In this article, our focus is mainly on the risks of buying or owning a FedEx route.
If you’re currently planning on applying for one, you’ll need to pay close attention to the details provided here. This will give a clear idea of what’s involved.
With that said, let’s proceed with our discussion.
Why Are So Many FedEx Routes for Sale?
Every business enterprise has its up and downsides.
As such, anyone venturing into such must clearly understand these to maximize their chances of success while minimizing risks.
There’s a need to have a detailed understanding of the risks involved for any business.
Risks of Buying FedEx Routes
FedEx is a reputable courier brand with operations spread across the globe. While operating on a significant scale, FedEx also partners with small businesses by way of routes that it sells to them.
Such routes provide dedicated delivery territories, thus allowing for efficient delivery while helping people own successful businesses.
While that is true, there are risks commonly associated with buying a FedEx route. Such hazards include less flexibility to innovate and high initial capital commitment.
Other risks include a shortage of human resources, poor driver safety records, and unrealistic pricing, making buying difficult.
More risks associated with buying FedEx routes include inaccurate evaluation of a route’s profitability and increased work volume during the holidays.
Financing acquisitions can be difficult and stressful to manage, have zero guarantees of consistent cash inflow, and may not be as profitable as similar businesses started from scratch.
ii. Less Flexibility to Innovate
Buying a FedEx route is considered risky because of the lack of flexibility regarding innovation.
Most of these routes are designed by FedEx to follow a strict schedule. While this works for the company, it can affect FedEx route owners because they must follow strict rules.
This is irrespective of whether they (FedEx route owners) identified a better strategy to help the business. This can be limiting and poses a risk to doing business.
For some buyers, this can be a deal breaker that stops them from proceeding with the purchase.
iii. High Capital Commitment
One other risk associated with buying a FedEx route is the high capital commitment required.
In other words, buying a route can be expensive, with most sellers demanding high fees that can be prohibitive unless you’re partnering with other buyers or have access to a loan facility.
iv. Shortage of Human Resources
One of the most common problems FedEx route owners face is the driver shortage.
You’ll find some routes having such challenges. Now, this can be risky for buyers interested in purchasing a FedEx route having issues because sellers may not be entirely honest.
With driver shortage, it’s only logical that pickup and delivery and linehaul route operations will be negatively impacted.
What more? FedEx routes are hit harder when there’s a national shortage of truck drivers. Bridging the gap in workforce deficit can be especially challenging for some businesses.
v. Poor Driver Safety Record
One of the policies of FedEx is safety first. This non-negotiable requirement can lead to the termination of a FedEx route contract before its expiration.
Not being able to meet minimum driver safety requirements puts your business at risk of being sanctioned or your contract terminated.
Usually, FedEx assigns a safety score to assess its drivers. As driver safety continues to fall below expectations, your business is at risk of a strike.
This could affect your operations. So, you’ll need to choose who your drivers are careful. These should be well-trained and experienced.
vi. Unrealistic Pricing
A lot of times, FedEx routes are difficult to buy because sellers tend to have the upper hand in price negotiations.
Because of this, it’s common to find unrealistic pricing demands from sellers, which makes closing the deal a lot more complicated than it should be.
As part of unrealistic pricing demands, sellers may only want to entertain cash sales. A lot of interested buyers won’t find that encouraging.
This dampens their spirit, thus making the purchase less likely to happen.
vii. Inaccurate Evaluation of Route Profitability
Another reason FedEx routes are risky to buy is the high tendency for incorrect evaluation of route profitability. Many route owners seeking to sell aren’t entirely honest about their reasons for selling.
You might buy a FedEx route that isn’t profitable, thus risking your investment.
viii. Increased Work Volume During the Holidays
FedEx typically handles a steady barrage of packages. While this volume might seem much, it’s nothing compared to the importance of packages during the holidays.
This can be overwhelming for route owners not adequately prepared for the job.
ix. Difficulty in Financing Acquisitions
When buying a FedEx route, there’s a risk of not getting sufficient financiers due to the niche-based model of operation.
In other words, only specific lenders are interested in financing FedEx route acquisitions. This makes the buyout a risk that affects the outcome.
x. Stressful to Manage
As a FedEx route owner, your operations can be stressful to manage if you don’t have enough drivers to get your packages dispatched or delivered on time.
The commitment of drivers also matters to productivity.
xi. Zero Guarantees of Consistent Profits
Not all FedEx routes tend to be profitable. In other words, some courses see consistent profitability while others don’t.
Understanding this risk is essential as it helps you navigate through times of low profitability. Sometimes, it’s best to only go for profitable routes if you can.
xii. Might Not be as Profitable as Businesses Started from Scratch
Although FedEx routes are profitable, the level of profitability may not be the same as businesses started from scratch.
The benefit of starting from scratch is that you aren’t restricted in any way; your operations can turn out to be highly profitable.
These are the risks associated with buying a FedEx route. You can better manage your acquisition by identifying and knowing these risks.