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Comment on Is Spencer Patton FedEx Ground contractors’ white knight or a moat-protected baron? by todd mertens

FedEx Ground last week revoked the operating authority of Spencer Patton, the renegade Tennessee-based delivery contractor who has risen to prominence by calling attention to the financial plight of many of the FedEx Corp. unit’s 6,000 contractors. 

What FedEx Ground didn’t do, and what it is far from doing at this point, is remove Patton completely from the equation.

That’s because Patton, through an approach that could meet master class standards for vertical integration, has ingrained himself so deeply in the operations of FedEx Ground’s contractors that it would be problematic for the company to marginalize him even if it were legal to do so.  

Patton’s now-abolished contractor business, which operated in 10 states with 225 routes under the name Patton Logistics, accounted for 5% to 10% of his annual revenue, according to a person familiar with Patton’s modus operandi. The rest comes from an array of consulting, brokerage, driver recruitment and training, and truck leasing services.

The various businesses generate tens of millions of dollars in annual revenue and are quite profitable, said the person, who is intimately familiar with FedEx Ground’s operation.

Patton’s consulting business, Route Consultant, brokers transactions between contractors looking to sell their routes — as they are allowed to do under the FedEx Ground model — and prospective buyers. In a typical year, Patton brokers the sale of between 1,000 and 2,500 routes at an average cost of $110,000 to $125,000 per route and pockets a 10% commission on each transaction, the person said.

Route Consultant also offers a three-month course to teach potential investors how to identify, acquire and operate a FedEx Ground territory, according to a lawsuit filed Aug. 26 by the company charging Patton with spreading falsehoods about the financial distress facing many of its contractors in order to promote his own interests. For new contractors, Route Consultant provides post-closing “milestone support” for the first 90 days after a purchase, according to the suit. 

Patton owns a company called Silicon Ledger LLC, which offers tax preparation and other tax-related services to FedEx Ground contractors. According to the person, Silicon Ledger has helped or is helping between 1,000 and 1,500 contractors qualify for the employee retention tax credit (ERTC), which was created at the start of the pandemic to encourage eligible businesses to keep employees on their payrolls. Under the program, businesses can receive tax credits of up to $26,000 per employee. Silicon Ledger earns commissions on every successful transaction, the person said.

Patton also owns a company called Hello Truck Lease, an equipment leasing firm designed to support the leasing needs of FedEx contractors. During a presentation at a contractor expo in Las Vegas last month, Patton announced the formation of a purchasing alliance that will leverage the collective buying power of the contractor network to gain discounts on fuel, tires and equipment leasing terms.

For the past eight and a half years, Patton has been president of ADTP Inc., an entry-level driver training program owned and operated by FedEx Ground contractors. Patton has also acquired an unspecified financial stake in a Smyrna, Georgia-based company called Bright Flag Recruiting, which recruits drivers for FedEx contractors, according to the person.

In a statement, a Route Consultant spokesman said some of the figures in the story are “not remotely accurate.” The spokesman repeated earlier comments that FedEx Ground wants to focus on Patton’s various businesses instead of addressing the core problem of why it can’t provide more funds to help financially ailing contractors.

“It’s clear FedEx Ground wants to change the subject instead of directly addressing why they charge the U.S. consumer an inflation/gas fee but don’t pass that revenue on to the small business owners actually paying for it,” according to the statement.

Patton has warned repeatedly that up to 35% of contractors could fold as soon as the end of the year due to rapidly rising operating costs unless the unit provides them with financial relief.

A smart entrepreneur

By all accounts, Patton is a highly intelligent, innovative entrepreneur who adds value to contractors by bundling vital services under one umbrella. That is why he can move forward with momentum that seems incongruous for someone who has just lost his delivery routes. 

It should be relatively easy for FedEx Ground to replace Patton’s routes, which accounted for about 0.5% of the unit’s 60,000 U.S. routes. It will be difficult, and time-consuming at the least, to replicate the ancillary services that Patton’s businesses provide.

The lawsuit and the operating revocation, which both occurred on Aug. 26, could be interpreted by many contractors as hardball moves by a tough company that has so far failed to take their plight seriously. To thousands of contractors, Patton has taken on white knight status by coming to their rescue during what everyone, including FedEx Ground, agrees is a challenging business environment.

“An increasing number of contractors are coming to view him as a messiah,” said the person, who said that many contractors have benefited from his services over the years but that he could be more forthcoming about his interlocking business activities. 

Patton’s increased visibility is evidenced by the fact that the two-day contractor expo, which historically doesn’t draw a huge crowd, was attended by 3,500 contractors. Hundreds, if not thousands more, listened or watched virtually. 

The Aug. 26 actions also provide Patton with political cover of sorts to continue his very public criticisms of FedEx Ground, the person said. “He’s not going to stop bashing them.” 

Patton’s notoriety could result in more business for his companies as contractors gravitate toward his cause. Patton, for his part, has said that his success is tied to that of FedEx Ground and that he is just acting in the best interests of financially imperiled contractors. 

Patton said it strains credulity that he would be trying to feather his own nest by deliberately stirring the pot when the fallout would be to reduce the value of the routes he is trying to broker.

Messianic status cuts both ways, and here is where it gets complicated. For many contractors, the last two years of pandemic-fueled delivery spikes were very good for their daily operations and for the resale value of their territories. In late August 2021, Patton publicly inferred that the best, at least for prospective buyers, was yet to come. The routes were valuable assets that were flying under the radar, he said. 

Patton was quoted in a Bloomberg article at the time that acquiring the routes would be like buying Apple (NASDAQ: APPL) stock at $1 a share. The headline read that “FedEx Ground Delivery Becomes a Road to Riches for Contractors” and noted that the price of delivery territories had increased 50% over three years.

Today’s landscape is quite different. Costs are soaring, e-commerce delivery volumes have slowed and contractors face the reality of being paid less for residential deliveries than for high-density business-to-business deliveries, where each stop could involve the delivery of hundreds of packages. 

There is concern among longtime contractors that their territories’ resale values will be much less than expected. There may also be some buyer’s remorse from those who jumped in at inflated prices over the past two years or so. 

According to the person, however, the value of the average territory will become normalized as the industry moves further away from the extreme economic fluctuations caused by the pandemic.

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes FedEx (No. 1).

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