign a negotiator to you. You’ll have the same negotiator throughout your whole process here. You’re not going to start with one negotiator and finish with another negotiator. He will introduce himself. He’ll give you a [inaudible]. He’ll give you his phone number. You can call him anytime you want. Then you go back and forth. He’ll make the first offer. You may counteroffer or vice versa. You throw the first offer, and they’ll counteroffer. This is in the proposals. One thing I do like to say, negotiators are tough, but you have to be tough yourself. And basically, what I mean by that is that know what you’re negotiating for and you don’t have to quit too soon unless you know you have everything you wanted. We had contractors that try [inaudible]. They quit too soon. They say, “You know what, I’m going to accept that. I’ll take that amount that you’re giving me,” and they still have two and a half weeks left. They’re going to keep negotiating, and negotiating a little bit more because the more you negotiate, the better it’s going to be for you. But one thing I do like to point out, don’t wait for the very, very last day because if you don’t reach an agreement at that point, then that could come back and haunt you. But use your time wisely, and negotiate what you think is fair, what you think your business is worth. They’re going to have a certain number. You’ve going to have a certain number, and you just have to work together to come to an agreement.
Personally, what I did, I counteroffered about 26 times. Some other contractors get a little less than I did. Other contractors probably get a little bit more than I did, but to me, it took about 26 times to get it right where I felt it was going to work for me. But again, know what you’re negotiating for and one of the other things that work on negotiators, what they’re going to do, they’re going to see your numbers, they know exactly how many stops, they know exactly how many packages are delivered. What they don’t know about you is unique situations. Like going into rural areas and you’re going [to suspend?] to take your vehicle out because they’re going to dirt roads and your maintenance is so high. Those are some of the things you want to try to bring up to the negotiator, why you’re asking for more in certain areas. Because you probably have bigger overhead. And every execute’s a little different. So know where your overhead’s at, why you have that kind of overhead, do you want to let the negotiator, “Look, I’m asking for so much in this area because it’s costing me so much money, this area,” or maybe you may have routes out of town, and it’s going to cost you more in fuel and it’s going to cost you more in wear and tear.
So those are the things you want to bring up to negotiators. You kind of want to paint a picture of what kind of bid does she have. Because again, all you’re looking at is numbers, but they’re not looking at the unique situations that you face. When you have a mall, then you have to park the truck about two blocks away and start delivering to all the stores [inaudible] take a little bit longer to deliver to the mall because of the situation there, or you can stop your vehicle and how long is it going to take you to do that mall? Those are some of the things you want to bring up to the negotiator, because that route is basically not going to be too productive, because it’s going to take a little bit longer. So again, negotiate all the unique situations that you have. But most important, use the full allotted time. Don’t quit too soon [inaudible].
The most important thing is when you’re working with the negotiator and where he throws you a proposal, or you give him a proposal. Make sure you break down all your PSAs, now they’re going to be called PSAs. And make sure exactly what each PSA is producing for you as far as the income. Total everything because they are no longer going to be individual PSAs anymore, it’s going to be all one lump sum. It’s going to be the total number of packages, total number of stops that you’re going to be negotiating. So break it down and then add it together to know exactly what is your weekly salary times 52 so you know exactly what is your yearly salary that you need to make good judgements and then figure it out by year. And that’s all the numbers that you want to start negotiating with. Proposal is going to be a little bit smaller or probably about the same amount that you already do. And make sure that you’re adding to your– in your proposal, future income that you think you need to do. Those that have bigger fleets and those that have smaller fleets, basically just look at the language that you have. And again, it’s all going to come out to where you think you’re at and where you think you’re going to be in the future.
Now one of the important things that we have to remember, fuel cost. Right now, that we were getting paid for fuel cost [inaudible] need pay for fuel cost is by miles. That’s going to go away. The fuel cost, or the fuel supplement that they’re actually paying you guys is now going to be paid by stops. So it’s very important that you stay to that number. Now where it gets tricky is that some of you may have road trucks, street trucks, and they may be only doing 20 stops a day, versus a step man is going to be 100 or more stops per day. That’s also going to play a big role in negotiation. You need to make sure that if you have too many street trucks, then you’re going to have a to take a hard look at your stops, and that’s where you’re going to have to be very wise in negotiating your stops because at the end of the day, it’s got to come out to what your salary should be. At that point, your stops might be a little higher, but your package might be a little bit less because they’re going to take a look at, “Okay, you got that many stops, but you got way too many packages.” So they’re going to go back and forth in that area. But again, at the end of the day, PSAs, everything has to balance out. Some of the routes, you’re going to make a lot lot more money than what you’re making now. Some of them you’re going to make a little less. But at the end of the day, it should balance out to the number that you feel more comfortable with negotiating.
And the other thing I like to say in that aspect– okay. I talk to many, many ISP contractors throughout the company that [inaudible], and I kind of got some mixed emotion from some of the contractors. I’ll talk to some of them, they weren’t too happy with us being [inaudible], I could understand why. Then I talked to others and they’re very, very happy with ISP. And I said, “Well what’s the difference? Why is it that some are happy and some feel it was [inaudible]?” And it had to do with how they negotiate. And what I found, because I was trying to talk to the ones that were successful, the ones that were doing great, and the ones that were very happy. I want to find out, “Okay, so why are these guys happy? Why do they feel, that they tell me, ‘ISP is the way to go man? ISP is the way to go.'” So I want to find out why is it doing well.
And I realize one thing is that how they negotiated is that there’s a fixed cost versus variables. The fixed cost is that some contractors like the kind of money that they’re going to get in the– the negotiator say, “Here’s the kind of money we’re going to give you,” they thought it was great, and they wanted to secure it. So they added about 80% under fixed and only 20% under variable. The problem with that is that if you put almost all your money in fixed, then when your company is growing, your income’s still going to remain the same. Except it’s going to be a fixed cost. And the reason why I think some of the contractors did that, they were thinking the opposite. “In case I lose the account, then my business is going to depreciate, my business is going to go down, I will still make the same amount of money.” But here in our station, we’re actually every year increasing the packages, and we’re increasing the stops. So I learned something. The best way to negotiate, and again this is a personal thing that I decided to share with you here, is that I negotiated the opposite. At least about 70% variables and only 30% fixed because as my company is growing, we’re going to generate more income.
So when you need to bring that extra vehicle, that extra driver, their pay will justify to pay for that extra driver, their pay will justify to bring that extra truck because the more stops you do, the more packages you do, the more [inaudible] because you’re locking it up in [third?]. Now the other context is that I think I know they complained once, that because they locked too much money in their fixed. When their company grew, and they had to bring in extra driver and an extra truck, there was no extra income to pay for that because they locked all their money in their fixed, and I think the complaint is, “Well, I have an extra truck, but I’m not making extra money to pay for that.” So again, you want them to learn to play along with their variable versus fixed, but I think there will be 70% variable to 30% fixed, it’s because [inaudible] go down to 25/75, but I think that’s going to be a good start right there because your business is going to grow, credit is growing, and I believe that especially for all deliveries, they’re a lot higher than ground, but even grounds do grow, I mean, percentage-wise, for stops and packages.
I don’t see that we’re going downward, I think that we’re going forward. So even though you negotiate for certain advert, pay for your stops and your packages, maybe you get more stops later on, maybe you get more package later on, that’s more income your going to generate. So when you have to clean your other vehicle because we’re not going to have supplementals no more, you negotiate for a certain number and you could bring all the vehicles you want. Or you could reduce some vehicles, it’s all based on stops and packages as overall. But if your basis is growing, your income is going to go higher, so that will justify for an extra driver and an extra truck.
The service charge account that I talked about earlier is an annual service charge, that’s where you want to grow more like your fixed profit. In other words, we were getting paid [inaudible]. So if your business was bound so that we won’t get business with [inaudible] for that week, you still got paid the same amount of money under your [inaudible], it wasn’t going to go up or down based on your stops or your packages. So that’s considered a fixed cost. So everything you put there is more like a fixed cost, even though that’s an annual service charge, it’s going to pay– you’re going to get paid on a weekly basis, and that’s an advert that they’re going to pay you weekly. Again, no more quality bonus, it’s all going to be added there. However, CCS is going to go away but it’s going to be broken down into a safety bonus and a service bonus. So this would give you a little bit more inside, an extra strong member on hand, let’s say, you’re making $5,000 a month in CCS bonus, it’s going to be broken down however you want. So you could put 2,500 in your service and 2,500 in your safety.
Now take one thing into consideration, right now the CCS bonus is paid bi-monthly– monthly, I mean. Which means you get paid 12 times a year, [inaudible] every 4 weeks disappearance [inaudible] period throughout the year. So whatever money you’re projecting for your bonus which is broken down to safety and service, remember that it would be paid 13 times that year instead of just 12 times that year. But the biggest thing about it is when you get down to negotiations, know your numbers, know what are your stock counts, know what are your packages because those are– that’s the key point to get into a really good negotiation. And know what are the unique situations. Every company, every entity has different and unique situations, and there’s not one entity that could be the same. Some of you guys were going out of town, some out of town routes. Some of you guys have to straddle on the station. So all these things need to play into consideration. So again, make sure that you know and you understand what are the numbers should be negotiated and then that should respond in your package count.
The other two key points. Make sure that when you start the negotiation, try to convey through areas and try to overlap with both [inaudible] in your territory because it makes more sense to overlap with somebody there than to try to merge with somebody or find somebody that’s way on the other side of town that really can’t help the business in that part of town. So take a look at those things in that case, because the more people organize your territory, the better you’re going to be for negotiation. The other key thing is to make sure you take a hard look at the trucks. If you know you need to replace some trucks, is it the best time to start thinking about replacing trucks? We had a lot of contractors over here that thought it was going to cost too much money to fix their trucks because they were just so bent up that they said, “You know what? It’s time to buy new trucks.” They didn’t have a brand new truck. They could get a used truck. They started looking for trucks. Started getting preapproval for those things, and it will make life a lot easier, especially when you start getting ready to get your trucks approved by Safety. And then you want to do the background checks and then your CSA definition area.
But again, the three biggest key points is getting up to scale, getting your fleet up to where it needs to be, and having your numbers ready for negotiation. And when you get through that, you start working with your variables versus fixed because that’s what’s going to make the big difference in how you want to get paid from FedEx. And again, if you want to continue to grow, it’s better to grow more variables than fixed and that will make the big difference. During the time of negotiation, you will be called by your insurance carrier. I don’t know if it’s Protective that you have there or you guys have a different company. But they will call because they need to transfer everything to the ISP model. And then once you reach an agreement with your negotiator, then it will be acknowledged through FedEx and then about two to five weeks later, that’s when you’re going to sign your final contract.
A few other things to keep in mind is that during the process, or even at this point, you want to make sure that you avoid accidents, violations, any kind of driving complaints, or customer complaints, those kind of things. Because when the negotiator is going to call you, they’re going to see what kind of entity you are, what kind of business you’re running. They want to know that you’re not a high-risk entity. They want to know that you’re the kind of entity that they want to negotiate with because that makes a big difference. We have some of our contractors here that had some accidents and things like that, and the negotiator’s going to look at everything. So even though you’re not going through the process at this time, do the best that you can to run the best entity that you can in the [inaudible] days. Avoid accidents and violations because again, all that will come up and you don’t want that to haunt you while you’re going through negotiation. The better entity you run, the more power’s going to go with you with the negotiator. Because they do want to negotiate with you. They don’t want to lose anybody who they feel is a good contractor or the ideal contractor.
But again, just to give you a heads up, nobody in our station lasts forever on contract. And we were running scared at the beginning. We thought, “Well, this is going to be hard. This is just going to be too hard.” We didn’t know who to talk to. We went through the process trying to learn. So we kind of live and learn, live and learn, live and learn. I wish we had somebody that we could talk to that could give us some sort of guidance, and let us know. But I do want to assure you that it’s not as bad as it looks. Actually, it’s a good thing. And I think, if you do things right, you guys will be better off than being in the IC world, and I think it’s going to be better for each and every one.
One thing I did mention and it’s basically during the negotiation. There’s going to be two other things that you’re going to get, and you could actually negotiate for that, and that’s called the brand promotion. Meaning that now they’re going to pay you and your drivers for using company uniforms. They’re going to pay you so much per week, and they’re also going to pay you for having decals on your trucks as part of the brand promotion. Now we have some trucks here that don’t have decals yet. They can run them because they’re not actually in the brand promotion, but the way I see it, why not have them in the brand promotion and they’ll get paid. When you could have them in the brand promotion, they get paid extra money for that. So you want to take a hard look at that, and again, you want to make sure that you put the decals on your vehicles so you can get paid for running trucks with decals. So that’s very important, and I think you would like to make that extra money anyway. So they will pay you for uniforms, and they will pay you for running trucks with decals.
So prepare the [inaudible] no accidents, violations, or complaints filed and until your final FedEx contract. Of course, I’m covering the key points, but relax. Unless you are running a really, really bad entity, everyone has the opportunity to sign a contract with ISP. It’s just that you have to get these things done in a timely fashion, and that is the key. But the better you prepare yourself, the better it’s going to go when you sit down with your negotiator. The negotiator is not going to pester you at your station. It’s all going to be done through phone calls. That’s how you’re going to communicate back and forth with your negotiator, but you want to be prepared. You want to be ready, and you want to have all your numbers so you can know exactly where you can start negotiating, and then just keep going. But every state, every station faces different challenges, so you want to create all your unique situations because that’s what makes the big difference. And that’s about it. I’d like to turn it back to Brian [inaudible].
Host Yeah. And thank you very much, Sal. We have a few questions submitted by contractors, so not too many, still maybe four or five questions, so we’ll just run through these. Number one, what happens if you cannot come to an agreement with an overlapping contractor when the deadline comes? Will your routes simply be taken over by FedEx?
Saul Lerma Okay, now if you didn’t get a chance to overlap, as long as you’re up to scale, that’s the key. It’s an opportunity for you to try to overlap to [inaudible] your area and to organize your territory. But if you have opportunities with the– let’s say they’re grounding the [inaudible], there’s home delivery in your area and you wanted to negotiate with [inaudible] and maybe swap routes and to keep that route [inaudible], get another route that makes more sense for him. But at the end of the day, they say, “No, I don’t want to do this.” Then there’s not a whole lot you can do there. Long as you’re up to scale, that’s really what counts. And it is nice that you can overlap because that will make more sense when you get into negotiations, and that’s where [inaudible] our businesses because one day, if we get into a six-day week, you want to not run some of your ground trucks on Saturday, because if you have home delivery, the home delivery could take the ground. And the same thing, you don’t want to run your home delivery trucks on Monday if your grounds can take the home delivery. So it’s kind of nice to have both home delivery and ground, but in some locations, you’re not able to do that because the contractor may not want to sell or trade or do anything like that. The key is that you have your [inaudible] stops or [PSAs?] to make scale. That is the most important thing you need to do.
Host And I guess a follow-up question to that, what if you have four PSAs in one terminal and your fifth PSA in another terminal? Does that qualify for the five-route minimum?
Saul Lerma Yeah, that does qualify. That does qualify because you have five PSAs. In some locations, because everybody’s trying to go ISP, over here we really can’t have– [inaudible] will be too far, [inaudible] will be too far. That question came up and basically what they want is that you have five. Five overall.
Host Got it.
Saul Lerma Because everybody else is going– when we went ISP here in Yuma, Arizona, the rest of the state did not go ISP. It was just us because we were closer to California. But now the whole state’s going, it’s going to be even easier because you’re going to have routes for everyone. And that will help you. So basically, now, if you have a separate entity, then that’s different. If you have two different entities instead of [inaudible] entity. So let’s say my entity is Lima Transport and I have to have my transport and I’m running routes in either the cities close by, but we’re all Lima Transport, then that’s all fine and dandy. But if I broke it down and said, “Okay, I have five routes under Lima Transport and four other routes under Lima Logistics,” then that’s a separate entity.
Host Third question, you mentioned incentives to sell routes. What does that mean?
Saul Lerma That’s one thing you have to find out with the [inaudible] manager, the incentives we had is that it gets most of our entities here in Yuma were not up to scale. Fortunately, I was the only one up to scale because we’re in a small station. So they added the amount of buying, selling, trade, in both states, so FedEx has some incentives. If you met the qualifications and basically what that meant is if you weren’t up to scale and needed to buy another route, when you bought that route from the other contractor, FedEx says– and you have to check this number because I don’t know if this is going to change from state to state, but the contractor who was buying $10,000 and the $10,000 [inaudible] and the seller also got a $10,000 check. So this incentive is there to help you guys to sell some of your routes to condense some of your areas. So that’s why if you could merge with somebody or if you could overlap, I mean, with someone and swap routes, without your home delivery, there will be incentives in there to be able to do those things.
Host We have a question from Mark. He says, “If you swap PSAs to reorganize your territory, how do you get familiar with the historical costs of the new territory if you aren’t familiar with when you start the negotiations?
Saul Lerma Very good question. And that’s something that’s a hard part because what’s going to happen is that the CSA historical data is based on the CSA’s destination area and a defined area. So basically, when the negotiator’s going to pull your numbers. Let’s say that you bought somebody out in another area. Both numbers are going to be added to your territory. But your numbers that you actually ran for the whole year might be off to what they [inaudible] because you added other numbers. So you have to find out exactly what are the numbers that were ran in that area, how many stops, how many packages, because those other numbers there will be added to your CSA historical data that they’re going to be used for negotiation. However, if you merge with someone– let’s say you’re not up to scale and you don’t want to sell, and you don’t want to buy, but you just want to merge with somebody to make scale. So now there’s two entities which one of you has to be the [inaudible], so one company has to be shut down. And then you have to go to log in under one company. Those PSAs coming to the new company are bringing in the stops, and packages, and everything. So now you have to get all those numbers and make sure that they add up to the CSA historical data that FedEx is going to see when they [inaudible] this. So that’s where it gets kind of tricky because you have to talk to the other entity owner that’s merging with you, “Hey, we need to know and we need to combine all the stops. We need to combine all the packages to see that we balance to what they have for us.” So that’s how they get the numbers and that’s where we can buy and sell, and you have to inherit that territory, so you have to figure out those stops and those packages in that territory that you’re actually going to inherit.
Host We have three more questions. Well, we actually have a lot more than that. But we’ll make sure we post some contact info at the end of the call. So right now we’ll just go over the last three. What about supplementals? Do we count van availability and fuel and core zones for the supplementals?
Saul Lerma Yes, you do. I always call a supplemental as a regular PSA because you’re still running it. It’s going cost you maintenance. It’s going to cost you a salary for a driver, and it’s going to cost you, especially if you’re running it out of town. You want to figure out how many trucks you have total or how many trucks you need to run your business. I know there’s some entity that may have five trucks or five PSAs but to actually run that business the actually need seven trucks. Not five but they need seven. And even though two have not been contracted to be official contracted routes, you still need seven pieces of equipment to run your business. You want to use the seven trucks to negotiate, saying, “Hey, I need seven trucks to run this business here. So for the two supplementals, I would add the van availability, the core zones, and everything else that goes with that, too, when you combine your total and add it to your annual service charge because there’s not going to be no more supplementals. It’s basically pieces of equipment. How much equipment do you need to run your business? And, that’s the manner you want to use to negotiate. So regardless of how many supplementals you’re having, if you really need those supplementals then I would add the supplementals to all your PSAs, just say, “Hey, my business requires eight trucks even though I only have five PSAs.” [inaudible] because you have a driver, who you’re paying a salary, you have that truck that means it’s going to– you’re already getting paid through the supplement for that, so that’s another thing, you want to add that. But then you also have wear and tear on the vehicles so you want to make sure that you add those to your total numbers and, again, because we’re not going with PSAs anymore, we’re going to go with units. You need eight trucks to run a business, then negotiate with eight trucks.
Host Does ISP apply to P&D, pick up and delivery, semi-trucks? I would image that means the local, state [tapped?] trackers that are technically ground.
Saul Lerma Good question. We have just one light-haul driver that comes out of our fleet and he didn’t go ISP and he didn’t have to go to ISP, and even though he had some P&D, he works like P&D/light-haul. He actually worked full-fledged light-haul. Now, at this point, I don’t know if light-haul is also going to go ISP like we are but they gave him a choice. They even had to go ISP so he can. So that’s a good question but we only have one driver down here, we don’t have like four or five light-hauls that operate out of our station. But at this point he didn’t have to so he didn’t, he stayed at an independent contractor for light-haul.
Host We’re going to two more questions and then we’ll wrap up and this isn’t a specific one from a contractor, but this is something that I get asked to me a lot, obviously, as truck guy. And I hear a lot of guys asking, “FedEx says I need to upgrade my trucks. How am I supposed to upgrade my trucks if I don’t know what my paycheck is going to look like in a couple of months.”
Saul Lerma Yeah. That’s a good question. The data office is that going through the ISP, and this will give a little more clarification. In our experience until you have contracts with ISP means that [inaudible] service teams unload to another one. One thing goes through my [inaudible] we don’t have to reapprove our trucks anymore, share our drivers, or get background checks and all that. It’s just the initial going into for that transition. It’s almost like starting all over again pretty much is what we’re doing. We’re getting out of the IC world and we’re going into the ISP. So basically, it’s like starting everything over so everything has to be approved, all the backgrounds, everything has to be going through that. Now, what they’re doing is that it’s an opportunity that the aesthetics are taking that now that we’re actually going ISP, they want to make sure that every truck is going to meet the right requirements that they’re correcting. There are some trucks probably right now in some place in the United States that may not even meet the requirements but because they’re still in the IC and they’re running them that way, one group on going to transition and the ones that are going through negotiations and actually come up for approval. Those are the trucks they’re going to stop and very good question but to sign a contract to get your truck approved, it has to meet all the requirements that FedEx are asking for. That’s something that you might need to discuss with your senior manager and your safety department, the regional safety department but for us, if we didn’t have that truck approved, we couldn’t use that truck until it was actually approved for ISP.
Now, very good question because when our trucks, when we kind of approve our trucks, it was right before we actually went into negotiations. We had approved what we were going to end up with but it’s a requirement that they’re just asking and it’s going to be in the workbook that they’re going to give that every truck has to meet all the requirements and all the [inaudible] truck driver aesthetics. I really don’t have the answer to that but basically that every truck has to meet regulations and it has to be meeting all the requirements that it needs. Now, take into consideration that it’s image only. When they’re actually approving your truck for ISP, they’re not going to check whether your light works, they’re not going to check whether you have leaks, like oil leaks, that’s not exactly what they’re checking. They’re checking for image only that the body is not dented, rusted, that the image, that everything meets the proper requirements. Some trucks are going to need more work than others, some trucks are going to need to get replaced, some trucks are doing very well and they don’t need a whole lot to upgrade or anything like that but it all depends, that’s why I said take a hard look at your fleet, know where you’re at, start asking questions, [inaudible], maybe with your safety. Even before you go into that because they might say, “You know what? I don’t think this truck’s going to make it.” Or they might say, “This truck is going to make it.” But if you know for sure that you need to replace some trucks, this is the best time to start thinking about it, start looking into maybe getting pre-approved, where you could get loans, start looking for trucks and those kind of– if you know you really need to replace some of the trucks, this would be the best time because you want to take the time to do this right. Don’t wait for the last minute and start making some rational decisions where, “Oh, man. I have to buy a truck,” because they’re not going to approve this truck for me and now you’re going to pay high dollars for something because you didn’t really take the time to look for some trucks that were available at [inaudible] and come together. I did [inaudible]. But again, it’s a requirement that FedEx has, and at the end of the day, they’re either going to approve your truck, or they’re not going to approve your truck.
Host All right. One last question submitted by Cory. If I have 13 PSAs now with a combination of city and rural, would it be advantageous for me to set up another entity so that the close areas do not dilute the areas that I’m running close to 200 miles per day?
Saul Lerma Yes and no. You don’t have to open up another entity for that because you want to factor in all your rural areas. It’s going to cost you more to do business in the rural areas for the simple fact that a truck takes a lot longer to get there. If you’re going to go through dirt roads and outbanks of [inaudible], you’re obviously going to have some more maintenance problems. Also, those rural areas, it’s not going to do as many stops as you can in the inner city. But the biggest thing is to factor in what does it cost you to run those trucks in those areas, because at the end of the day, you still have to make enough money to pay the driver, pay the fuel, pay the maintenance, pay tires, and all your wear and tear. And you still should be able to factor all that information in. Now, if you want to break your entity in half, you could do that. But at the end of the day, you’re still going to have to negotiate how far you’re going to go, because, in my case, just to give you this, I have four step vans, and I have four straight trucks. All my entities are out of town. I don’t have anything in the city. My closest one is 65 miles away. My farthest one is 90 miles away.
So most of my trucks are doing 250 miles a day. My straight trucks are doing 170 miles a day. My freight trucks are only doing 25 and that’s all rural area. And my step vans are doing between 75 to 110 and that’s the ones that goes furthest from doing 75 and that’s [inaudible] in about 300 miles. I had to factor all that in. I had to factor that I don’t have that city stops. I had to be a face. I had stops. So when I went into negotiation, I had to factor that everything’s out of town. I had to come in and negotiate that I had nothing in town. In other words, by the time I get to my first stop, somebody here in the city already made like 25 stops, when I’m running only my first stop. So when you factor the time that it takes to get there and the time that you need to come back– because when you’re on the road going to your first stop, and you’re 30 miles away, you’re not making any money. You’re not making any money until you start making your deliveries, and you start pumping out your packages. That’s when it starts. So that dead time is what you have to factor in to figure out what kind of money you’re asking for stops or what kind of money you’re going to ask for packages. And that’s the biggest thing. But if you wanted to break this entity in half, because really they need to try to make scale, then you could do that, but at the end of the day, you’re still going to have to try to negotiate what it’s going to cost to [inaudible] in those rural areas versus in the city. And it still should come out to the same average because if you broke your entity in half and you’re getting paid a lot more for the rural area and you’re getting paid a lot less because of your overhead in the city. When you factor in both of those settlements, you’re going to get an average. That’s the average that you’re going to try to negotiate anyways.
Host Awesome. Well, Saul, I want to thank you for joining us today and sharing some of your knowledge with everybody. I’m sure everyone is very appreciative of you taking the time out of your day. Obviously, this is totally in addition to your everyday business that you have to invest your time running. So thank you for that.
Saul Lerma Oh, no problem. No problem. It was my pleasure, and everyone will get a workbook when they’re getting ready to go on the negotiation. I don’t know if there’s anyone from Wyoming, but Wyoming, I believe are going to be the first to go through that transition. I had conversations with someone from Cheyenne, or Wyoming, and they’re going to look through the transition. But when you guys are getting ready to go through your transition, they will give you a workbook, a factor relations book to try to explain it a little bit more to you. But at the end of the day, don’t worry a whole lot, or don’t fear too much, because everything will work out for you guys. Key is organization. All your members will know what you’re negotiating for. That’s what’s going to make a difference.
Host Awesome. And I just posted some contact info up on the webinar for those of you who are sitting in front of your computer. For those of you who are not, you can contact us at Work Truck Direct and we’d be happy to get you in touch with Sal. He’s happy, when he can take the time, to talk to you guys if you have any follow-up questions related to anything ISP. And then for anything truck-related, obviously, you can find us at worktruckdirect.com. Right here, having to do with this ISP transition, I don’t know exactly when Wyoming begins the process. I know for me, I’m working with a lot of guys in Texas, and Texas begins the process starting in June. So I think there are a group of terminals in states that are going to begin the process here pretty quick. For those terminals that are beginning the process in June or thereabouts, we’re going to be running our $100 special that we usually bring out during peak season, where $100 flat gets you into a truck. And obviously, in the entire ISP process, all the stuff’s going to be listed out for the truck guys so that is where we can provide the most value for you. The way the program works for those of you that haven’t heard about it or used it, you write a check for $100, and that gets you a brand new truck delivered and takes care of your first 30 days of use. And then your second month’s payment, after your first 30 days of use, is also just $100. So you don’t actually make a truck payment until the third month. This is something that we’ve run for you guys during peaks and it’s proven to help out, help you guys conserve some cash. So, hopefully, this will help alleviate some of the uncertainly with upgrading your equipment going into ISP. In order to take advantage of this, when you fill out the application through our website, you either put, “How did you hear about us? Webinar.” “Which representative are you working with?” If you don’t have one, that’s fine, you can just select that. If you do know who you’re working with, go ahead and select that there. And then you want to enter promo code ISP2016. Again, that’s ISP2016. And we’ll probably be sending out an email with this info, as well, along with a recording of this call for anyone who may have missed it. So we’re going to go ahead and wrap up. We’re a little over the time. Sal, thank you again, and have a good night.

FedEx Ground announces long-term plan for overlap contracting condition

ISP transition schedule adjusted to account for overlap condition

FedEx Contractor Relations
May 2017

Steady trends in consumer behavior and the e-commerce market create a need for continued evolution in the industry and our businesses.  Moving toward combined, or unified, Ground P&D and Home Delivery service areas is fundamental to staying ahead of market trends.

FedEx Ground has made, and continues to make, significant investments in co-located facilities and technology to enable combined commercial and residential services.  Additionally, over the past several years FedEx Ground has continuously emphasized the importance of smart growth, especially in terms of providing both Ground and Home Delivery services in a single contracted service area (CSA).  FedEx Ground communicated more than a year ago that Ground and Home Delivery service area overlap would be a positive differentiator for contracted service providers (CSPs) and a consideration in contracting decisions going forward.

Now, more than ever, customer expectations and the competitive landscape compel a move to overlapped Ground and Home Delivery services within a CSA.  Complete overlap – especially if CSAs are also contiguous (connected within a single geographic boundary) – better positions both FedEx Ground and CSPs to grow and compete in new ways.

Overlapped services to be condition for contracting

According to the timeline below, FedEx Ground will begin to contract only for CSAs that include both Ground and Home Delivery services in the entire geographic area.  This combined-service CSA contracting condition, which will apply to businesses providing services out of co-locations, is essential to meet the needs of the evolving market.

  • For ISP transitions that begin after January 18th, overlap contracting conditions will be in effect when negotiating an initial ISP Agreement during the transition.
  • For all other districts (including current ISPs; and ISPs currently transitioning or beginning transition in 2017), overlap contracting conditions will be in effect when negotiating any ISP agreement beginning June 1, 2021.
  • For stand-alone stations, overlap contracting conditions will be in effect with prior notification, in the event that the station becomes co-located in the future.
    • The ISP transition schedule has been updated and is available on MyGroundBiz.com

CSPs in districts not immediately affected by the contracting condition may still use the opportunity to design overlapped CSAs and consider other smart growth opportunities such as contiguousness.  The sooner CSPs experience the benefits of an optimized service area, the more businesses have to gain.

Getting to overlap during an ISP transition

While FedEx Ground is not offering additional monetary incentives specifically for overlap attainment, growth and transition incentives continue to be available.  Although CSPs will have the opportunity to optimize service area design during the transition, it may also be advantageous for CSPs to pursue overlap in advance.  Meeting or maintaining minimum scale remains a condition to negotiate for an ISP agreement.

Meeting the combined-service CSA condition

After the applicable overlap condition effective date, and prior to entering negotiations, only businesses that will provide Ground and Home Delivery services to all stops in their CSA definition will meet the overlap condition to negotiate for a new ISP agreement.

If a business does not meet the overlap condition by the applicable date, there are no assurances that FedEx Ground will negotiate with that business for a particular service area.  In that scenario, FedEx Ground may offer to negotiate for a new overlapped service area to the extent it can.  Therefore, the earlier a CSP begins exploring overlapped CSA design options, the more likely the CSP will have the opportunity to negotiate for a new agreement with a service area of its choosing.

If a CSP has met all contracting conditions, including 100 percent overlap, by the applicable dates, its CSA definition can be finalized regardless of overlap attainment in adjacent service areas.

Available resources for all CSPs

FedEx Ground is committed to providing adequate time and resources for businesses to explore CSA design options and identify opportunities to attain overlap.

  • FedEx Ground district Operations Engineering specialists (DOES) are available to provide maps and data, and discuss options for CSPs to meet the overlap contracting condition.
  • DOES and station management also have access to tools that can be used to enable CSPs to identify potential areas of overlap, visualize historical days of stops in service areas, and make various “what if?” analyses.
  • Contractor relations and district staff continue to be available to meet with CSPs and answer questions as they examine options and consider transactions with other businesses.

As CSPs determine the best business moves to attain 100 percent overlap, FedEx Ground will also advance overlap when and where open service areas arise – including during ISP transitions.  For example, FedEx Ground will first consider CSPs that have the potential to attain overlap with acquisition of stops in the open service area.

Additional Information

Additional information, including the updated ISP Agreement transition schedule and Frequently Asked Questions, is available on MyGroundBiz.com.  Station senior managers, DOES and Contractor Relations staff will be available to respond to questions, with information still to come on certain station or CSP-specific scenarios.

FREQUENTLY ASKED QUESTIONS: OVERLAP CONTRACTING CONDITION

Impact to specific operations 

  1. Are stand-alone stations (Ground or Home Delivery) included in the overlap contracting condition?

Contracted service providers (CSPs) providing service out of stations that are stand-alone (either Ground or Home Delivery) and that will continue to be stand-alone through 2021 currently are not affected by the 100 percent overlap contracting condition.  Senior managers at stand-alone stations have information on any impact to their particular stations.

  1. Are straight-truck stops included in the 100 percent overlap contracting condition?

Businesses providing straight-truck services can continue operations as normal.  The stops in a straight truck CSA will be considered to be overlapped, meaning that any Home Delivery packages destined for any of the straight truck stops would be covered within the straight truck CSA.  If a different CSP provides P&D services to the geographic area that the straight truck stops are in, the overlapped straight truck stops would be excluded from that geographic CSA.

Impact to CSPs already contracted under an ISP Agreement or transitioning in 2017

  1. Will ISP Agreement expiration dates be modified ahead of the June 1, 2021, effective date for the new overlap contracting condition?

FedEx Ground may offer to align ISP Agreement end dates for specific ISPs in order to enable opportunities for CSPs to meet the new overlap contracting condition.  Advance notice will be provided by FedEx Ground should this occur.

Impact to districts that will begin ISP transitions after January 1, 2018

  1. How can 100 percent overlap be attained during an ISP Agreement Transition?

CSPs in transitioning districts will have sufficient opportunity to optimize service area design during the transition.  It may also be advantageous for CSPs to pursue overlap in advance of transitions.  FedEx Ground District Operations Engineering specialists will be available to provide maps and data and answer questions as CSPs examine options and consider transactions with other businesses.  If a CSP does not achieve 100 percent overlap during transition, FedEx Ground may offer to negotiate for an overlapped service area to the extent it can.

Advantages of overlap

  1. What are the advantages to a combined-service CSA?

As e-commerce drives more customers to seek, and more competitors to offer, new services, innovative and responsive solutions from FedEx Ground are better enabled with the flexibility of a more integrated network.  With co-locations expected to make up more than 90 percent of the network by 2020, fully overlapped CSAs provide greater flexibility for pickup growth and seamless six-day services when the market calls for it, as well as services like FedEx OnSite that provides new drop-off and pickup options for customers.  Customer solutions like these drive additional volume and stop density, offering opportunities for additional revenues and greater economies of scale.

  1. Do overlapping service areas also need to be contiguous?

Contiguousness of a CSA is not a contracting condition.  However, contiguousness – that is, a service area enclosed within a single boundary – provides even greater opportunities for efficiency and operational flexibility in an overlapped CSA.  When FedEx Ground is in a position to offer a new or open service area, every opportunity will be taken to maximize contiguousness.  This opportunity for smart growth will continue to be emphasized.

Meeting the overlap condition; proposed assignments

  1. How is 100 percent overlap defined?

100 percent overlap occurs when a CSP contracts for Ground and Home Delivery services for all stops in the designated geography.  (See Q2 for overlap in straight truck operations.)

  1. Will FedEx Ground consent to proposed service area transfers that are inconsistent with the overlap contracting condition?

Meeting the overlap contracting condition will be a factor in FedEx Ground’s consideration of proposed service area transfers.  CSPs should account for this when considering service area transactions.  In all cases, FedEx Ground will require full disclosure of the overlap contracting condition to all transacting parties.

  1. If a CSP has or attains a CSA with 100 percent overlap, will that CSA be subject to change by FedEx Ground prior to ISP Agreement negotiations?

When a CSP has met all contracting conditions, its CSA definition can be finalized.  However, there may be circumstances where FedEx Ground may propose to negotiate for a modified CSA, where doing so optimizes a service area – for example, where there is a contiguous and overlapped service area available to expand a CSA.

  1. After the contracting condition goes into effect, what happens if 100 percent overlap is not attained before negotiations for a new ISP Agrement begins?

If a CSP does not attain 100 percent overlap by the time negotiations begin, FedEx Ground and the CSP may pursue the following alternatives:

  • Negotiate for a new ISP Agreement with a CSA that the CSP has formed/proposed that meets the overlap and all other contracting conditions; or
  • Negotiate for a new ISP Agreement with a CSA proposed by FedEx Ground, as long as all other contracting conditions are met; or
  • The CSP may decide to pursue other opportunities and either transfer its service area to other CSPs, or continue to provide service under its current agreement until it expires under its terms.
  1. What happens if a CSP’s ISP Agreement with less than 100 percent overlap expires shortly before or after June 1, 2021, and the service area needed for 100 percent overlap is in another CSP’s contract that does not expire until a later date?

FedEx Ground would consider extending the CSP’s contract term to align with the other contract.  In that scenario, and absent agreement between the CSPs, FedEx Ground would propose to negotiate new ISP Agreements for overlapped CSAs.  The new overlapped CSAs would be reasonably comparable to the CSAs previously serviced by the CSPs, to the extent feasible under the circumstances.  Extending the contract term as described does not assure that a CSP will have exclusive rights to negotiate a new Agreement.

  1. If FedEx Ground offers an overlapped CSA, what would a FedEx Ground-proposed CSA look like?

FedEx Ground would attempt, contingent on availability of overlapped stops or areas, to propose a CSA that is comparable to the previous CSA in terms of financial opportunity and with consideration to geographic proximity.

  1. What impact does the 100 percent overlap attainment have on CSPs that have satisfied the other conditions for exclusive negotiations for an ISP Agreement?

A CSP that meets the conditions for exclusive negotiations will continue to have the same opportunity to negotiate.  However, FedEx Ground may offer to negotiate for an overlapped CSA if the CSP has not attained 100 percent overlap prior to negotiations.

Integration of Ground and Home Delivery Operations

  1. When will VISION and VRP be combined so that Ground and Home Delivery services can be provided more seamlessly?

FedEx Ground has been working to enhance the Vision systems to achieve a “Single System” that will result in elimination of the VRP from Home Delivery operations.  The work to fully integrate Home Delivery into all current Ground systems – including Automated Work Area Design (AWAD), Preload Assist, Manifest, DSW, APS, etc. – is nearing completion.  The network wide rollout of the “Single System” initiative expected to begin at co-located stations in the early spring of 2018.

  1. Will packages be sorted in a way that consolidates Ground and Home Delivery packages to a CSP’s vehicles to better enable overlapped services?

Ninety-seven percent of co-locations are also co-mingled, meaning that Ground and Home Delivery packages can arrive on the same belt, enabling vehicles to be loaded with both.  The remaining co-locations will continue to become co-mingled over the next few years.

FedEx Ground announces long-term plan for overlap contracting condition

Executive Summary:

  • Moving toward combined, or unified, Ground P&D and Home Delivery service areas is fundamental to staying ahead of market trends.
  • FedEx Ground communicated more than a year ago that Ground and Home Delivery service area overlap would be a positive differentiator in contracting decisions.
  • Beginning June 1, 2021, and earlier for ISP transitions that begin after January 20187, FedEx Ground will begin to contract only for CSAs that include both Ground and Home Delivery services in the entire geographic area.
  • CSPs have sufficient time and are provided ample resources to meet the combined-service CSA contracting condition. It may also be advantageous for CSPs to pursue overlap in advance.
  • If a business does not meet the overlap condition by the applicable date, there are no assurances that FedEx Ground will negotiate with that business for a particular service area. In that scenario, FedEx Ground may offer to negotiate for a new overlapped service area to the extent it can.
  • FedEx Ground district Operations Engineering specialists (DOES) and Contractor Relations staff are available to offer resources and answer questions as CSPs examine options to meet the overlap contracting condition.

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