FedEx contractors are cashing in on scarce delivery routes

FedEx works with 5k+ contractors on its FedEx Ground business, which did $30.5B in 2020.

Photo by Justin Sullivan/Getty Images

It seems like every asset has boomed since the pandemic started — and FedEx delivery routes are no exception.

Under the brand FedEx Ground, FedEx offers the following opportunity:

  1. A contractor can buy the exclusive rights to deliver packages in a specified area for up to 3 years.
  2. In return, the contractor (who still has to supply trucks and drivers) takes a fee for each package.

This unusual ‘asset class’…

… has seen prices — AKA the right to own the route — increase 50% in 3 years, per Bloomberg.

The going rate for 10 routes is ~$1.25m, with profit margins of up to 25% for a well-run business. While FedEx vets the initial sale, it also allows a thriving secondary market to exist.

This arrangement allows FedEx to have a lower cost structure than its rival, UPS, which has unionized drivers (the flip side being, UPS employees have industry-leading wages and more benefits).

FedEx was founded in 1971 on air delivery

But its ground game is now the growth driver. Per Bloomberg, over the past decade:

  • FedEx Express (transports mostly by air) saw sales increase 60% to $42B.
  • FedEx Ground has seen sales 3x over the same period to $30.5B (with much better margins)

Since 2019, FedEx Ground has revamped its business…

… to keep up with the ecommerce boom. Major changes for its 5k+ contractors include:

  • Extended delivery (from 5 to 7 days a week)
  • New routing software
  • Accepting both larger and smaller packages

Deliveries exploded to 3.1B packages in 2020, up 23% YoY.

With no end to the “I’m gonna order toilet paper online ‘cause I’m too lazy to go to the store” in sight, the value of these routes could keep going up.

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