We recently received an inquiry on our blog asking us to share our perspective on how the FedEx model works. While that question deserves a very lengthy and detailed answer, we did our best to break the FedEx model down into a concise, easy-to-read explanation…
In short, FedEx contracts with thousands of independent contractors across the US to fulfill most of its package deliveries. It is important to note that overnight shipping (FedEx Express) is not contracted out to independent contractors. Rather, this is handled by FedEx corporate employees.
With that said, there are 3 segments within the independent contractor model: linehaul, ground, and home delivery. Ground and home delivery are sometimes jointly classified as “ground”.
The independent contractors have a contract with FedEx (typically ranging between 1-5 years at a time) that stipulates the rates, service areas, obligations of the contractor, etc. Because the contractor effectively “owns” a certain geographic area, that contractor is responsible for ensuring the safe delivery of all FedEx packages which are destined within their territory. Depending on the state (specifically whether the state is an IC or ISP state), that contractor has a certain degree of independence regarding how the routes are configured, and the number of trucks that will be servicing the territory.
The delivery drivers are often W-2 employees of the independent contractor’s corporation. It is the responsibility of the independent contractor to pay their drivers, maintain the vehicle fleet, purchase fuel, insurance, etc.
The compensation to the independent contractor is calculated based upon the terms stipulated in the contract with FedEx. The contractor is paid each week (via direct deposit) for the prior week’s work. The independent contractor, in turn, pays its expenses out of the revenues earned from FedEx.