Contrary to popular belief, the FedEx business is not a Franchise. Another common misconception is that the FedEx delivery routes are corporately owned, similar to UPS. In fact, FedEx contracts with thousands of Independent Contractors across the US to provide its delivery services. These contractors own their own corporations and are directly responsible for financial and operational oversight of the business. Some of the noteworthy differences between a FedEx contractor and a traditional corporation or franchise include:
a.) FedEx contractors aren’t responsible for any sales and marketing efforts. FedEx corporate handles all the marketing and customer acquisition efforts/costs associated with the business.
b.) FedEx contractors are paid (direct deposit) every week for the prior week’s work – an extremely attractive component of the business model. Weekly payments dramatically reduce the need for working capital and effectively eliminate accounts receivable and uncollected payments.
c.) FedEx owns and operates large terminals/hubs all across the country. These hubs receive packages destined for local delivery and are sorted by corporate FedEx employees. This work is provided to the FedEx contractor at no cost and is a huge cost benefit to the operation. A more traditional franchise or corporation likely would incur the expense of a building and its associated lease and upkeep.
d.) By virtue of the contract with FedEx, FedEx contractors enjoy contractually protected service areas which eliminate any competition in the area. While traditional franchisees may “own” a certain geographic territory, nearby owners may often compete for customers in the same regional area.
e.) As opposed to a traditional franchise, FedEx does not collect franchise fees, provide corporate training, etc. FedEx routes are not purchased from FedEx corporate, but rather bought and sold amongst the independent contractors themselves. In certain instances, when new service areas arise or existing ones expand, FedEx corporate will award (essentially “give away”) new routes to its existing contractors.