Understand How Geography Impacts FedEx Routes for Sale
As you evaluate potential FedEx Ground routes for sale, you need to consider the financial and operational implications of each route’s geography. Routes that are more rural or more urban have specific challenges and benefits.
On a more macro level, the state or region where your business is located can also have a material impact on your business strategy. FedEx Ground route businesses can be profitable in all types of geographies and locations. However, how you run your business, your cost structure, hiring pool, legal requirements, and so much more can change depending on where you are located.
Planning in advance for any potential impacts geography can have on your business will better position you to create an effective business plan and maximize your profitability.
Rural vs Urban Routes
Every FedEx Ground operation can be classified as either a rural business, an urban business, or a combination of the two. The geography of FedEx Ground operations can be extremely diverse. Some routes can cover a single city block, and others can cover 250+ miles of territory daily.
In reality, most operations will have some combination of geographies between the two extremes. Whether the business is more rural in nature or more urban will entirely depend on the location of the territory and the division of zip codes in a particular area.
In this section, we are going to discuss some general pros and cons of urban and rural routes to help you identify the differences between the two.
Urban Routes
Urban routes refer to your dense, metropolitan cities and close-knit suburban territories. As a general definition, a truly urban route should do less than 50 miles per day.
Pros
The first and most significant benefit of urban routes is something called stop density. Stop density refers to how close each consecutive stop is within a territory. The denser the territory, the fewer miles each route travels and the more stops each route can deliver in a day.
Higher stop density decreases some operational expenses and improves overall efficiency.
Routes that travel fewer miles will result in lower annual fuel costs and less wear and tear on your fleet.
Urban territories, especially inner city, also have lower speed limits. Vehicles moving at lower speeds are much less likely to have a severe accident or total the vehicle. As a result, severe driver injuries due to accidents are also less common.
The savings you can experience from fuel and repair expenses will typically be redirected to better wages and benefits for employees to account for the tighter labor markets and higher workloads common in populated cities.
Because of the higher wages and deeper pool of talent, route businesses in metropolitan areas have the opportunity to secure smarter, highly capable employees.
Cons
The first challenge of urban or metropolitan territories is the higher cost of doing business. Urban territories typically have higher wage pressure and the labor market will require you to be more competitive to hire and retain employees.
In addition to challenges in the labor market, urban routes tend to demand a higher workload from drivers. While stop density and higher package volume can be beneficial to your business, it also requires more from your employees. Both physical and mental stress can be a real concern if you do not manage the workload of your employees properly.
Urban territories come with a series of potential delivery challenges. These challenges can not only affect your operational efficiency but also adds complication to training new hires. Apartments, gated communities, delivery docks, underground networks, access doors, convention centers, one-way streets, multi-level buildings – All of these and more can add challenges to your day-to-day operation.
Another challenge of large cities and urban territories that you may not think about is parking tickets. Especially in major metro cities, it’s not uncommon to have between $10,000 and $40,000 in expenses just from parking and traffic violations per year.
Characteristics of Urban Routes
Drivers will have higher stop counts and fewer miles
Aim to use the largest vehicle you can safely operate
Reduced fuel consumption and reduced wear on vehicles
Urban/Metro areas typically come with increased payroll costs
Your team will battle urban congestion; Increases in mild accidents
High workload routes can burn out drivers more easily
Rural Routes
Rural routes can be defined as any route that travels 150 miles or more a day. These rural, high-mileage routes have very different requirements compared to dense, urban routes but they can be just as profitable.
Pros
In our experience, drivers on rural routes report greater satisfaction in their day-to-day tasks. In many cases, this is because they have fewer stops. With fewer stops, drivers spend more time driving and less time navigating heavy/large boxes in and out of their vehicles.
Rural routes also save drivers from the headaches of traffic. In more urban territories, drivers often have to block traffic on busy streets and deal with angry commuters and a higher risk of accidents. Out in the country, however, drivers tend to have much easier and safer roadway experiences.
Contractors with rural territories report they often have an easier time finding qualified candidates than their urban counterparts. Rural communities have fewer competing industries and FedEx Ground driving jobs are attractive to the right-fit employee.
There is also less baiting or poaching of drivers in rural areas. While driver poaching could still happen in rural territories, it is much less common and contractors tend to have a better relationship with each other in these smaller terminals.
The cost of living and wage expectations are far lower in most rural regions of the country than in more populated, urban areas.
We also see improved insurance premiums for rural operations. Because drivers are driving on less congested roads and completing fewer package stops, there tend to be fewer injuries as a result. This helps lower your Workers Compensation Insurance and other types of insurance.
Contrary to what you might expect, rural territories often have higher growth potential compared to densely populated urban areas. These rural territories typically have reduced access to big-box retail stores and premium shopping options. Even though rural areas may have fewer customers overall, the growth rate of the population is higher as people move out of urban areas and into regions with a lower cost of living. As rural regions gain better access to high-speed internet, this also increases e-commerce shopping and package delivery growth.
Cons
The biggest challenge to rural routes is the increased fuel cost and wear on the vehicles. Rural routes require vehicles to travel longer distances each day which substantially increases your fuel expense. Due to the high mileage, rougher roads, low hanging branches, and other elements of rural territories, vehicles tend to wear out much quicker. Your capital expenditure budget for replacing vehicles will be much more aggressive compared to urban areas.
As a follow up to increased wear and tear on your vehicles, access to reliable mechanics, tow shops, and other vendors can be limited in rural territories. When you do have a breakdown or mechanical issue, it can be much more expensive and time consuming to get those problems fixed. If a truck is 100 miles from the terminal, getting extra resources or help out to that route can be challenging.
Rural routes typically require drivers to be on the road much more than they are delivering packages. This has some benefits to driver longevity, but it also means that your vehicles are traveling at higher speeds and have an increased chance of suffering catestrophic failures and accidents.
Another challenge of rural routes can be the weather. In territories that are further removed from major cities, uncontrollable weather factors such as flash flooding, icy roads, downed trees, low visibility during heavy rainfall, and more can have a material impact on your ability to service packages. It’s important to note here that FedEx Ground accommodates decisions to pause service due to unsafe weather conditions. The danger is when a driver gets caught in unexpected weather, flooding, or icy conditions after dispatching.
Characteristics of Rural Routes
Each stop is typically further apart; the driver’s daily route will cover more miles
Budget for purchasing and maintaining vehicles will be much higher
Proximity of tow shops, mechanics, and rental companies need to factor into the overall maintenance costs
Fuel costs will be higher; smaller and/or lighter fleet vehicles are recommended to improve fuel economy and efficiency
Highest volume growth often appears in rural areas due to a lack of brick-and-mortar options
Identifying High Growth Territories
When evaluating FedEx Ground routes for sale, are you looking for a consistent, stable operation year-over-year or are you looking for a business that has higher growth potential?
When we talk about “high-growth” opportunities, what exactly do we mean by that?
High Population Growth
Many new investors want to focus their search in areas that also have high population growth. This is certainly a data point to pay attention to. However, high population growth areas, particularly in major cities and booming markets, can also bring inflated wage pressure and other challenges as well that you need to consider.
Notable Growth in Rural Markets
What you will find, is that the highest growth potential for package volume tends to be in rural territories; not dense, urban cities. In particular, towns and small cities located two to three hours from a metropolitan area usually have rapidly increasing package volume year-over-year.
In rural towns, there may be a Walmart or Dollar General as the primary shopping destination without many (or any) other brick and mortar options. With the rise of social media and other communications, individuals and families have online access to new options for fashion, home goods, and healthcare products and are increasingly having them delivered to their doorstep.
There are still many regions across the country that do not have regular access to high-speed internet. As internet access continues to increase, residents in very rural territories gain access to online services that were not previously available.
More and more we also see families in rural areas have groceries and meal prep kits delivered as an alternative to the limited options in their immediate vicinity.
In general, e-commerce and online shopping will continue to grow and take over a larger percentage of retail sales in the United States for at least the next 3 to 5 years. Households and businesses in rural and suburban areas will likely benefit from the growth of e-commerce more than your dense metropolitan cities that have maxed out their residential capacity.
How Much Can Your Chosen State Impact Your Operation?
Within the United States, each state has extensive control over its own taxes, workers’ compensation rules, and labor laws. Further, each state has a different tolerance for employee-employer litigation. These variances can make notable differences to a business.
Because of the rules, regulations, and tolerances, some states are known to be higher cost-of-business states. Examples of these states include New York, Illinois, and California. Other states, such as Texas and Tennessee, are known to be lower cost-of-business states.
The geographic impact on your business by state is one of the most important variables to your bottom line. Some states are extremely costly to do business in.
How Should High-Cost States Impact Where You Buy Routes?
In order to accommodate these cost-of-business discrepancies, FedEx Ground adjusts their models by state and engineers ISP agreements to compensate contractors in high-cost states appropriately. As a result, agreements inside of states like Illinois and California receive higher compensation to accommodate the higher fees and expenses a business incurs in that state.
These state-by-state adjustments are important and necessary, but are not an exact science. Without a doubt it’s generally more profitable to operate somewhere more favorable to businesses. However, you should not eliminate an opportunity that is otherwise right for you simply because of the location of the business.
Remember when you are looking to buy FedEx Ground routes that you are looking for a business with solid financials, a good contract, and room for growth. You may find a route business in a high cost-of-doing-business state with a fantastic contract and great profits.
Note: The financial impact a state has on your business will vary widely within that state as well. Although the state of New York is known as a more expensive state for businesses, routes in Rochester are likely to have much lower business costs associated relative to New York City.
Broaden Your Search
Many new investors want to purchase FedEx Ground routes right in their own back yard. We understand that, and we have direct experience operating routes locally. However, available businesses near you may not be the right financial choice. Remember, you want to find a business that has sound financials, a healthy contract, and potential for growth.
As a general rule for P&D operations, you should expand your search to a 5-hour drive radius from where you want to be. This ensures that you have a wider selection of businesses to choose from, without being too far away from the business in case of emergencies. If you absolutely had to be at the terminal, a 5 hour drive is reasonable enough to get there in the morning to solve any issues.
Want to Learn More?
Dive into the world of logistics and delivery routes with our complimentary FedEx Ground Routes for Sale 101 E-Course. This course will teach you the fundamentals of delivery routes so that you can decide if this is an industry worth pursuing further. Whether you’re interested in FedEx Ground routes, Amazon routes, Bread routes, or other logistics operations, we are here to help. Enroll now for free and take the first step towards entrepreneurship in the e-commerce space.
