FedEx to rank contractors using new system
FedEx is rolling out a new system for evaluating its delivery contractors that rank them like Olympic medal winners, and those designated as the lowest-ranked “bronze” will be more likely to lose their service areas, according to a company memo.
The evaluations are based on measures of service, safety and customer experience, FedEx said in an internal memo obtained by Bloomberg. The so-called “Service Provider Results Summary” will be updated monthly based on an algorithm that crunches the data. A contractor with a bronze rating could face forfeiture of the standard contacts that permit exclusive delivery rights in a given area, the document said.
The contract changes are part of that effort to increase efficiency — and a signal to its army of more than 6,000 independent contractors that the package-volume boom times are over. FedEx didn’t provide details of the program but said it’s in the process of rolling out a data-driven dashboard for evaluating its contractor partners.
“To enhance the quality of ongoing business discussions and negotiations with independent service provider companies, FedEx Ground is launching a new data-driven approach to communicating contract-specific results via an online dashboard,” the company said in a statement. “This approach is part of how FedEx Ground is adapting its business to evolving market dynamics and customer needs, and has been informed by input from many service provider businesses.”
Chief Executive Officer Raj Subramaniam, who took the top job in June and faces pressure from an activist investor, has pledged to cut some $3.7 billion in costs to better align the company with falling demand for its services and boost profit margins. The new evaluation system also comes as FedEx aims to improve its competitiveness with rival United Parcel Service, which benefited from its unionized work force’s fixed wages but now faces tough negotiations this year with the Teamsters.
Some of the FedEx’s own contractors sought to organize themselves last year and demand higher payments after two years of elevated package deliveries and aggressive price hikes. But FedEx quickly crushed that revolt — which wasn’t aligned with any trade union — even as it sought ways to cut costs and cope with a rapid drop in package volumes.
Contractors rated as “gold” or “silver” also face new challenges to keep their routes. They will only have 14 days to accept an offer from the company to bid on service area renewals. If they don’t reply within that time frame, FedEx reserves the right to have already begun negotiations with other contractors for competing bids to those exclusive delivery service areas. FedEx calls this an Independent Service Provider Agreement.
“If negotiations do not result in a tentative acceptance of the negotiated terms for a new ISPA within the two-week time period, the service provider will forgo the OFA and any outstanding offer or proposal by FedEx Ground will be revoked,” the document said. “FedEx Ground will then extend to other candidates an opportunity to execute an ISPA.”