Is FedEx smart to say goodbye to Amazon’s U.S. business?
After ending domestic express deliveries for Amazon.com in June, FedEx indicated last week it would be ending domestic ground deliveries, as well.
FedEx’s contract with Amazon for international deliveries will continue.
Amazon accounted for less than 1.3 percent of FedEx’s revenue in 2018 and many assumed it was a low-margin account.
Effectively terminating its U.S. relationship with Amazon, however, is a sign to many that FedEx has felt increasingly uncomfortable partnering with the growing logistics competitor. To some, the public announcement was a message to Walmart that FedEx is best positioned as its go-to courier.
In a statement, FedEx said the change “is consistent with our strategy to focus on the broader e-commerce market, which the recent announcements related to our FedEx Ground network have us positioned extraordinarily well to do.”
In May, FedEx announced that, beginning in January 2020, it will expand ground delivery to seven days a week, and boost large package capacity as well.
For Amazon, the loss of FedEx delivery is expected to be made up by UPS, USPS, regional carriers and its own growing network. Continuing to push the envelope on speed, Amazon in April announced it would begin offering free next-day shipping to its Prime members.
Amazon may lose leverage with UPS without FedEx battling over fees. An estimated five-to-eight percent of UPS’s revenues come from Amazon. Despite building hundreds of fulfillment centers and leasing jets, Amazon would still need to invest another $122 billion into its delivery network to be on par with UPS and FedEx, Goldman Sachs estimated in a recent report.
UPS gains at least a short-term boost replacing FedEx’s load, but will likely continue to face questions around its support of Amazon.
“I’m sure that long-term UPS will be handling less packages,” Jerry Hempstead, a former parcel industry executive who now runs his namesake consulting firm, told The Wall Street Journal. “If Amazon has a truck coming to my house, why would they pay UPS to do that? … They have their own trucks now, they have their own planes, and the writing’s on the wall.”
- FedEx Ends Amazon’s U.S. Ground Deliveries as Retailer Rises as Rival – The New York Times
- FedEx-Amazon Split Will Provide a Shipment Windfall for Rivals – The Wall Street Journal
- FedEx Ends Ground-Delivery Deal With Amazon – Bloomberg
- FedEx ends ground-shipping contract with Amazon – The Washington Post
- FedEx will no longer offer ground delivery to Amazon – CNN
- What does FedEx’s break with Amazon mean? – RetailWire
DISCUSSION QUESTIONS: What do you think drove FedEx’s decision to end its U.S. business with Amazon, and was it a smart move? Is the development good or bad for Amazon, UPS, other carriers and other retailers?