MyGround® Support provides the following information regarding the top 5 high level questions we get asked:

Q: I see ads showing FedEx Routes 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 a pre-depreciation margin significantly less than 30%. Sellers of Routes and Brokers get very creative to purport 30% or more margins using terms like Cash Flow, "Normalized" Cash Flow, and Add-backs. Some purport future revenue growth but do not increase required costs to support the additional revenue. The Cash Flow or "Normalized" Cash Flow the Seller or Broker calculates is actually calculated using non-generally accepted accounting principles (i.e. incorrect or made up financial terminology). 

Bottom line however, some of the margins can be pretty good, but they vary by many factors and some margins are a pre-depreciation return and you must factor in future capital costs for vehicle replacement.  FedEx Routes can be a good purchase decision, but do not buy them assuming they hold 30% margins (or anything close) and obviously do not make a purchase based on those exaggerated margins.  Engaging a FedEx Route Consultant is critical to ascertain what the likely Operating Cash Flow and the Free Cash Flow (Operating Cash Flow less Capital Replenishment) margins are.  Only then can you make an offer based on true financial returns rather than 30% + margins based on made up financial terminology.

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

A:  As noted in the first question, the 30% margins don't 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 five reasons.
  • The Seller has an aged fleet and it is going to cost a massive amount of funds to replace the fleet.  Never overpay for routes with an aged fleet as you will be investing a large sum of money to replace the fleet
  • The Seller's contractual standing with FedEx Ground is in jeopardy to the point where routes are going to be lost or their entire contract is going to be lost.  This could be due to staffing issues, high turnover, poor operations, or any number of factors.  It is absolutely critical for Buyers to understand all non-financial aspects of route ownership and contractual requirements.  Sellers may have also lost their exclusive rights to renegotiation of their contract.
  • The Seller is being affected by a change in FedEx Ground contracting requirements.  This could be caused by ISP overlap requirements, new equipment standards, new vehicle technology standards, work accident discontinuance (owner's must have worker's comp), ISP rates that were negotiated poorly / don't cover the costs, 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.  It is likely they didn't engage a FedEx Route Consultant in their initial purchase and now have a full understanding of the true margins and are trying to exit quickly.
  • The Seller is retiring and no longer wishes to run the business.  The key factor here is the Seller was running the day to day operations so remember not to "buy a job".  The Seller's salary is not an acceptable add back in this situation.

Q:  What is the number one thing, above all else should I ask for and obtain first in due diligence?

A:  The Balance Sheet from Tax Return along with Tax Return.  If you pursue any FedEx P&D Routes or Linehaul Runs without taking a look at the balance sheet first you could be wasting your time or making an uninformed purchase.  The Balance Sheet tells you the most important things you need to know before looking at the routes in more detail.  For example: Outstanding Debt balance on the Balance Sheet provides massive insight into the financial health of the routes as well as numerous other things only found on a Balance Sheet.  If a Seller doesn't have a Balance Sheet or isn't wiling to produce one move on (Note:  given revenue levels, the vast majority of all Sellers have a Balance Sheet with their tax returns).  Proforma P&Ls are the last things you should be concerned with at first as they are estimates only and have no warranty

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

A:  We will boldly say anyone claiming FedEx P&D Routes or Linehaul Runs can be run completely absentee knows nothing about the industry or is looking at the Buyer as a fool.  A Buyer could be making a very poor assumption assuming FedEx P&D Routes or Linehaul Runs could be run fully absentee.  Depending on the level of involvement and margin erosion that will occur, some P&D Routes and some linehaul can be run semi-absentee.  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, seems pretty straight foward?

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 typically contains just a quarter of all the true expenses and would be significantly over simplified. 

A true sampling, non-inclusive list would include 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, 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, Mobile Phone reimbursement to drivers,....the list goes on and on.  Engaging a FedEx Route Consultant is critical to ascertain what expenses apply and whether they are within range of what should be expected.  Interest Expense & Depreciation is actually very important in this industry as well and cannot be ignored completely.

To engage MyGround® Support to learn more about financial and non-financial aspects as well as due diligence support visit our services pages.

MyGround® Support also offers free informational videos on various FedEx Route topics periodically.  This month's video presents high level information you may want to consider before getting into FedEx Ground linehaul contracting.  It is based on linehaul's new TSPA agreement coming in the Fall of this year.  This video has no sound and each slide plays for approximately 1 minute.  You may fast forward or pause as needed.