FedEx Ground Routes: Complete Guide for Buyers, Contractors, and Investors

A standard estimation when financing a purchase is 20% of the asking price, plus $75,000 of working capital.

How much money you need up front is dependent on the price of the business, whether you are paying cash or financing, and if you need to purchase any trucks or equipment.

For Example:
If you are purchasing a business valued at $800,000, a 20% down payment for a loan would be $160,000 in cash. We recommend maintaining a minimum of $75,000 in working capital for any unexpected costs or emergencies. This means that for an $800,000 business, we would like to see at least $235,000 available in liquid capital.*

*This example does not account for additional cash you may need to purchase vehicles.

Involvement can range from fully remote to hands-on every day or anywhere in between.

Your involvement level is dependent on your company structure, the size of your business, and your personal preference. It is recommended that you are more hands-on at the beginning, but you do not have to be present every day. The key is having a reliable manager to handle the day-to-day operations. If you do not have a manager, then you will be much more involved.

There are many different vendors in this industry that can handle various aspects of the business. You get to decide what you want to outsource and what you want to do yourself.

The number of trucks needed depends on the number of routes.

A business with 10 routes will need a minimum of 10 trucks. A good business will also have spares available for contingency.

No! You do not need any prior experience to be a successful FedEx contractor.

There are no prior experience requirements to become a FedEx contractor. However, you are expected to show that you are willing and capable to run the business and meet your contractual requirements. Having prior experience can be a big help

The most common vehicles used by FedEx contractors are stepvans, box trucks, or transit vans for P&D, and day cab or sleeper cab tractors for Linehaul.

The type of truck used for P&D will depend on your territory and the density of each route. Transit vans are useful for rural and small volume routes, box trucks are common for large packages or hybrid routes, and stepvans are the most common option for residential and urban routes.

Every contractor has their preference, and it’s up to you to decide what the best fit is for your business. In general, you want to use the largest vehicle you can safely operate on a route to maximize your capacity and growth potential. For Linehaul operations, the options are much simpler: day cabs or sleeper cabs. Day cabs are smaller and are most used for single-day solo runs. Sleeper cabs are larger and include a bed inside the cab. These are most used for longer, cross-country team runs which are on the road for multiple days at a time.

Check out this blog to learn more about truck types and leasing options for FedEx Ground.

Federal Express Corporation pays contractors via a weekly settlement statement, one week in arrears. Contractors are paid every Friday for services provided the previous week.

P&D contractors are paid through a combination of variable and fixed revenue streams, outlined through the Service Provider Agreement. P&D contractors are paid a fixed weekly amount, in addition to variable charges based on the number of stops and packages serviced, with varying charge amounts depending on the type of package.

Linehaul contractors, on the other hand, have a much simpler payment structure. Linehaul operations are paid a variable rate based on the number of miles each truck has traveled. All contractors are paid every Friday by FedEx Ground. The charges are outlined in a Settlement Statement which shows the exact amounts and itemized charges for which you are paid.

Pickup and Delivery (P&D) delivers packages to homes and businesses within a territory, whereas Linehaul carries trailers of packages from one hub to another.

Pickup and Delivery (P&D) refers to home and business package delivery. These are represented by the white FedEx delivery truck and driver who brings packages to your home. P&D contractors deliver all packages to residences and businesses within a set territory.

Linehaul (LH) refers to the tractor-trailor side of the business. These are the 18-wheeler freight trucks that carry trailers of packages from one hub to another across the country.

How much profit you can make is highly dependent on the size of your business and the efficiency of your business. A typical FedEx contracting business should net between 10% and 20% EBITDA annually.

The profitability of a FedEx business is entirely dependent on how well you operate the business. This space is unique in that you don’t have to market or worry about sourcing revenue. FedEx provides the volume and the revenue, and it’s up to you to deliver that volume as efficiently and safely as possible. An average FedEx business should earn somewhere between 10% and 20% EBITDA of Annual Revenue.

If a business averages $1M in Annual Revenue, then you can expect that business to net somewhere between $100k and $200k EBITDA in profit. Expenses such as personal income, debt payments, or fleet upgrades are then paid from that $100k to $200k. If you plan to supplement your income with your business, you need to make sure that the business can support your target income while still meeting the operational needs of the business.

No, you do not need an office space to operate FedEx Ground routes.

Most contractors work from home or from their vehicle.

Yes, financing for FedEx Ground routes is very common! SBA 7a loans and conventional loan options are available for FedEx business and equipment purchases.

Financing is a very common pathway to purchase a FedEx business. The two primary options are 7a loans from the Small Business Association (SBA) or a conventional loan from a local or regional bank. SBA loans are a very cost-effective option, offering a 10-year amortization period and minimal cash up front. A 10-year amortization period can be a big benefit to lower your monthly payment and alleviate the pressure on your cash flow.

Alternatively, conventional bank loans will often require a slightly higher cash injection up front, but may offer lower loan fees. Conventional bank loans most commonly offer 5-7 year amortizations. This means your monthly payment may be higher, but you will pay off the loan quicker.

It’s important to consult with a CPA and an industry expert, like Route Consultant, to determine which option is best for you and your financial goals. Check out this episode of Industry Insights to learn more about SBA loans for FedEx Ground routes.