Peak Season for FedEx Ground Contractors
In the FedEx Ground industry, we refer to the period of time between the beginning of November and the end of December as peak season. Inside of peak season, there is a critical three to four weeks—roughly from Thanksgiving to Christmas—of exceptional package volume. Some P&D contractors can make up to 30% of their annual revenue during peak season.
The difference between peak season success and peak season disaster balances on your ability to staff your operation appropriately and maintain efficiency. Contractors must have enough drivers to service extraordinary volume in their territory, but also need to avoid overstaffing and incurring outsized payroll expenses during this period.
Peak Preparation
A successful peak season requires two things: accurately forecasting Peak volume, and putting the right number of drivers and trucks on the road to service that volume.
FedEx Ground begins releasing volume projections for Peak Season in July of each year. This gives contractors an initial idea of how many additional resources they may need for their territory. As the year progresses and Peak Season gets closer, FedEx Ground will adjust these projections to be more accurate. On average, however, most contractors can expect to increase their staff by 50-100% of regular levels to service Peak Season. If you normally dispatch an average of 10 drivers and 10 trucks each day, you can expect to need somewhere between 15 and 20 drivers to service Peak.
“How you manage your peak preparation can make or break your year.”
We recommend contractors begin truly preparing for peak by August at the latest. It seems like every year the timeline moves up more and more, and there is some truth to that. Competition for rental vehicles and available resources can be fierce. Particularly for rentals, many companies will require you to reserve and pick up rental vehicles for Peak much sooner than you actually need them. If you wait too long, you may not have enough vehicles to service your volume during Peak, so it’s important to find the right balance and negotiate to ensure you have the resources you need without hemorrhaging money months sooner than you need to.
Driver Recruiting + Qual Cert Training
Hiring drivers is not much different in terms of planning in advance. It takes time to fully onboard and train new drivers and you want to have them trained and ready by the time you need them, but you also don’t want to inflate your payroll too soon.
For driver hiring, you need to start recruiting for Peak no later than September. The goal should be to slowly build up your staff over time until you are fully staffed and trained right before Peak Season.
To help alleviate added pressure on your payroll, encourage full-time employees to plan unpaid vacation days in October and November. Remind these employees about the intense season ahead of them and of their need to rest and prepare. Giving your full-time staff an opportunity to rest before Peak can be crucial to your success, but it also allows you to work your new drivers to give them experience as well as prevent you from wasting payroll.
Keep in mind that the Qual Cert Training requirements for new drivers is still required during Peak Season. If you have to onboard new employees during Peak, this is something you need to account for. Qual Cert has specific requirements for training and on-road hours that have to be met no matter how busy you are with Peak Season volume.
It will take you 3-4 weeks to fully onboard a new driver, plus any extra time it takes to get that driver up to speed. If you begin your recruiting process too late, you may have already failed Peak Season by the time you get the drivers ready that you needed.
Schedule K
FedEx Ground issues each contractor a Schedule K amendment to their contract every Fall. This Schedule K is an optional agreement that the contractor can choose to sign or not.
So, what is Schedule K?
Schedule K offers each contractor a deal. In this deal, contractors will agree to raise their Daily Stop Threshold (DST) to a number well above their standard threshold. In return, FedEx Ground will agree to pay contractors bonus compensation at a much earlier stop number than their original agreement.
Daily Stop Thresholds & Right to Decline
In order to explain the impact of Schedule K, we must first define what a Daily Stop Threshold (DST) is and what your Right to Decline is.
The DST represents the maximum number of delivery stops you are contractually required to do on any given day of the year. However, that does not mean that you will have that many deliveries in your territory each day. It is extremely rare for a contractor to reach their DST on a regular day. The only times of the year you could possibly hope to reach your DST are during holiday surges such as Valentine’s Day, Mother’s Day, sometimes the 4th of July, and, of course, Peak Season.
Your Right to Decline represents your ability to decline any additional stops above your DST without any contractual repercussions. You do not have to decline the additional stops if you wish to do the extra work for bonus revenue. However, if you choose to decline the extra stops over your threshold, you cannot be penalized for initiating your right to decline.
For Example:
Let’s say your DST, specified in Schedule F of your agreement, is 2,000 stops. This means that you are contractually required to make up to 2,000 individual delivery stops in your territory on any given day, and you can safely decline any deliveries above that threshold. If you choose to deliver above and beyond your DST, FedEx Ground has the option to offer you additional Surge Stop pay for each additional stop you do above your 2,000-stop threshold.
Important Note: According to the Independent Service Provider Agreement (ISPA), the Surge Stop Charge, for stops completed over your DST, is only guaranteed during the Peak Season period. FedEx Ground can offer the Surge Stop Charge on other days of the year you might hit your DST (Valentine’s Day, Mother’s Day, etc), but only if they choose to do so and notify the contractor in writing.
If you have any further questions about the specifics of the Daily Stop Threshold and the contractual requirements, please reach out to our team and we can walk you through the details.
“This deal is not negotiable, and each Schedule K is unique to each agreement.”
Impact of Schedule K
Here’s where Schedule K comes into play. In this explanation, we will continue with our example of a 2,000 DST value.
Schedule K is an agreement where you, the contractor, agree to raise your DST above your standard value, and in return, FedEx Ground agrees to pay you extra compensation at an earlier stop level than your original agreement, such as 1,500 stops instead of 2,000. Often, the DST increase is well above your standard value. If your standard DST is 2,000 stops, Schedule K may increase your DST to 5,000 or even 10,000 stops. In most cases, this means that you are virtually agreeing to a DST that you will never achieve.
So what does this mean for you operationally? The increase to your DST effectively means you will be contractually obligated to deliver everything that comes into your territory during Peak. This also means your chances of using your right to decline deliveries will significantly decrease. However, in return, you get a significant revenue boost for the deliveries you make.
Fixed Compensation
In addition to the direct impact on Peak deliveries, Schedule K also offers a fixed revenue component. FedEx Ground recognizes that contractors have to begin hiring drivers as early as September and October and have to acquire additional fleet vehicles early as well.
FedEx Ground offers 8 weeks of fixed revenue paid in equal installments every week leading up to Thanksgiving. These fixed payments are not meant to offset our added expenses completely but to serve as a partial offset for our added payroll and fleet expenses leading up to Peak.
This deal is not negotiable, and each Schedule K is unique to each agreement. Every year, in the Fall leading up to Peak Season, FedEx Ground will release the Schedule Ks so that contractors can see the offer and decide whether or not to sign it. If you choose not to sign Schedule K, you will maintain the regular DST terms of your agreement.
What Should You Do? Sign or Not Sign?
Based on our conversations with contractors in the United States, contractors typically choose to sign Schedule K. The fixed revenue and variable bonuses are almost essential to maintain a profitable organization. However, Schedule K will not always be beneficial to every operation, and the value of Schedule K can change from year to year. Because each offer is different and unique to each territory, we always recommend you look at the numbers offered, consider Peak projections provided by FedEx Ground, and evaluate what the right decision is for you.
Post-Peak Recovery
The end of Peak Season can be an interesting opportunity for your business. As soon as the Peak volume drops off, the first priority should be returning rentals and trimming staff as needed. The longer your resources stay inflated, the quicker any profits earned during Peak will eat away from truck rental payments and unnecessary driver payroll. The weeks immediately following Peak Season is a great time to reflect on your business, your team, and what you need to succeed into the next year. We typically recommend replacing the bottom 10% of your staff with Peak employees that went above and beyond. Who do you want with you in your company going into the new year?
This is also a great time to review company policies, handbook changes, and anything else that you wish to improve on before the new year gets started. What did you learn from the previous year? What could be done better the next year? Do you have the right team members and policies to achieve those goals? Reflect on your business and use the gauntlet of Peak Season as a springboard to take on the next year.
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