Bloomberg Businessweek August 23, 2021 pp10-12 |Business| “The Unlikely Asset Class” “Spencer Patton helped buy or sell about a quarter of the FedEx Ground delivery routes, a new road to riches for entrepreneurs” “BOTTOM LINE The number of FedEx Ground packages jumped 23% last year. That’s fueled an increase in the value of its deliver routes, which independent contractors have been buying”
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FedEx Express delivery-routes are operated by FedEx corporate but FedEx Ground routes are sold by FedEx to independent contractors. These routes are currently going for about $1.25M, have a term of three years and no single independent business can own more than 10% of routes out of a specific hub. Older contractors have seen their valuations rise and are increasingly cashing out.
FedEx operates everything behind the scenes for both the Express and Ground business. The contractors are responsible for the entire ground delivery operation including equipment, staffing etc. “The owners collect a fee for each package their fleets drop off, but they’re entirely responsible for hiring drivers, buying trucks, and dealing with all the issues that come with running a small business” all reportedly for “returns of more than 20% a year.”
Enter Spencer Patton, who does not work for FedEX, but owns a substantial number of ground routes, 250 across America. He thrives as well by educating would-be entrepreneurs interested in being successful in obtaining and operating FedEx Ground routes. His first Expo in 2019 had 400 attendees, 750 in 2020 and currently 1,800. He provides a number of services including “deal brokering, truck leasing, driver training, and even a financing unit to round out his suite of services-comprising 26 entities in all.” His consultative services helps newbies on getting into and being successful as a contractor for FedEx Ground. Spencer noting the seemingly exponential growth in the deliver business since 2000 from just more than $1B to nearly $30B currently commented to attendees at a seminar of his “‘This is like buying Apple at $1 a share, that’s what we are doing here.’” Patton “‘predicts most contractors will see their sales double over the next three years.’” He claims to have brokered “about 25% of all the FedEx Ground route transactions in the U.S.”
FedEx reportedly has 5,600 small companies engaged as Ground contractors and given better control over wages etc. margins are actually better for Ground than for the FedEx Express side of the business. Contractors pay as little as half of what express drivers get and they don’t typically offer benefits. FedEx corporate made a number of actions to boost business overall by going from five to seven days a week, “updated routing software...accepting larger packages...and taking back small packages that previously were passed to the Postal Service for final delivery.”