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FedEx ISP Workbook:

This workbook has been created by FedEx to help its independent contractors understand the implications of the new ISP contract. The workbook includes topics such as:

  • Introduction to the ISP Agreement
  • Options and Incentives
  • Conversion
  • CSA Optimization
  • Preparing for Negotiations
  • Negotiations
  • ISP Operations
  • Terms & Definitions
  • ISP Q&A

National Courier Brokers Inc.

FedEx ISP:

FedEx has recently announced that it will be transitioning all of its independent contractors around the country to an “ISP” or “Independent Service Provider” model by 2020.  Those states which are not already operating under the ISP model will be transitioning over in accordance with the newly released transition schedule.  This announcement has left FedEx contractors with countless questions, many of which we hope to answer here.  This page is intended to share information we have gathered regarding the FedEx ISP model. For questions or additional information, please feel free to contact us.

10 Steps to a successful ISP transition:

Work Truck Direct recently conducted a detailed Q&A session with Saul Lerner, FedEx Entrepreneur of the Year, to discuss the upcoming FedEx ISP conversion.  Below are our 10 Steps to a Successful ISP Transition:

1: Must sign a Limited Release and Operating Agreement 

The contractors were informed that we were going ISP in July 2014. October is when they had to sign the release, so they had 3 months.  As soon as you sign this agreement you are entering into the ISP transition timeline. Two weeks after signing the Release and Operating Agreement, you may receive an incentive from FedEx.
After signing the release, you may have about 5 months to get your business up to scale. If you are not up to scale by the drop-dead date, it’s too late.

Step 2: Get your territory organized 

Make sure you’re up to scale. Most terminals may be 5 PSA’s or 500 stops. Certain smaller terminals may have lesser qualifications.
You are going to hear about “overlapping” and “condensing” areas a lot. “Overlap” means if you’re a Ground contractor, you need to get Home Delivery routes. If you’re Home Delivery, you need to get Ground routes. This means if you have to merge with someone, you need to look for whoever is already in your territory geographically.  Ground contractors are going to have to merge with Home Delivery contractors.  The negotiators are looking for contractors that did a good job condensing their areas.  The more organized and condensed you are, the better things may go your final negotiations.
If you are already to-scale, you may still need to swap routes with other contractors to consolidate your geographic area. Even if you’re up to scale there are still opportunities to further organize your territory.
Overlapping: Everyone is going to be on a 6-day operating schedule because they will have both Ground and Home Delivery. However, as of now, Ground packages cannot be scanned on Saturdays and Home Delivery packages cannot be scanned on Mondays. FedEx is in the process of trying to change this but that is yet to come.

Step 3: Get your Fleet updated 

If you purchase another contractor to absorb them into your company, make sure you have the correct corporate ownership on all the trucks. The other corporate entity must not have their name on any of the trucks.
The standards for truck condition may be much more stringent under ISP. Most contractors must go through the process of upgrading their fleet before ISP negotiations ever start.  There’s a good chance the regional safety person may be swamped with inspections and may not get to your terminal until very late in the process. Do not wait for them to tell you that you need to upgrade your fleet – begin this process early.  Saul said that if he had to go through this again, he would start thinking of upgrading his vehicles immediately after signing the limited release.

Step 4: Background Checks

All the authorized officers, business supervisors, and drivers will have to go through background checks again.
The authorized officer will be the first for background checks.

Step 5: Contracted Service Area Definition is Finalized & Acknowledged 

You’ll have a sit-down with terminal management to map out your territory. This is very specific – down to the very street. 
EX: “My territory starts at this street on the Westside to this street on the Eastside”. The Contracted Service Areas (CSA) will be specifically defined by the streets and blocks.
You will not have a long period of time to get this done, so you will need to stay ahead of the game.
All the new CSA’s are cross-referenced / reconciled with the other CSA’s in the terminal before being finally acknowledged with FedEx. This process will ensure no ISP “accidentally” gets a territory portion they shouldn’t have. Pay close attention to your mapped CSA before FedEx finalizes it!  You need to make sure it’s clearly defined which ISP particular supplemental routes should go to who.

Step 6: Request for Proposal

Draft a Request for Proposal for your entire business. What’s your backup plan if a truck breaks down? Do you have a set mechanic? Etc.

Step 7: CSA Historical Data 

Before you get into negotiations, FedEx will send you the data for the past 1 year on how many stops and how many packages your CSA delivered.
The accuracy of the historical data is very, very important. is is the data your negotiations will be based on.
Look carefully through the data because it may need to be adjusted. Are there any large accounts which have been lost in the last year? Make sure the CSA historical data is accurate! You will use these figures in your rate negotiations down the road.

Step 8: Negotiations 

This step lasted about 5 weeks for Saul.
This is based on packages, stops, and fuel. These are the key numbers which will be the biggest negotiations back & forth.
There will also be safety and service bonuses, but in Saul’s case these didn’t change very much.
There are no core zones, van availability, ex program, or quarterly bonuses. These will be factored into an “Annual Service Charge”, which is a fixed cost paid as a lump sum.
The CCS Bonus is broken into safety and service.
ISP goes by periods which are 4 weeks long. The old monthly bonus will be paid 13 times vs 12 times as before.
FedEx will assign a person (“negotiator”) for you to work with. It will be the same person the whole time. This is the person you will examine your historical data with and shoot proposals back and forth with.  Other contractors may have different negotiators, and some will have the same negotiator. YOU will have the same negotiator throughout the process.
Saul counter-offered between 22-26 times. The negotiators are TOUGH.  Many other contractors in the terminal settled after only 2-3 proposals because they felt worn out dealing with the negotiator.  THIS IS A HUGE MISTAKE!  Take advantage of the full negotiating time to fully get what you want. Do not procrastinate until the end of the negotiating period to begin! Start early and get as much out of the negotiator as you possibly can.  You have nothing to lose shooting one more counter-offer to them that might get you another 1%.
You have to know your numbers before you start negotiating. Every contractor’s negotiations will be different. Some will get paid more for packages and some will be paid more for stops. Saul has a good number of bulk routes with fewer stops, so he negotiated to make more for packages than he does for stops.
Your goal with the negotiations should be to make more money under ISP than you did for IC. You need to know your territory and historical data in order to achieve this through the negotiations.
When you give a proposal, make sure everything is covered so that that particular truck will be profitable. Break it down by fuel costs, employee wages, no core zones, etc.
How often are you changing tires compared with other contractors? Brakes? Fuel? Know your expenses and use this to get a higher pay amount. Fuel pay changes to a per-stop rate. Saul negotiated a rate per-stop which was double what some other ISP’s are because he has mostly bulk trucks.
Some guys love ISP and some don’t. What’s the difference? What did the successful ISP’s do to make the program so much better for them compared with IC? Variable vs. fixed. Saul found the successful ISP’s negotiated 70% of their rates by variable and 30% fixed.   This is what you should aim for.  Every company is going to grow.  FedEx is growing!  When your business grows and you’re being paid variably (as opposed to fixed) then your pay increases. Some contractors Saul spoke to negotiated up to 90% fixed because they were scared of losing revenue. When their business grew, their income didn’t grow in proportion.

Step 9: Insurance will get updated with your insurance carrier 

Step 10: Sign the Contract

FedEx will take roughly 3 weeks to actually draft your contract after negotiations are finished.
There’s a lot of fear, uncertainty, and everyone hears a lot of horror stories. ISP can be great to the contractors who take the time to prepare and pay close attention to the process. The goal is to be prepared before going into negotiations.
From now until you sign the ISP contract, pay extra care to your driver safety, violations, and customer complaints. You should be squeaky clean from now until you sign the contract.