Being an Independent Service Provider aka FedEx ISP, is a dream of many small business owners, but what is FedEx ISP and what exactly is the conversion to ISP from CSP (Contracted Service Provider)?
For many years the world wrestled with whether or not a FedEx Ground operator was an employee of the parent corporation or a contractor. The new ISP agreement, which requires route owners to transition by May 2020 across the entire country, looks to clarify that answer. It also puts more pressure on contractor companies: they must own a minimum of 5 routes and/or 500 daily deliveries (Tractor PSAs do not count toward the minimum required number of PSAs needed to reach minimum transition scale). If we were to oversimplify the concept, it could be looked at as a variation of subcontracting. As always, people who sign an ISP are not employees of FedEx and will be responsible for procuring their own health insurance and retirement plan. Likewise, they will need to provide benefits to their employees.
Recently FedEx has announced that in order to qualify for the new ISP standards, FedEx is requiring that P&D contractors achieve 100% overlap between ground and home delivery. This will, in turn, create many efficiencies, including better use of vehicles, fuel and personnel. And of course, a much richer potential revenue stream.
What are some of the benefits of operating overlapping Ground and Home Delivery service areas?
Businesses that incorporate Ground and Home Delivery overlap into their CSAs have the best opportunity to realize increased stop density, improved productivity and a reduction in miles per vehicle or in the total number of vehicles needed. In recognition of these dynamics, servicing overlapping Ground and Home Delivery stops within a CSA will be a positive differentiator for businesses moving forward. FedEx Ground may consider the
overlap of stops as a factor when contracting decisions are made.
It is also an opportunity for all territories to be clarified. FedEx will be looking at routes in great detail to ensure that everyone respects boundaries.
Consumers will reap many benefits too. The FedEx ISP model has forced many route owners to upgrade their fleets to pass a more stringent inspection process. Workers will also be subject to background checks across the board which keeps things safer for all parties involved.
The FedEx ISP does take single-route owners, or people looking to start a business on a very tight budget, out of the equation. Many of those people have been pressured to sell their routes in advance of the transition. And single-route ownership brought many challenges with it. Others have found great reward in the new ISP opportunity. The reality is that the FedEx business continues to thrive and is expected to ride a hot hand in the coming years.
What happens if a business does not want to pursue an ISP Agreement?
A business that does not pursue a transition to the ISP Agreement may assign its Operating Agreement(s) and PSA(s) and pursue other opportunities. It also may choose to continue to provide service under the non-renewed Operating Agreement(s) until it expires.
For current CSP owners who are in the middle of the ISP transition, FedEd will review historical data regarding packages and set up negotiation meetings. These talks can last several weeks and often consist of a lot of back and forth. As a plus, safety and service bonuses are a possibility. A Request for Proposal will also need to be completed for your FedEx business. Within the document, route owners will need to account for any contingencies.
Many people have compared the Ride on Trucking arrangement, aka the ISP model, to subcontracting. In reality, it gives FedEx greater control over workers without having to employ them directly which would be costly.
Business owners weighing their FedEx ISP options should consider the fact that financing for their endeavor can come from many different avenues, including seller financing. They also need to allow 9 to 24 months to transition a district. Keep in mind that current owners are eligible for several financial transition incentives; new owners that are not already contracting with FedEx Ground are not eligible and would need to enter the network at the aforementioned minimums. Per FedEx:
What financial incentives are available during a transition to the ISP Agreement?
While each transition is unique, FedEx Ground has typically offered financial incentives in exchange for execution of a Limited Release and Operating Agreement Modification, as well as growth incentives for businesses that acquire eligible PSAs. Additional details about your district’s incentives will be made available in the district’s workbook
If you have wondered what is FedEx ISP, hopefully, we have answered many of your questions. The ISP transition is quite complicated. If you would like to discuss it in greater detail or are looking to list your FedEx routes for sale, please do not hesitate to contact us.