The Limitations and Benefits of Scale for FedEx Ground Routes
As you think about your first FedEx route investment, you are probably also thinking about how large you can (or want to) grow that investment.
When we talk about scaling a FedEx Ground routes investment, it’s important to understand the scale requirements outlined by FedEx Ground.
What Does Scale Mean?
The term “Scale” in the FedEx Ground industry refers to the size of your operation. The metrics used, and the specific requirements for those metrics, are different for both P&D and Linehaul operations.
First, let’s talk about P&D
Every FedEx Ground terminal serves a defined geographic territory. FedEx Ground closely monitors—and prevents via scale requirements—any contractor/entity from growing too large or too small within a single terminal. They do so by prescribing the number of daily stops an entity can make as a percent of all terminal stops.
An average FedEx Ground terminal makes about 15,000 stops per day. As an example, if a terminal has a scale cap of 12% then no entity operating from that terminal should be making more than 1,800 stops in a day.
Every FedEx Ground terminal has a unique scale cap based on the size of the terminal and the geographic composition of the service area. Most FedEx Ground terminals set scale limits as low as 6% up to as high as 25% of terminal stop volume depending on where the terminal is located. How strictly FedEx Ground enforces these scale limits can vary depending on market conditions and the needs of the network. FedEx Ground can also make changes to these scale guidelines over time. It’s important to remember that every terminal is different. Make sure you are aware of the specific scale requirements for your terminal and whether your scale limit is increasing or decreasing over time.
There is also a scale minimum. In most terminals, businesses must complete an average of at least 500 stops per day. In order to be a viable FedEx Ground contractor, you must own an operation that is at or above this minimum scale requirement.
FedEx Ground can take scale guidelines very seriously. If you are above the scale threshold allowed by FedEx Ground, any small mistake in service or safety will have much more severe consequences from the terminal. Contractors who are at or above the scale guidelines for their terminal can often be pressured by FedEx Ground to downsize the business to get back in compliance with scale.
Some FedEx Ground terminal managers are more intense about scale than others. Their jobs are on the line if a contractor materially exceeds scale guidelines and then causes major service failures in a market.
What About Linehaul?
For linehaul, scale is much simpler. FedEx Ground divides the United States into 26 districts. FedEx Ground limits the size of any single linehaul operation to 15 runs within a single district. However, due to a high demand for tractor power in the network, FedEx Ground is usually much more lenient on scale guidelines if a contractor can provide the drivers and vehicles to run additional trailers.
Why Scale Requirements Exist
Scale regulations exist for an excellent reason: FedEx Ground strives to prevent the operational failure of one entity from impacting deliveries for an entire region.
History offers a good reason to worry about scale. In the early 2000s, DHL had a large presence in the United States and actively competed with FedEx Ground and UPS. However, a number of their contractors grew too large, and when those contractors experienced failures, entire cities paid the price. After several high-profile failures and the start of the economic recession, DHL pulled the plug on all US-based operations in 2008.
Scale is a balancing act, weighing the benefits and economies of scale of larger operations with the risk of higher failure if something goes wrong. As a contractor, it’s important to understand what your terminal’s requirements are and how tolerant they will be to the scale of your operation. The quality and consistency of your service and safety can go a long way in assuring your customer, FedEx Ground, that your operation is not a risk to the network.
Where Can You Get Scale Details?
The specific scale requirements of each individual terminal are not publicly available. The Senior Manager of each FedEx Ground terminal knows and monitors the scale limit for their terminal, and they will be the one to ask about the scale limits for that building.
As you conduct due diligence on a business, you will want to talk to the operation’s current owner about scale requirements. Additionally, you may want to work with a buyer-side consultant to work through possible growth opportunities.
If you move forward with the purchase of a FedEx Ground operation, you can get into scale details with the terminal’s Senior Manager at your AIM meeting.
Economies of Scale
Let’s take a minute to talk about the size of your business, not in terms of the terminal limitations but in regard to the broader economies and how your business can benefit. All businesses, including FedEx Ground businesses, benefit from scale.
As your business grows, you will be able to improve efficiencies and benefit from things such as:
Manager Overhead
Administrative Support
Purchasing and Per-Unit Costs
Contingency Planning
And More!
Now, while FedEx Ground does set limitations on how big you can be within a single building, there is no rule against growing into multiple terminals. By expanding your organization and finding ways to connect multiple operations, you can start to see massive benefits.
Your ability to leverage resources to cover contingency for your own operations, your administrative and recruiting costs, your ability to create a strong management team, the per-unit cost savings of bulk fluids, and even better leverage to secure vehicles as a larger customer— All of these things come with the territory of running a larger operation.
Every business owner has their own philosophy and their own goals. Not every contractor will be interested in scaling into multiple buildings or growing beyond a certain manageable business size, and that’s okay! With the benefits of a larger organization also comes additional challenges and complexities that smaller operations may not have to deal with, or do simply at a much smaller scale.
If you are interested in growing your business and learning how to scale your operation to create meaningful benefits, supply a meaningful amount of jobs, and maximize your return, our team would love to talk to you and work with you to help you achieve your goals.
Want to Learn More?
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