Why Are There So Many FedEx Routes for Sale?

The FedEx Ground network consists of over 6,000 independent contractors who deliver packages on behalf of FedEx Ground. These independent contracting businesses can be bought and sold just like any other privately owned business.

If you search the FedEx Ground routes market, it may initially seem like there are many FedEx Ground route operations for sale. At any given time, about 5% of the entire network is for sale on the open market. The market inventory can and will fluctuate throughout the year, but overall this is not a concerning number.

If you look at a housing market or neighborhood, it would not be uncommon to see 5 homes for sale out of 100. Context is very important. At face value, 300+ businesses for sale may seem like a lot, but when compared to the more than 6,000 independent small businesses in the network, this is a marginal number.

Common Reasons Contractors Choose to Sell Their Business

Like any independent small business, FedEx Ground routes have a life cycle, and there are many different reasons contractors may choose to sell their business. Some reasons can be attributed to the condition of the business, but many reasons for selling have no reflection on the business at all.

Here are some common reasons that contractors choose to sell routes:

1. Operational Scale Requirements

FedEx Ground has scale requirements for contractors that dictate the minimum and maximum size a single business can be within a terminal or district.

For P&D, every FedEx Ground terminal has a unique scale cap based on the size of the terminal and the geography of the Customer Service Areas (CSAs). Each FedEx terminal limits operations out of their terminal to between 6-20% of the total terminal stop volume.

If a terminal has a scale cap of 10% then no entity operating from that terminal can control more than 10% of the daily stop volume out of that terminal. Scale caps exist to prevent massive service disruption in a geographic area if one operation fails.

For linehaul, the maximum scale limit for a single business is 15 runs per district (not terminal). A fully staffed 15-run operation is a sizeable business in the linehaul space. It’s important to note, however, that FedEx Ground tends to be more lenient for linehaul contractors due to the high demand for tractor power in the network.

At times, contractors may grow close to or above this scale limit. It is very common for contractors in this position to carve off a piece of their operation in order to downsize the business. This not only returns their business to a proper scale size, but it also generates capital for future investment or growth into another terminal.

2. Avoid Change + Capital Expenses 

FedEx Ground occasionally modifies or adds requirements for FedEx Ground contractors. In past years there were sweeping changes including SmartPost volume, the large package network, and 7-day operations. There are also smaller changes such as technology advancements or updates to fleet vehicle requirements. These changes materially alter business operations for contractors, and at times require capital investments. For some longtime contractors, the pace of change can be too exhausting or they are unwilling, or unable, to make time and cash investments to update.

Over time, fleet vehicles wear out as well. With the rising costs of vehicles, replacing a fleet can be a massive capital investment. Some contractors may not have the cash or the desire to make such a big debt commitment. In these scenarios, contractors may choose to sell their business rather than commit to another cycle of debt.

Buyers looking at businesses like these need to consider the cost of a fleet or tech upgrade for the business when calculating an offer price.

3. Operational Errors 

In some cases, contractors make errors or find that their business skills are not well suited for this industry and they struggle to protect their margins. This can result in the contractor choosing to sell their routes. Investors willing to put in work for a turnaround operation can often get these routes under market value.

Rarely do we see contractors lose their contract with FedEx Ground. If they do, it’s a result of repeated safety concerns or customer service issues. In these types of cases, FedEx Ground will give the contractor at least 30 days (or more) to sell the business and recover their investment. If you are looking to purchase a business that is in contractual trouble with FedEx Ground, that doesn’t mean it is a bad option for you.

These operations may require some work, but often you can get a good deal and move through the process with minimal resistance from the terminal. However, it’s important to understand what the challenges are with the business so that you can have a proper plan in place to correct the issues when you take over.

4. Retirement

As with any industry, owners cannot run their businesses forever and eventually must retire. Some of our sellers have been contractors for 20 or more years (and they have fantastic stories!). These contractors are selling their businesses to retire and capitalize on their years of hard-won business equity.

Operations from longtime contractors are often stable entities with tenured staff. These may be excellent entry points for a new investor.

5. Death or Illness

This reason is unfortunate, but it does happen. There are times when a business owner has health challenges that force them to sell their business. There are also times when an owner or business partner passes away, forcing a family member or partner to carry out the sale of the business. In these cases, the sale of the business can be time-sensitive and could come at a reduced price or require a buyer that can move quickly through the process.

Want to Learn More?

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