What does FedEx’s break with Amazon mean?
FedEx’s decision not to renew its Express domestic contract with Amazon.com “is a watershed moment for the parcel industry that signals [Amazon’s] emergence as a significant player in the industry and brings a new level of risk to numbers at both UPS and [FedEx].”
That’s at least according to a note from Morgan Stanley analyst Ravi Shankar.
In the near term, UPS could benefit from the move, although Mr. Shankar noted that the rival carrier might not want the extra business “for the same reason” as FedEx.
Some observers believe FedEx is becoming increasingly uncomfortable competing for business against Amazon’s expanding logistics network that seems increasingly positioned to serve third-party customers. Amazon has also been pushing the envelope with ever-shrinking shipping guarantees.
“FedEx is sending a message to all the other customers: We are making delivery capacity available to you that was otherwise consumed by Amazon,” Satish Jindel, founder of ShipMatrix, a technology provider for the shipping industry, told The New York Times.
FedEx could be seeking to build its already-sizeable business with Walmart, which last month introduced next-day shipping.
The near-term damage should be minimal as Amazon accounts for less than 1.3 percent of FedEx’s total revenue, and the Express contract — used for air transportation of packages — was only a portion of that business. FedEx is expected to continue to provide other services to Amazon such as ground, freight and international delivery. Amazon Prime’s two-day deliveries are mostly handled by UPS, with FedEx often filling in the gaps.
FedEx said its “strategic decision” would allow it to focus on “serving the broader e-commerce market,” citing expectations that e-commerce will grow from 50 million to 100 million packages a day in the U.S. by 2026. The company issued a statement: “FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space. We are excited about the future of e-commerce and our role as a leader in it.”
Amazon said in a statement, “We respect FedEx’s decision and thank them for their role serving Amazon customers over the years.”
- Statement Regarding FedEx Corporation’s Relationship with Amazon.com, Inc. – FedEx
- FedEx says it will widen its e-commerce focus – MarketWatch
- FedEx Says It’s Ending Express Shipping Service for Amazon – The New York Times
- FedEx ditching Amazon is a ‘watershed moment’ that has huge implications for the future of logistics – Business Insider
- Amazon loses contract with FedEx Express as it builds out competing delivery network – The Verge
DISCUSSION QUESTIONS: Does FedEx’s decision not to renew its Express U.S. domestic contract with Amazon point to better opportunities for other retailers? Will the limitations hurt Amazon? How do you see the development affecting UPS, USPS and other carriers?