Schedule L
In April 2022, FedEx Ground announced changes to the driver qualifications and training requirements through the addition of a new contract schedule: Schedule L. As a FedEx Ground contractor, it’s important to understand what Schedule L is and how it can affect the profitability of your business.
Details About Schedule L
The Schedule L announcement comes with two major changes:
New quarterly incentives and disincentives based on an all-new safety ranking system
An update to the accident indemnification amounts for contractors.
With these changes, contractors can see impacts on quarterly revenue anywhere from +2% to -3% based on their safety performance. This new system ranks contractors in a new “class” of 1-10, with 10 being the best.
The class ranking is calculated based on the number of Occurrences per $1M in revenue over a 36-month lookback period.
What Are Occurences
Before discussing the rankings further, let’s define what an “Occurrence” is. FedEx Ground defines an Occurrence as “incidents that resulted in any paid claim or loss amount.” This means the only accidents that affect your class ranking are ones in which a paid claim was involved in the accident.
Important: Accidents resulting in paid claim amounts less than the contractor’s deductible still count against the Schedule L classification. Even if you pay the full cost of the accident claim, that accident still counts against FedEx Ground’s general liability insurance history, and therefore still counts against you, the contractor, for Schedule L.
Changes To Accident Deductibles
The other important change in Schedule L is the indemnification deductible amount. Contractors are indemnified from all general liability to the public, except for a deductible amount. When a driver is in an accident, the contractor is responsible for up to the amount of their deductible, and then FedEx Ground pays any claims or losses beyond that amount.
The amount of the deductible required varies based on your operation’s compliance with safety technologies, training requirements, and the nature of the accident. Deductible levels could vary between $2,000 and $10,000, depending on the situation.
Schedule L removes the varied levels of indemnification and fixes all P&D contractors to a maximum deductible of $5,000 regardless of compliance. Occurrences only count for incidents where FedEx Ground has to pay a claim or loss amount above the contractor’s $5,000 deductible.
Calculating Your Classification
As mentioned before, the classifications range from 1-10. Classes 6 does not include an incentive or a contribution. Classes 1-5 require contractors to pay some percentage of the previous quarter’s revenue, and classes 7-10 offer an incentive amount based on the previous quarter’s revenue.
Each quarter, FedEx Ground will calculate your safety ranking. The formula for calculating your safety classification is as follows:
(# of Occurrences/Total Revenue) X 1,000,000
This formula gives you the average number of Occurrences per $1M in revenue for your operation. You can then compare the calculated number with the table provided in MyGroundBiz to determine which classification you will be for the current quarter. The period of time used to determine your Occurrences, and Total Revenue is based on a 36-month lookback period, updated every quarter.
A minimum of 12 months is required to calculate the classification ranking. If a Contracted Service Area (CSA) changes, the calculation cannot be made until at least 12 months have passed. The calculation can span more than one ISP Agreement, but only if the CSA does not change between those agreements.
Contractors who have outstanding, near-flawless safety records could increase their profit margins. However, for many contractors, it is expected that a majority will end up owing some amount of contribution or narrowly meeting the neutral classifications.
The possible downfall of contractors who fall under the lower safety score ranking can make a significant impact on an operation. A 3% deduction in this industry where contractors face fuel pressure, wage pressure, and inflation can greatly affect profit margins.
Wrap Up
FedEx Ground values safety above all, and this new safety program will apply additional pressure on the safety of operations while easing the financial burden of FedEx Ground’s rising liability expenses.
Now more than ever it’s vitally important that you emphasize good safety habits and hyperawareness for your team. If you need help better understanding your specific situation, or if you would like to build a stronger safety plan for your business, we would love to work with you to ensure you are mitigating the effects of Schedule L and staying off of FedEx Ground’s radar.
What’s Next?
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