FedEx Ground Routes in Kansas City

searcher profile

September 30, 2020

by a searcher from Ohio State University in Kansas City, MO, USA

Aloha, we are moving from Hawaii to Kansas City to purchase a 28 routes that are going to bring in $4,000,000 in 2020 on 18% profit margins. Has anyone explored this option? Being a contractor for FedEx feels like a franchise with training wheels and limited freedom but almost guaranteed revenue. This can be viewed as having very limited upside but also eliminates a lot downside risk too.

8
22
381
Replies
22
commentor profile
Reply by a searcher
from Northwestern University in Los Gatos, CA, USA
^redacted‌ owns one of these . We've looked at it as well. It's pretty simple to manage but does require paying close attention. It's reliably profitable. Price and volume will grow the the economy and ecommerce trends. You get paid weekly, which keeps NWC low. Driver churn is somewhat high, but it's a pretty desirable driver position compared to other things (ex. bread routes, Amazon Delivery) so not too hard to keep a pipeline of drivers to jump in and replace churned drivers. There are some serious business constraints about corporate form in particular - must be C-Corp. This one sounds pretty large relative to what I've seen, which would make me nervous about Fedex strong-arming your market position. They won't let any operator get too big in any market.

We ultimately declined because we felt uninformed about the plan and trajectory for Amazon's DSP program, and thought we could find something with far less of an upside ceiling. Oh yeah... the fleet quality matters a lot too!

Ancillary consideration, but I remember an operator lamenting the miserable endless meetings with Fedex managers arranged to discuss the 1 package they failed to deliver (with no mention of the 5000 delivered successfully) and how they're going to fix the problem to prevent it from happening again. I guess that's the reality of delivery business.
commentor profile
Reply by an investor
from Georgetown University in New York, NY 10014, USA
Based on my research a few additional considerations to keep in mind

i) FedEx limits the number of routes a contractor can own in a given distribution center (~10-20% of volume depending on the location), so to grow your business you will have to be prepared to own routes potentially in a different state

ii) FedEx has to approve the sale of each individual route, so to the extent you scale your business to 50+ routes the likelihood that you can sell the entire business to a single buyer is low as FedEx would not want a new operator to be responsible for 50+ routes
commentor profile
+20 more replies.
Join the discussion