Truck Topics
Fleet News: FedEx Custom Critical
As all FedEx Custom Critical contractors are probably now aware, some new initiatives for the contractors have been put in place. FedEx feels that these changes will significantly and positively impact the independent contractors' bottom line.
Ms. Virginia Albanese, VP of Operations for FedEx Custom Critical, shared some of the details and background of these changes in a recent telephone conversation with Expediters Online.
Ms. Albanese: We're doing some very good things with our fleet! We've been working on recruiting and retention with an all-out focus during the last 8 or 9 months. One of the things we did was look at what was impacting our contractors from a financial standpoint. We certainly understand that if our contractors aren't making money, the retention will not be there.
We absolutely want to be the contracting company of choice, so we took a look at our programs and these are four areas that we are concentrating on:
1. Rate change.
There are certain areas where we need to make some adjustments in how much we're charging the customer and we've implemented some increases with the customers. Those changes went into effect in mid-August and the contractors are enjoying that increase today.
Specifically, we targeted the minimum charges. That was the area that we felt was most important to the contractors. When they are dispatched on a load of a minimum length, they will be compensated accordingly. This is to make sure that they can take those loads and still make money.
This rate change is for all size trucks and it should impact the contractors positively.
2. Deadhead
We have a Contractor Council that meets several times a year and we listen to those folks. They tell us what they would like and what they would like to see changed. One of the things that came from them along with feedback from our truck stop tours is the deadhead situation.
For a long time, we have required our contractors to give us a hundred miles "free" to the pickup and a hundred miles "free" to the layover location.
We looked at that and realized, 'Hey, we've got to make a change'. As of September 18, we will require only 50 miles on the front and back end. This should help our contractors by putting more deadhead money into their pockets.
3. Fuel surcharge (FSC)
The price of fuel keeps escalating and this is an area where we have certainly heard from our contractors. Fuel prices are really impacting their ability to make money.
We've also looked at our fuel surcharge program and asked ourselves how we could simplify the program so that people could better understand it.
When we go out and negotiate a contract with a customer and determine that the customer is not going to pay a fuel surcharge or pay a fuel surcharge that is less than our full standard surcharge, the question is: how do we make it so that the contractor isn't affected by that?
We wanted to insulate the contractors from the contracted customers who don't pay a fuel surcharge and we also wanted to lessen the impact on the contractors when we ask them to deadhead to a pickup.
Currently, the fuel surcharge program only compensates the contractor when the customer pays and only at the rate the customer pays. That only impacts the contractor on loaded miles.
We have now gone to a flat rate fuel surcharge program and part of that change is as follows: We used to calculate the FSC on a four week moving average. Now, in order to react more swiftly to changes in the market, we operate on a one week basis. Every week, we will re-assess the national fuel pricing and make adjustments to that flat rate.
More good news: The FSC is paid from mile one on a dispatch! Once the contractor is dispatched, on mile one the contractor will receive that flat rate FSC according to truck size.
In other words - from mile one, the contractor will receive the FSC on all authorized miles. That includes the deadhead to the pickup, the run itself and all of the deadhead to the authorized layover. That means that 100 percent of all authorized miles will be covered by the FSC.
Another way to look at this is that the FSC, at all times, will hold their fuel price to $1.20 per gallon based on fuel mileage averages. And, if the contractor takes advantage of the fuel discounts that FedEx has negotiated with some of the fuel stops and combined with the FSC, he can probably realize an actual price lower than $1.20!
Here's a possible scenario:
A contractor is dispatched from Akron, Ohio to a pickup in Cincinnati, Ohio.
From mile one, the FSC is in effect. From mile 51, the deadhead rate begins along with the FSC. From the pickup, they'll be receiving the applicable rate per mile, plus FSC.
From the delivery, when the contractor accepts the layover choice, from mile one he receives the FSC and once again, at mile 51 he receives FSC and deadhead rate.
All of these changes come into play to put more money into the contractor's pocket.
More good news for "C" unit contractors. The deadhead rate for this size unit has been increased from .15 per mile to .20 per mile.
4. Toll assistance
When we considered our recruiting and retention situation, we realized that the fuel prices are the problem now. Looking forward, what's going to impact our independent contractor fleet in the future?
As we look at the news, one thing that really jumps out at us is the increase in privatization of toll roads and accompanying toll increases. It's having an impact today and it will have an even greater impact in the future.
We decided to be a pace-setter in the industry and to our knowledge; no other expedited carrier is doing this. We purchased from PC Miler a software module that will automatically calculate tolls.
As of September 18, we will be going to our customers to inform them that we will charge tolls and pass 100% of those tolls back to our contractors.
The software now calculates tolls based on tractor-trailers, so we've had to make adjustments for other sizes of trucks. It's another way to put money back in the contractor's pocket.
We've had some questions about the tolls: "Does the contractor have to send FedEx a toll receipt to be reimbursed?"
The answer is no.
We are doing this based on routing and we don't need the receipts. I will say that the individual contractor should check with his own accountant as to whether those receipts should be saved for his own financial purposes.
Summing up
We've tried to look at all these components - the rate change, the fuel surcharge program, the enhanced deadhead program and the tolls assistance program - as ways to help our contractors.
It comes as a bundle and it's very important that we get back all of the lease amendments that we have sent out. We've had a large number of them returned to us already, but we want to make sure that we have all of them back by September 18, 2006 so that all of our contractors can participate in the programs.
If contractors have any questions about these changes, they should call their Contractor Coordinators and have those questions answered.
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