FedEx Corporation is intensifying its efforts to improve safety standards after a surge in accidents led to a significant increase in insurance costs over the past decade. In order to address these concerns, FedEx is implementing a series of measures for contractors working under its Ground unit. These measures include the installation of vehicle cameras and sensors, enhanced training programs, and penalties for contractors who have a high number of accidents. Failure to maintain a satisfactory safety score can also jeopardize their business and expose them to competing bids for their routes.
This safety crusade is a key part of CEO Raj Subramaniam's plan to create a seamless network by integrating FedEx's Ground and Express units. The company is currently testing contractors in 20 markets to determine their ability to meet the stricter delivery deadlines associated with Express packages. Unlike the Ground unit, where contractors are employed, Express directly employs drivers, owns the trucks, and has a better safety record, as evidenced by a lower number of fatal crashes.
Recent data from the US Federal Motor Carrier Safety Administration indicates that FedEx Ground, which employs approximately 6,000 delivery and big-rig contractors, has had 89 fatal accidents in the US over the past two years, as of August 2. In comparison, FedEx Express reported only seven fatal crashes during the same period. UPS, one of FedEx's main competitors, had 66 fatal accidents over the same time frame, even though their drivers covered more miles.
The safety issues faced by FedEx are taking a toll on the company's finances. The amount of self-insurance reserves set aside by FedEx to cover claims exceeded $5 billion for the first time in the fiscal year ending in May, up from $2.47 billion in 2017 and $1.8 billion a decade ago. In contrast, UPS had self-insurance reserves of $2.9 billion last year, a minor increase from $2.8 billion ten years ago. Major carriers like FedEx and UPS typically set aside funds to cover claims instead of purchasing insurance.
In response to questioning, FedEx emphasized that safety is of paramount importance in all aspects of their business and that contractors share in this commitment. The company is implementing measures such as technology adoption and enhanced visibility into safety results to promote continuous improvement and accountability.
While FedEx is focusing on technological interventions and monetary incentives to enhance safety, some current and former delivery contractors raise concerns about the high turnover rate among drivers, which can contribute to an increase in accidents. These contractors note that accidents are often more common among new drivers during their initial months on the job. They also argue that FedEx does not offer sufficient compensation to retain experienced drivers and mitigate potential accidents.
Various studies have shown that commercial drivers with more experience on the job tend to be safer, according to research sponsored by the Federal Motor Carrier Safety Administration. However, FedEx has yet to address the issue of high driver turnover and instead has been reducing the terms and duration of contracts. This approach creates challenges for contractors to attract and retain experienced drivers, as they struggle to increase wages and invest in their fleets.
FedEx Ground contractors, predominantly small delivery companies, face difficulties in competing with UPS in terms of wages and benefits. UPS recently reached a tentative labor agreement that would pay drivers $49 per hour, alongside full pension and health benefits, after four years of service. UPS's turnover rate for drivers is significantly lower, as many employees stay with the company for decades. In comparison, turnover rates among FedEx Ground drivers are much higher.
According to some industry experts, FedEx needs to increase contractor compensation to address these issues. Operating margins at FedEx Ground may currently be higher due to lower driver wages, but this masks other inefficiencies within the system. These inefficiencies include time-consuming hand-offs of packages at terminals and additional costs associated with covering for contractors who fail or quit.
It remains to be seen whether FedEx can effectively address its safety challenges while maintaining significantly lower driver wages than UPS. The availability of other well-paying job opportunities, combined with morale and hiring issues, may continue to pose challenges for FedEx and its contractors.