Important Information for FedEx Route Buyers - Free Due Diligence Information

FedEx Route Consultant | FedEx Route Due Diligence

MyGround® Support has been providing numerous support services to FedEx Route or Linehaul Run Buyers including due diligence support since 2014. We've analyzed hundreds of routes over the years and our experience is unparalleled to others. Several try to mimic our services, but none truly compare. Discounted Cash Flow (DCF) Valuation, Return on Capital (ROC), and Capital Impacts (CAPEX) are critical items to consider. Our specific FedEx Route Buyer services include:

Over 3,060 visitors visited our site in 2018 alone. According to SBA statistics only 55.66% of SBA loans in the Trucking (Local) business are repaid, it is a high risk business!  We cannot stress how important it is to engage a highly skilled unbiased consultant like ourselves.

Our #1 Advice to Anyone Considering Buying FedEx Routes: Many components of FedEx Routes and Linehaul Runs are deceivingly more complex to evaluate and perform due diligence on then even the savviest business entrepreneur may think to review. CAPEX impacts are one of most important factors, if not the most important factor to consider. EBITDA & Owner's Cash Flow means nothing without CAPEX impacts considered. Vehicles don't last in perpetuity and they cost a lot!

MyGround® Support can be reached at 240-490-2895 or to inquire about consulting services offered. Please note we don't offer "free consults" via phone inquiries as we don't create buyer pools and interest in routes as an unbiased consultant.  We do however provide some free Q&A later in this page that many have found very valuable. In lieu of our services,  we also provide a Consult via Clarity.

Buying FedEx Routes - Free Due Diligence Q&A:

MyGround® Support's staff aren't "Route Guys" that do consulting on the side, but Fortune 100 Experienced Consultants with significant expertise and knowledge in FedEx Routes/Linehaul including personal ownership. We don’t “sell” great or bad things about FedEx Routes/Linehaul to you, aren't trying to get you interested in them (or not interested), and aren't trying to add your name to a list of potential buyers for a route broker. We offer the following free information from an unbiased perspective based on the top questions we get asked. Please don't be a naive buyer of FedEx routes, get help!

Q: The #1 question we get, what are FedEx Routes worth?

A:  The short answer is whatever the market (someone) will pay.  That said, true valuation formulas should be used.  Discounted cash flow valuation that is based on EBITDA & cash flow + growth factor considerations that also considers a Fair Market Value of the vehicles included in the sale - less any debt balances assumed using a Weighted Average Cost of Capital (WACC) or required rate of return.  This assumes things are in order contractually and operationally, otherwise calculations would have to be adjusted accordingly.  Historical financials may not represent the future potential of routes so extreme caution must be used.

FedEx Routes can definitely be a good investment, but setting a purchase price based on just 3x, 4x of Cash Flow, x% of Revenue, etc could lead to a very happy Broker/Seller when the transaction closes.  As a buyer you could be unhappy down the road when CAPEX impacts come into play or you are impacted by FedEx Ground contracting changes you didn't understand at the time of purchase. 3x, 4x of Cash Flow, x% of Revenue can sometimes be just Broker/Seller mumbo jumbo when used in isolation and may result in uneducated buyers lured into a single evaluation method that may be flawed.

Q: How can I go wrong with the "cash flow" generated by routes or linehaul runs?

A:  We've found over 90% of the "cash flow" calculations by Sellers/Brokers and biased or financially novice route consultants are INCORRECT.  They omit future capital expenditures or CAPEX.  For example, let's say you have 10 P&D trucks producing $1,000,000 in annual revenue with an EBITDA of $200,000.  Some biased or financially novice route consultants and sellers will say your free cash flow is $200,000. This is completely incorrect according to general accounting principles.  Future capital expenditures in terms of truck replacements and other items must be in your free cash flow calculations.   Don't fall for free cash flow calculations that are generated by someone who doesn't know how to calculate, attempt to leave out key things, or assume vehicles last in perpetuity.  If you're getting a loan your cash flow projections for the bank will need natural vehicle replacement in them so model as the bank does.

Q: Are FedEx Routes better than Amazon Delivery Service Provider (DSP 2.0) Routes?

A:  We would love to answer this question, but it all depends on your personal preference.  We believe Amazon DSP 2.0 routes are much easier to operate, require very low capital to start, are more financially profitable than FedEx Routes, but Amazon Logistics is a relatively new organization that requires contractor flexibility due to the massive growth.  FedEx Routes are more complicated to operate, have lower financial returns after vehicle replacement considerations, but are a more mature and stable organization.  It all depends on your goals.

Q: I see ads showing FedEx Routes or Linehaul Runs make a 30% or more margin, is it too good to be true?

A:  Yes, it is too good to be true.  Routes and Linehaul Runs make an Earnings before Interest, Taxes, Depreciation, & Amortized Items (EBITDA) significantly less than 30%.   It is possible to get a 30% EBITDA if the Owner is driving and not paying themselves a market wage.  Payroll would then be understated and you're just buying a job.

EBITDA is actually just one part of the equation though.  Looking at it in isolation could be a major flaw.  Routes and Linehaul Runs are a very capital intensive business.  Delivery Trucks and Road Tractors require major capitalized repairs at times (by definition they aren't in the P&L/EBITDA) and scheduled replacement. These activities are extremely costly. Engaging a professional advisor that can calculate Cash-on-Cash, Return on Capital (ROC), and CAPEX is critical.  EBITDA and Owner's Cash Flow is of little concern without knowing the other metrics, especially if the majority of the EBITDA and Owner's Cash Flow ends up being used for CAPEX (i.e. the capitalized repairs and natural vehicle replacement) 

We encourage Route and Linehaul Run Buyers to engage a true business consultant like MyGround® Support that knows how to calculate the important metrics and isn't just a "Route Guy" that focuses on simple EBITDA or Owner's Cash Flow.  FedEx Routes and Linehaul Runs may or may not be for you considering the financial expectations and returns you desire and the risks you are willing to take. Knowing vehicle replacement costs and vehicle operating costs (capitalized and non-capitalized) inside out are critical in the FedEx Route and Linehaul Run market.  It you don't know aspects of this you will likely have buyer's remorse as your actual return will be much less than what you thought.

+ + + Its important to note that the returns provided by FedEx Routes and Linehaul Runs can be lucrative in comparison to returns in retail, restaurants, gas stations, convenience stores, liquor stores, and many other businesses. As such they can be lucrative businesses in comparison. + + +

Q: Outside of financial related items, What should I be asking for in due diligence?

A: One of the first things a buyer should get and ask for is the Seller's current Agreement related items with FedEx Ground.  If you can get a copy of the Seller's entire Agreement plus all their performance metrics great.  If not you must have the following as a very first step.

  • Linehaul: TSPA Attachment A-1, Schedule B, and Schedule C for linehaul. Service Level & Availability Metrics. Screenshot of CSP Performance Dashboard.
  • P&D: ISP Attachment A-1, Schedule B, and Attachment C-1.  Inbound Attainment & Cure Letters.  Screenshot of CSP Performance Dashboard.
It is critical to engage an independent FedEx route consultant like MyGround® Support to understand what these items represent.  It is typically too complicated for a buyer without deep FedEx contracting knowledge to do it on their own. 

Q: Why do FedEx Route or Linehaul Run owners sell their routes?  Who in the world would want to sell something that makes 30% margins?

A:  As noted in an earlier question, the 30% margins don't exist unless you're going to be a full time driver and count your pay in that one would be selling if it was true and Fortune 100 companies across America would all drop what they were doing and buy FedEx Routes.  In our experience a Seller is selling for one of the following reasons.
  • The Seller has an aged fleet and it is going to cost a massive amount of funds to replace the fleet.  Buying routes or linehaul with an aged fleet is like buying a herd of dairy cows that have gone dry. CAPEX IMPACTS ARE ONE OF THE MOST IMPORTANT FACTORS IN ROUTE AND LINEHAUL EVALUATIONS.
  • The Seller is becoming concerned about the future competition and declining revenue potential, specifically Amazon.  Just in Sept of 2018, Amazon Ordered 20,000 vehicles for its contractor model for launch in 2019! These vans will be leased to new independent Amazon contractors.  Shipping with Amazon (SWA) is coming soon and its not just for Amazon fulfilled packages.
  • The Seller's contractual standing with FedEx Ground is in jeopardy. Engaging a FedEx skilled consultant is key to help determine if this is the case.
  • The Seller is being affected by a change in FedEx Ground contracting requirements.  CHANGES IN CONTRACTING TERMS ARE OCCURRING ALL THE TIME AND LATELY ARE VERY SIGNIFICANT. This could be caused by ISP overlap requirements, "e-commerce"/SmartPost obligations at extremely low rates, 7 day delivery, new equipment standards, new vehicle technology standards (FCAM - 2024 in Linehaul),  ISP rates that were negotiated poorly / don't cover the costs, decreasing rates from FedEx, and numerous other factors in both linehaul runs and P&D routes.
  • The Seller is a fairly new owner of the routes ( less than 3 years ) and has realized the routes are not as profitable as they thought when they purchased especially after CAPEX considerations.  It is likely they didn't engage a skilled and unbiased FedEx Route Consultant in their initial purchase, overpaid as a result, and now have a full understanding of the true financial considerations and are trying to exit quickly.  These routes will typically contain an aged fleet and an inflated asking price.
  • The Seller is retiring and no longer wishes to run the business.  These routes typically have higher published returns, but the key factor here is the Seller was likely running the day to day operations or driving so remember not to "buy a job".  The Seller's salary when they are driving is not an acceptable add back in this situation and a market wage for the Owner's efforts must be in the payroll number or adjusted with a market wage.
Valuation of FedEx Routes must reflect the contractual situation with FedEx, operations, fleet value, CAPEX needs, and EBITDA all combined - Don't overpay!

Q:  Can FedEx P&D Routes be run absentee or semi-absentee?, what about Linehaul Runs?

A:  We will boldly say anyone claiming FedEx P&D Routes or Linehaul Runs can be run completely absentee has never owned them (we have!) or has something to gain from telling you that they can be.  A Buyer could be making a very poor assumption assuming FedEx P&D Routes or Linehaul Runs could be run fully absentee either operationally or from a financial perspective.  Depending on the level of involvement and margin erosion that will occur, some P&D Routes and some linehaul can be run semi-absentee. DO NOT BELIEVE ANYONE THAT TELLS YOU ROUTES CAN BE A PASSIVE INCOME ACTIVITY AS AN INVESTOR.  Linehaul is likely to have more of a chance being run semi-absentee given the operations, but again do not assume it is possible at all.  Margins at semi-absentee involvement are obviously lower than those where the owner runs the day to day operations. 

Q:  What expenses do I have running P&D Routes or Linehaul Runs, seems pretty straight forward?

A:  Sometimes a Broker or Seller shows you a "Proforma" P&L (i.e estimated P&L) that looks like expenses are pretty small in number. It sometimes contains just a quarter of all the true expenses and would be significantly over simplified.  As noted earlier P&Ls DO NOT HAVE CAPEX in them.  CAPEX IMPACTS ARE ONE OF THE MOST IMPORTANT FACTORS IN ROUTE AND LINEHAUL EVALUATIONS.

We encourage Route and Linehaul Run Buyers to engage a true business consultant like MyGround® Support that knows how to calculate the important metrics and isn't just a "Route Guy" that focuses on EBITDA or Owner's Cash Flow that are the simplest part of a much more complex equation. EBITDA or Owner's Cash Flow means nothing when you could be using nearly ALL of that EBITDA or Owner's Cash to replace vehicles or perform capitalized repairs for poor quality routes and linehaul runs.

As for a sampling of expenses...non-capitalized expenses would include, but aren't limited to Fuel, DEF, Payroll, Employer Payroll Taxes, Tolls (P&D only), Parking (P&D only), Parking Tickets (P&D only), Worker's Compensation Premiums, Scanners (P&D only), Tires, Repairs & Maintenance, Non-Capitalized Equipment Repairs, Annual Vehicle Inspection Fees, Rental Trucks/Rental Road Tractors, Heavy Use Tax (Linehaul Only), ELD Service (Linehaul Only), Vehicle Registration/ Vehicle Plate Fees based on GVW, Annual Business Personal Property Taxes, Vehicle Camera Systems, Driver Training Schools (P&D), Employee Timekeeping System/Software, Route Optimization professional fees (P&D only), Accounting/CPA Fees, Payroll Service Provider, Lawyer/Attorney Fees, Recruiting/Advertising Fees, Driver Uniforms, Small Equipment (dollies, carts, etc), Vehicle Washing Vendor, Vehicle Decals, DOT Physicals for Drivers, Annual State Corporation Filing Fees, Business/Commercial Property Taxes on Assets, Mobile Phone reimbursement to drivers,....the list goes on and on.