This article is part of a larger series on Starting a Business.
Much of FedEx’s success is due to the over 12,000 independent business owners who own the routes and deliver and pick up packages, keeping the FedEx machine running smoothly. These entrepreneurs hire and train delivery personnel, purchase and maintain vehicles and other equipment, and oversee the day-to-day operations on their route.
If you don’t have the means to buy your own FedEx route, why not consider using your retirement funds to jump-start your company? Guidant will help you invest your retirement funds into your business without paying early withdrawal penalties. Set up a free, no-obligation consultation today.
Where to Find FedEx Routes for Sale
FedEx routes for sale can be found a number of different ways. One common method is through word-of-mouth. Prospective route owners that have contacts in the shipping or logistics industries can tap their network to determine what routes are for sale that might be of interest to them.
While FedEx lists routes for sale at its website, BuildaGroundBiz.com, at the time of writing this article only a dozen or so routes were listed. Another common method for finding a FedEx route for prospective owners that don’t have existing industry experience or contacts is through business brokerage sites. Brokers like KR Capital maintain targeted buyer lists and can notify buyers when new routes come up for sale that meet their criteria.
Some of the top sites that list FedEx routes for sale are:
- KR Capital: Broker that lists nationwide FedEx routes for sale, with about two dozen at the time of this writing. Maintains a targeted buyer’s list with nearly 10,000 buyers that are notified when specific routes come up for sale.
- BizBuySell: Business listings website listing nationwide FedEx routes for sale, search “FedEx” using advanced search feature.
- BizQuest: Business listings website listing nationwide FedEx routes for sale, with about 300 at the time of this writing.
- Routes to Success: Broker that lists FedEx routes for sale in NY, GA, NJ, PA, SC, TX, VT, with about a dozen listings at the time of this writing.
- Capital Route Sales: Broker that lists FedEx routes with about a dozen listings at the time of this writing.
Although finding the right route may prove challenging, it’s important to do due diligence when a route that meets your criteria does become available. Most industry experts recommend not buying a route without riding it first. This will give you valuable insight into problems that may arise in the field such as unhappy employees, poorly maintained vehicles, and other logistics that likely won’t be covered in conversations with the seller.
Minimum Eligibility to Own a FedEx Route
Contrary to what you might think, most people who buy FedEx routes don’t have driving or trucking experience, and that is OK. You don’t need such experience to own a FedEx route. However, most usually become interested in the opportunity because of a background in logistics, shipping, or management.
To own a route with FedEx, you will have to sign a contract with FedEx and become an independent contractor. This means you are not an employee of FedEx and will not receive health insurance, a retirement plan, or other benefits from FedEx. Additionally, FedEx requires that your business is set up as a Corporation.
Some of the logistics a FedEx contractor is responsible for are:
- Equipment: Contractors are responsible for buying or leasing equipment such as vehicles, as well as maintaining that equipment.
- HR: All hiring, training, and employee retention is the responsibility of the route owner.
- Benefits: Route owners will be responsible for offering insurance and retirement plans (if applicable).
- Accounting: Accounting and bookkeeping responsibilities such as payroll and business taxes are managed by the contractor.
Although you are an independent business owner and will oversee the day-to-day operations of the route, you must also comply with certain FedEx rules. For example, you and your employees will have to wear FedEx uniforms, and the drivers you hire will need to satisfy FedEx’s driving safety rules.
Most owners of FedEx routes are owner-operators. Not only do they own the route, but they also drive and deliver packages regularly or from time to time when their employees call out sick or are unavailable. If you plan on driving, you will have to meet FedEx’s driving safety rules. You should see your contract for any additional requirements.
The minimum standards that must be passed by an owner-operators are:
- No more than 3 moving violations in the last three years, and a maximum of one in the last 12 months
- Able to pass a Department of Transportation physical and drug test
- A valid Commercial Driver’s License (CDL)
The contractor agreement that you sign with FedEx lasts one to three years, and it renews automatically unless the contractor wants to get out of the business or if FedEx can demonstrate that the contractor is not meeting the terms of the contract.
Types of Routes You Can Buy
Before beginning the search for a FedEx route, you should narrow down the type of route you would like to purchase. There are two types of business opportunities available to contractors; FedEx Ground, which is the most common type of route, and Custom Critical. The FedEx Ground routes are further separated into pickup and Delivery (P&D), and Linehaul routes.
The two main types of FedEx independent contractor opportunities are:
- FedEx Ground: These consist of routes with residential and/or commercial customers. These are dedicated routes with set schedules. You own the route and can drive the route or can hire employees to do the driving.
- FedEx Custom Critical: This covers deliveries that require special handling such as temperature control. There’s no dedicated route and no set schedule, and you must be an owner-operator to participate (i.e., you own and drive the route).
The two different types of FedEx Ground routes are:
- Pickup and delivery (P&D) routes: You drive a van or truck and drop off and pick up packages to and from residential or commercial addresses (or a combination of both residential and commercial).
- Linehaul routes: You drive a tractor trailer and cross state lines to deliver loads to and from designated FedEx hubs. These routes are usually more expensive compared to P&D.
Independent Service Provider (ISP) Model
In May 2020, FedEx will finish transitioning to an independent service provider (ISP) model. With this transition comes some changes to route ownership requirements, and ISPs will be required to own at least five routes or 500 stops per day under the new model.
According to Kyle Rohner, CEO of KR Capital: “With the transition to the ISP model, there’s a route overlap component: historically you would have ground contractors—commercial accounts and businesses—and home delivery contracts, you might have one contractor that owned the ground routes in a certain ZIP code and a home deliver contractor sending his truck into that same area, which is not terribly efficient.”
Contractors that are unable to meet these upcoming requirements will be required to enter negotiations with FedEx to expand their routes, sell their routes, or merge with another contractor to satisfy the minimum requirements. Existing and prospective contractors should ensure they fully understand FedEx’s shift to the ISP model which becomes fully active in 2020.
Expected Costs & Earnings of a FedEx Route
In many ways, says Rohner, being a FedEx contractor is a “double edged sword.” On the one hand, you don’t have to spend time or money on sales and marketing, customer acquisition, rent, or utilities. However, the hours can be long, you have to work on some holidays, and most importantly, you must follow pay schedules and other rules set by FedEx in your contractor agreement.
Revenues & Profits
The three ways FedEx contractors are typically paid are:
- Annual rate: FedEx contractors are paid a flat annual rate based on the size and other characteristics of the route.
- Delivery and pickup payments: Contractors receive a payment for each delivery and pickup, for example $1 and $2 respectively.
- Bonuses: Contractors can earn bonuses for things like customer service and safety achievements.
When you add all this up, the average annual profit for a FedEx route is around $30,000-$40,000 per route. Keep in mind that this multiplies with every additional route that you own. Actual profits will vary based on where your route is located, how many employees you have, the number of loads you handle, and other factors.
The three biggest expenses of owning a FedEx route that may impact revenues are:
- Buying the route itself
- Paying and retaining employees
- Vehicles and other equipment (as well as fuel, maintenance costs, etc.)
While the cost of a route varies widely based on its location, number of employees, and other factors, the average price is about $100,000 per route, says Rohner. Several routes often come bunched together if you are buying linehaul routes. In fact, FedEx estimates that 92% of packages are handled by contractors with multiple routes.
The average number of people employed by a FedEx Ground contractor is seven. In addition to paying their salary, you will have to take into consideration employee benefits (should you choose to provide them) like health insurance and retirement plans.
Apart from the route and employees, you’ll need to purchase equipment.
Some examples of the type of equipment you’ll need to purchase are:
- Vans, trucks, and (depending on your route) planes
- Uniforms for yourself and employees
- Decals for vehicle
- FedEx scanners and software
There’s no particular dealer that you need to go through to purchase this equipment as long as it meets the specifications laid out in your contract. FedExTrucksforSale.com has several options for vehicles. Rohner says that most contractors use FedEx terminals where packages are stored to park their vehicles, so you most likely won’t have to pay for vehicle storage.
Adding all these expenses up, it’s apparent that owning a FedEx route can be a costly endeavor. That being said, if you can provide great service and build on your customers’ loyalty to their “FedEx guy” or “FedEx girl,” then you can potentially go very far in this business.
Benefits of Owning a FedEx Route
There are several distinct advantages to buying a FedEx route, and these routes are highly sought after for a number of reasons. Among these benefits, route owners will not be required to make any sales or marketing efforts, can expect to be paid on time, on a weekly basis, and may choose to manage remote routes that are not in close proximity to their residence or place of business.
Some of the primary benefits of owning a FedEx Route are:
No Sales or Marketing Required
FedEx handles all of the required sales and marketing efforts involved in developing routes. Owners only need to handle the logistics of picking up and delivering packages on scheduled routes. This can be a huge benefit for owners that are not interested in managing the development of routes, and would prefer to focus on transportation logistics instead.
A key concern prospective owners will want to be aware of is that routes may experience diminished performance over time, and there is very little control an owner can exercise over this. While the package delivery industry itself continues to grow, as does FedEx’s market share, some routes may be subject to heavy competition. Would-be FedEx route owners should consider diversifying routes to avoid an outsized impact to revenues from any one route.
Reliable, Quick Payments
FedEx pays its route contractors on a weekly basis, for the previous week’s package deliveries. Pay is executed by direct deposit, and is generally reliable. Revenue for routes is generally considered to be consistent week-over-week. However, pay can be impacted by both peak delivery periods, as well as dips in shipping activity. Contractors will want to plan accordingly, and ensure that they are managing logistics efficiently during seasonal changes.
May be Managed Remotely
While FedEx does not advertise its routes as absentee owner compatible, FedEx routes may be managed remotely, and many route owners do not perform any package delivery, instead focusing on the management of route logistics. Prospective owners looking for an absentee-owner route may find that the logistics of managing one or more routes requires more effort than they planned for, and in general FedEx does not encourage absentee ownership.
Excellent Growth Potential
“FedEx is growing very rapidly, organically. So based on the growth that FedEx is experiencing you might benefit from that directly. There are growth opportunities that become available to existing contractors at no charge. So, as FedEx opens up a new territory, or gains new customers, those new customers need to be serviced, and those opportunities are awarded to contractors that demonstrate an ability to be successful and serve customers well.
“The way that works is FedEx will make an announcement that a new opportunity has become available, and existing contractors will put together an RFI making a case for why they should receive the new opportunity, creating additional upside for growth.”
—Kyle Rohner, CEO of KR Capital LLC
Financing Options to Buy FedEx Routes
Most borrowers need some kind of financing to purchase a business such as a FedEx route. There are a variety of options for obtaining financing. Generally speaking, you will need a loan to cover the cost of equipment and working capital to hire and pay employees, storage fees, etc.
The least expensive source of financing for most people who buy a FedEx route will be an SBA loan, which can be for working capital and to buy equipment.
Some of the typical requirements to qualify for an SBA loan are:
- Credit score: At least 680
- Cash flow: Existing route should be cash flow positive
- Collateral: Primary personal residence may need to be put up as collateral, as well as FedEx vehicles and other equipment related to the business, up to 100% of the loan, or to the greatest extent possible
If you meet these requirements, we recommend South End Capital for SBA loans when buying a business. They excel at relatively quick turnarounds on SBA loans and offer free consultations. As with all SBA loans, borrowers should expect to bring up to a 30% down payment.
ROBS financing is an option for both SBA loan down payments and complete funding. Through a ROBS, aka “Rollover as Business Startup,” you can finance a business using your retirement account. You can learn more in our Ultimate Guide to ROBS Financing, or speak with our recommend ROBS provider, Guidant Financial.
Buying FedEx routes for sale can be a lucrative and flexible way to get into business with fewer costs than traditional brick and mortar businesses. There are multiple opportunities to find a FedEx route of interest to you, and when you’re ready to purchase, there are multiple financing options to get you going.
Need financing to get started? Guidant Financial is an experienced ROBS provider which can help you convert your retirement funds into working capital today. They also offer free outside counsel throughout the entire process. Set up a free consultation with an agent today.