Have Fedex Routes been taken or not renewed?

[fedexnubi]

Hello, I am researching the purchase of a or a route group that will qualify for ISP and supposedly returns 27% on the purchase price with one full time manager, 11 drivers and a part time manager. I am weary of investing this much capital into the purchase of the routes without confidence that Fedex could not take my routes on a whim. My other business is highly litigious and I am concerned that a frivolous lawsuit in my other business could cause fedex to not renew, force me to sell or just take my routes away.

Does anyone on this site have any examples of routes not being renewed or taken.. and if so, what were the reasons for that action?

I understand from reading the threads that the rate of return is not supported by many of the members, I am obviously concerned about that however my main concern is how fedex could cause an asset I purchased for 1.5m to be worth nothing. If anyone has any examples of routes being taken, forced to sell or not renewed for reasons other than not delivering or picking up packages, I would greatly appreciate the information.

 

[bbsam]

Hello, I am researching the purchase of a or a route group that will qualify for ISP and supposedly returns 27% on the purchase price with one full time manager, 11 drivers and a part time manager. I am weary of investing this much capital into the purchase of the routes without confidence that Fedex could not take my routes on a whim. My other business is highly litigious and I am concerned that a frivolous lawsuit in my other business could cause fedex to not renew, force me to sell or just take my routes away.

Does anyone on this site have any examples of routes not being renewed or taken.. and if so, what were the reasons for that action?

I understand from reading the threads that the rate of return is not supported by many of the members, I am obviously concerned about that however my main concern is how fedex could cause an asset I purchased for 1.5m to be worth nothing. If anyone has any examples of routes being taken, forced to sell or not renewed for reasons other than not delivering or picking up packages, I would greatly appreciate the information.

There's a guy in our station that just got 10 routes 2 hours north of here for $0. The previous contractor had abou 18 accidents in a year.

 

[It will be fine]

There's a guy in our station that just got 10 routes 2 hours north of here for $0. The previous contractor had abou 18 accidents in a year.

That's the most common cause for contract termination right now. They are handing out letters to cure for safety like candy. Even if you institute great safety programs and improve your record your routes will go up for bid. It feels like back in the day where a well placed bribe to a senior manager can get you free routes.

If you can't get your money back out within the 3 year contract you are taking a big risk. If your contract goes up for bid and they give it to someone else you don't even have the opportunity to sell it, it's just gone and you have a fleet of trucks with questionable value outside of this industry.

 

[bacha29]

The thing to understand is that there are no specific criteria for route forfeiture or contract termination, it's open ended and you can be terminated for reason at all. It's all up to X. We had a guy who was indicted on several counts of embezzlement theft by deception receiving stolen property charges etc that were completely UNRELATED to his X contract. In an effort to keep his routes from being liquidated to pay the people he ripped off he tried to turn everything over to his daughter. No sooner than she took over both she who was also driving a route and one of her employees were in separate wrecks but never reported them. X simply took over the routes.
Another thing to keep in mind is that the fate of that reservoir of cash you hoarking up is entirely in the hands of somebody else and you'll tire of that quickly.The biggest challenge will be to find enough cash to keep your trucks running and to pay your guys enough money to keep them on the job. Yea you could generate a return of around 27% if you pay you guys starvation wages zero benefits and your managers an YOU are out there everyday driving a route yourselves .

 

[fedexnubi]

Thank you for the reply. For the owner that changed ownership to his daughter, do you think his routes would've been taken away if the daughter and another employee did not get into an accident?

 

[dvalleyjim]

They won't just take your routes. You will have to fail miserable before they do They will give you ample warning.

The problem is not the 27 percent. How do you ever get your initial investment back. So after 4 years you make your return. You'll need 10 years before you can walk away. Not that easy to find cash offers in this business because you don't really own anything.

 

[It will be fine]

Thank you for the reply. For the owner that changed ownership to his daughter, do you think his routes would've been taken away if the daughter and another employee did not get into an accident?

That was probably a while ago and I would imagine Fedex was just looking for a reason to terminate.

The new isp agreements are pretty clear on what constitutes a material breach that would terminate the contract. They also lay out what will get a LTC and allow them to put your routes up to bid. There is still a lot of leeway with your local terminal manager and district manager as to when to issue those letters. I would have some long talks with them before buying anything. Your best case would be to take over a contract with about 18 months left on it. They'll cut you slack for any issues in your first year and you could then negotiate another 3 year contract.

 

[dvalleyjim]

Hey but nothing ventured nothing gained. If I had that money I would invest it in something safer with less of a return.

 

[It will be fine]

They won't just take your routes. You will have to fail miserable before they do They will give you ample warning.

The problem is not the 27 percent. How do you ever get your initial investment back. So after 4 years you make your return. You'll need 10 years before you can walk away. Not that easy to find cash offers in this business because you don't really own anything.

It's not really the case anymore. It's become like a crappy NFL franchise. When the team sucks the GM drafts a new QB and tells ownership he needs another year or two to see if he's any good. District manager is the GM, new QB is the new contractor. Results are slipping nationwide and DMs need to keep their jobs and will use any excuse available to them.

 

[fedexnubi]

Thank you guys very much. I think my main issue is that I've been speaking with brokers, to them this is the best investment out there, I realize they're getting paid approximately 10% of the sale price so I understand why they would say that. From the comments below I am assuming that not many people have seen many large sales go through. I have access to capital if I can show these types of returns and was looking to consolidate many routes and try to take advantage of lower fixed costs and increase the profit. I appreciate all of the comments and I am very concerned about only owning the trucks if X doesn't like the way I run my biz or deems me an undesirable owner., but nothing else out there can come close to the 25 to 30% returns that are advertised. I will make sure that in my diligence I speak with the terminal manager in depth.

 

[bbsam]

Even if you institute great safety programs and improve your record your routes will go up for bid.

Really? I haven't seen that happen.

 

[It will be fine]

Really? I haven't seen that happen.

Yup, it's up to the terminal and district manager. If you get a LTC within a year of renegotiations you're stuff will go up for bid. If they don't like you or if they get paid off by the new owner, you're gone regardless of your results within that last year.

 

[dmac1]

All you are buying is the right to finish out the contract, which fedex CAN cancel anytime, if they declare that they are changing business models(again), and the vehicles, which go down in value every day, bringing the value of your business down every day. The 27% net probably doesn't include that even though it is VERY real. If you buy the business today and have no debt on the vehicles, and a replacement fund needs to come out of that 27% net. or worse, you don't have a replacement fund, when one of those vehicles dies, you will take on more debt, reducing the value of the business. Asset depreciation is real, is accounted for in your taxes, and is where a lot of newcomers to business get 'tricked' into thinking their net is higher than it really is.
I worked as an independent individual delivery contractor for years and it is really a job. Fedex takes all the fun out of it. All the years I was in the delivery business, I was also investing in real estate, mostly rehabbing properties doing 95% of the work myself, then hanging onto to them, letting tenants pay for my real estate, plus appreciation, plus appreciation on the improvements I made. I loved it, set my own schedule, and managed the properties myself, except for one 6-plex that was about an hour away. But even that one I did all the prep work/repairs when tenants moved, but left day to day maintenance to the mgr.

I started with nothing but $1500 and good credit and a total wreck of a property the owner financed because banks wouldn't finance for any buyer. I made more money for less work, liked it better. I even made $84k profit without lifting a finger by finding an undervalued property that had about $100k of timber on it. Paid a company to harvest the timber, then sold the property for what I had paid. There were some carrying costs-interest, tax, insurance- because I didn't have a tenant. but netted at least $40 k after everything just for keeping my eyes open. If you buy with the idea that you can pay for it with other people's money(rent) and don't need to sell, you can make money even in a down market. Multi-family properties are the best for holding for cash flow imho.

If you have the ability to run a fedex ISP business, you can easily run a real estate business. It is less stress, and you might be able to buy 3-4-5 properties using the cash you have to buy the ISP. Banks are back to financing rental properties again, and loaning on rehab properties if your credit is good. With $150k cash, you can control about $1 million in real estate with a little work and time

The fedex contract gives them ways out that you won't be able to use. Can you afford to walk away if you buy this ISP and fedex violates the contract? They can violate with impunity because your investment binds you to them. But they don't need you at all. Not a fair and balanced arrangement at all. You are nothing to your 'business partner' under the ISP contract. Remember that.

 

[bacha29]

Thank you for the reply. For the owner that changed ownership to his daughter, do you think his routes would've been taken away if the daughter and another employee did not get into an accident?

This event happened earlier this year under the terms of the new ISP agreement.Conditions within the contractor's operation were already deteriorating . Common issues, incredible turnover, boxes not getting delivered guys not getting paid combined with the fact that this guy wasn't willing to be totally subjugated to the absolute will and power of that company which is something you'll have to be willing accept and get used to if you want to remain a contractor. Why? First there is not one single term or condition in the operating contract that X considers binding upon itself. In fact it goes to great lengths to make it completely understood that the initiative is NOT designed to create equity for contractors but rather to procure trucking and labor at the lowest cost possible. It is evidenced by the fact that with a few exceptions here and there contractor pay scales run in the $ 12-15 per hour range all straight time and zero benefits. In this country an average of 12,000 boomers march off into retirement and will do so everyday 365 days a year for the next 17 years. In addition I saw on one of the nationwide job boards the other day where they had 1180 Fedex driver positions open. Now ask yourself this question. What kind of person do you want to entrust with that 1.5-2 million dollar investment? Do you want someone who is perceived as a professional perform as a professional and project himself as a professional? If so. you'll have pay him like a professional. The question is, where are you going to get the money to pay him? Walmart/ Fast Food wages aren't going to keep him there but that's about the best the average FXG contractor can currently offer making it nothing more than transitional employment. A job between jobs. Something to tide them over until that better offer comes along and with all those boomers packing it in they may not have to wait long.

 

[instiches]

One thing to consider is if you aren't running a mixed Ground/HD operation, by the time this contract will be over, you will have to either acquire the other routes to continue contracting, or divest. If you don't see yourself being in this longer term, there really isn't a point of getting in now. It will require more capital down the road for those acquisitions.

 

[instiches]

Thank you guys very much. I think my main issue is that I've been speaking with brokers, to them this is the best investment out there, I realize they're getting paid approximately 10% of the sale price so I understand why they would say that. From the comments below I am assuming that not many people have seen many large sales go through. I have access to capital if I can show these types of returns and was looking to consolidate many routes and try to take advantage of lower fixed costs and increase the profit. I appreciate all of the comments and I am very concerned about only owning the trucks if X doesn't like the way I run my biz or deems me an undesirable owner., but nothing else out there can come close to the 25 to 30% returns that are advertised. I will make sure that in my diligence I speak with the terminal manager in depth.

Your cash return will be that high, but depreciation is a very real expense, so your real earnings will reflect that.

 

[bacha29]

Thank you guys very much. I think my main issue is that I've been speaking with brokers, to them this is the best investment out there, I realize they're getting paid approximately 10% of the sale price so I understand why they would say that. From the comments below I am assuming that not many people have seen many large sales go through. I have access to capital if I can show these types of returns and was looking to consolidate many routes and try to take advantage of lower fixed costs and increase the profit. I appreciate all of the comments and I am very concerned about only owning the trucks if X doesn't like the way I run my biz or deems me an undesirable owner., but nothing else out there can come close to the 25 to 30% returns that are advertised. I will make sure that in my diligence I speak with the terminal manager in depth.

We're not trying to discourage you . We're just trying to keep you from falling victim to paralysis from analysis. it still comes down to the most basic task. Finding somebody willing to go out there and spend all day and half the night in all kinds of weather delivering top of the scale performance for bottom of the scale money and do it on a continuous daily basis for an extended period of time. If you can't do that then nothing else matters.

 

[dvalleyjim]

for 25 to 30 % return on your money you will earn it. No such thing as a free lunch. Ask Bernie's investors.

 

[NYCFXG]

The least of your worries will be having your routes taken from you. Your largest worry will be waking up every morning and checking your phone for call outs. Asking yourself, is this the day I have to collapse those two routes back together? Is this the day I have to literally kill myself for 12 hours to fulfill my obligation? For me it only happens 2 or 3 times a year. Other smaller guys it happens to multiple times a month. I've got over 20 employees. But they all suck.

 

[Operational needs]

The least of your worries will be having your routes taken from you. Your largest worry will be waking up every morning and checking your phone for call outs. Asking yourself, is this the day I have to collapse those two routes back together? Is this the day I have to literally kill myself for 12 hours to fulfill my obligation? For me it only happens 2 or 3 times a year. Other smaller guys it happens to multiple times a month. I've got over 20 employees. But they all suck.

Lol. That's sad. But funny.