Why is Amazon banning FedEx ground delivery?

Discussion
Photo: Getty Images/400tmax
Dec 17, 2019
Tom Ryan

Starting Dec. 18, Amazon will begin temporarily restricting marketplace sellers from using FedEx’s ground services for Prime orders. Follow-up reports speculated whether the ban was due to FedEx’s under-performance as Amazon attests, a continuing delivery turf war or Amazon’s ambitions.

In an email sent to third-party sellers Sunday attained by the Wall Street Journal, Amazon said the ban will last “until the delivery performance of these ship methods improves.” Amazon declined further comment.

Some third-party sellers complained of the last-minute change just before the peak of holiday selling and the likely higher rates UPS would demand.

FedEx said in a statement, “While this decision affects a very small number of shippers, it limits the options for those small businesses on some of the highest demand shipping days in history, and may compromise their ability to meet customer demands and manage their businesses.”

Yet two sources told American Shipper that FedEx Ground and its FedEx Home Delivery sub-unit have faced challenges meeting Amazon’s on-time targets. John Haber, a supply chain consultant at Spend Management Experts, told Bloomberg that FedEx has struggled meeting seasonal demand.

The ban follows FedEx’s announcement in August that it was ending its ground delivery contract with Amazon after terminating its express U.S. shipping contract with Amazon in June. In a statement at the time, FedEx said the change “is consistent with our strategy to focus on the broader e-commerce market” and followed the expansion of ground delivery to seven days a week. Some saw FedEx increasingly uncomfortable partnering with a growing logistics competitor and wanting to position itself as the go-to courier for non-Amazon retailers.

Contradicting some reports, however, a source close to FedEx told American Shipper Amazon ended the ground delivery portion due to spotty delivery performance.

Amazon is building out its own shipping and logistics network that now delivers about half of its shipments, according to estimates from Morgan Stanley and Rakuten. Third-party retailers, accounting for 58 percent of Amazon’s retail activity in 2018, pay Amazon commissions on each sale. Many also pay Amazon for warehousing and delivery, also offered by FedEx.

DISCUSSION QUESTIONS: What do you believe is the reason behind the restriction Amazon temporarily imposed on marketplace sellers from using FedEx’s ground delivery services for Prime? Do you see either Amazon, FedEx, third-party sellers or consumers being hurt or helped by the ban?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The timing is utterly awful for Amazon's sellers, and will generate surprisingly bad press for the giant."
"The only winner here is Amazon! Customers, FedEx, UPS (et al.) and third-party sellers will all be hurt by the ban."
"Just the fact that Amazon wants to enforce this before Christmas’s huge shipping season shows this argument has become political."

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24 Comments on "Why is Amazon banning FedEx ground delivery?"


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Mark Ryski
BrainTrust

This looks like delivery brinkmanship between two of the biggest players. The timing of the announcement is curious – restrictions start December 18? Why wouldn’t Amazon wait until after the holiday selling season to make a change in delivery options? Amazon certainly has the right to limit use of a delivery partner for poor service levels, but I’m struggling with how the situation can be improved by banning FedEx ground leading into the holiday season – I think the timing is bad for consumers and third-party sellers. There’s a lot more to the motivations for this move than poor delivery service levels.

Paula Rosenblum
BrainTrust

I really believe it’s pure spitefulness on Amazon’s part. The timing is utterly awful for its sellers, and will generate surprisingly bad press for the giant.

I think the bloom is starting to come off the Amazon rose. It’s not going to hurt FedEx — people know how long they take to deliver. It’s going to hurt third party sellers, and … it’s going to hurt Amazon because it comes off as being incredibly venal.

Lee Peterson
BrainTrust

Amazon is eliminating the middle man and passing the savings on to customers and the extra profits onto themselves — simple as that. It was only a matter of time anyway and the writing’s been on the wall for years, so I’m not sure what the surprise is. There’s like 30 Amazon blue trucks in my ‘hood all day long lately. More of them than either UPS or FedEx. Guess that says it all.

Bob Phibbs
BrainTrust

An article yesterday spoke of how Amazon is delivering its own packages in dense cities and using FedEx, UPS, et al to deliver to more costly rural destinations. As they often do, Amazon is cherry-picking where they can save money while making it difficult on others.

Bob Amster
BrainTrust

Paula is on it. This seems to be more about Amazon establishing itself as a carrier than about everything else. The timing couldn’t be worse (they could have made this statement in July or August). Despite all the talk about sub-par performance on the part of FedEx, it could easily be about Amazon trying to gain market share by hurting the leading competitors.

Dave Bruno
BrainTrust

Regardless of the motivation or strategy, the timing of this move will cause far more pain for the small business selling in the Amazon Marketplace than for either of the two giants fighting it out at the very top of the logistics food chain…

Ben Ball
BrainTrust

War is war, whether it’s retailing or logistics — and Amazon and FedEx declared war some time ago. But we should consider that all logistics providers have been caught playing capacity catch up during the peak season as e-commerce in general has exploded. I have heard from employees inside the services that they are facing another 25 percent to 50 percent per day package increase over last year’s record peak days. And let’s face it, FedEx has little incentive to maintain Prime delivery promises under the current circumstances. If you allow your thinking to go “dark side,” maybe they even have a little incentive to put a dent in Amazon’s reputation for reliable shipping. When it comes to third-party sellers, they have incentive to use the cheapest (and consequently slowest) delivery method possible. If it’s a Prime shipment and they can’t charge a premium to the customer for 2nd Day Air or whatever it takes, they might just decide to ask forgiveness later. Amazon might just be trying to protect their flanks here.

Suresh Chaganti
BrainTrust

Anyone who worked on the seller side with Amazon will attest to the continuous squeeze. Amazon is squeezing sellers while prioritizing end-customers and their own strategic considerations. It is always a fine balance to begin with. Time will tell if they overbalanced in favor of end-customers this time.

For Seller Fulfilled Prime, Amazon mandates pretty stringent performance goals, and you have to use Amazon mandated carriers if you don’t want to risk losing the Seller Fulfilled Prime status. This is certainly not a win for sellers. They are the ones to bear the brunt.

Ken Lonyai
BrainTrust

We don’t know the true driving force behind this, but the timing makes it seem like a very calculated/punitive move. From my experience over the last 30 years, no one has matched FedEx’s reliability, especially UPS. And if Amazon’s delivery service is so good, maybe they can explain how our last TWO Prime orders last week were each delivered a day late!

Maybe FedEx is slipping or maybe this is a push to get merchants to use Amazon for delivery. “Maybe” is just a polite expression.

Lisa Goller
BrainTrust

This partnership has more drama than Brangelina’s breakup.

It’s no coincidence that this ban comes at the exact same time Amazon announces that it delivers half of its own packages. Amazon’s ambitious strategy involves creating a self-supporting supply chain. From boosting private label investments to delivering its own packages, Amazon is taking control of more of its retail processes, costs and margins.

Over the past six months, FedEx has taken strategic steps to be less dependent on Amazon. FedEx ended its shipping contract and ground delivery with the e-commerce giant, while boosting ground delivery to serve Amazon’s retail rivals.

In response, Amazon is taking an aggressive step to further push FedEx away by announcing this new ban. If FedEx truly did under-perform, Amazon is using the disappointing results to justify the new ban, erode FedEx’s brand trust and win greater market share for Amazon delivery services.

Given the timing, the ban will hurt consumers and third-party sellers the most as they seek timely delivery during the biggest sales period of the year.

Neil Saunders
BrainTrust

Regardless of the reason, the timing of this is terrible: making any major change to shipping policies around the holidays is odd and very challenging.

There is no doubt that Amazon wants to get more control over shipping and to bring more of the fulfillment process in house. This is necessary to create better economies of scale and reduce costs that have soared recently and are now eating into profitability. There is logic to this, even if there is little logic to the timing.

Gene Detroyer
BrainTrust

The key to the announcement, “restricting marketplace sellers from using FedEx’s ground services for Prime orders” indicates the real reasons. 1.) Cost. Shipping for non-Prime is essentially pass-through. Amazon absorbs the shipping for Prime 2.) Service. Amazon makes delivery promises to Prime customers. They want to be in control to assure nothing goes wrong.

Peter Charness
BrainTrust

Well something’s up. Several of my “Amazon Prime” deliveries are now scheduling to three or four days out — a completely non-statistically relevant sample of no consequence, but it did catch my attention. The Delivery Grinch has last minute shoppers at bay.

Ken Morris
BrainTrust

Amazon clearly thinks that this announcement and its timing will hurt FedEx more than it will hurt them. They are competing for the logistics business and have clearly learned enough from the relationship that they can disintermediate FedEx.

The only winner here is Amazon! Customers, FedEx, UPS (et al.) and third-party sellers will all be hurt by the ban.

Mohamed Amer
BrainTrust

Third-party sellers on Amazon are getting whipsawed at the height of the holiday shipping window while the two giants point fingers at each other. Yet here Amazon is restricting FedEx ground and home deliveries only for Prime orders. Third-party sellers can still use FedEx Express shipping for Prime orders. As to non-Prime orders, there are no restrictions on using FedEx ground and home delivery services.

As lousy as the timing is on this latest move between the two corporate giants, Amazon is protecting its reputation and brand built around Prime and third-party sellers do have the FedEx delivery option on standard orders. Given the recent history between Amazon and FedEx, we should not be surprised about any of this or the impending end of their once convenient relationship. Sellers beware!

Mark Price
BrainTrust

As usual, the answer is probably not simple. Amazon has been raising the bar for third-party delivery over the past few years, and it seems like FedEx is struggling to meet those stringent standards. In addition, the breakup of the relationship with Amazon clearly does not provide any incentive for Amazon to maintain FedEx as an option any longer than they have to.

This season has had more shipping delays than previous ones, based on mother-in-law research (small sample size, one locality, only my friends :)). The FedEx issues could be part of the cause.

Harley Feldman
BrainTrust
This exercise seems to be a fight over shipping market share. Since Amazon has become a major consumer company with delivered goods, it clearly wants to control its shipping destiny and costs. Its challenge is that its shipping competitors like FedEx and UPS, have business from many, many other companies and can take advantage of that fact vs. Amazon just handling its own packages. Just the fact that Amazon wants to enforce this before Christmas’s huge shipping season shows this argument has become political. The argument from Amazon is all about control of its shipping along with its product sales without giving up the cost of shipping to others. I think Amazon is growing out of its expertise and expanding into shipping from product sales to its peril. Amazon is not only making a mistake, but it is forcing one of its shipping partners to not be used during the heavy shipping season right before Christmas. Amazon is making a huge mistake by trying to build its own shipping network instead of just focusing on… Read more »
Doug Garnett
BrainTrust

Amazon flexed its delivery muscle. It is customers who will suffer.

The tricky part of this is that if Amazon believes it is shifting to its owned delivery service, then it’s not being honest with itself. All of the delivery problems and packaging problems we’ve had (and it’s increased significantly in the past year) were through Amazon themselves.

Their delivery people are dangerous in neighborhoods, have left goods overnight outside businesses (to be stolen) and the Amazon packers have become quite poor.

It’s certainly not clear who “started” this fight. But it’s the service Amazon delivers to customers that suffers (no matter how often Bezos claims to be laser focused on customers).

Ryan Mathews
BrainTrust

Amazon is a great partner, until it isn’t. Its model is to partner with the best it can find in a specific area, learn all it can learn, and then take the “partner” out. It happened in college textbooks and other areas and now it’s happening in delivery. Not only does this put FedEx under pressure to adjust pricing and increase service levels, it also gives Amazon a built-in excuse in the event that a significant number of orders don’t land on people’s porches during the holiday season. The endgame looks like Amazon running as much of its own distribution network as it has a capacity for and FedEx looking for replacement revenue.

Ed Rosenbaum
BrainTrust

Sad and bad timing that Amazon chose this time of year to flex their muscles. We know they are the giant in the industry. No need to prove they are the bully too.

Ananda Chakravarty
BrainTrust
For Amazon, this is tied more to operations and on using the lowest cost provider, which currently seems to be Amazon. Already well known is the fact that they’ve been upping their logistics game for some time now — new fleet of planes, freighters, drivers, and more. FedEx is either unwilling to drop prices or reduce time to deliver. Basically, Amazon is not FedEx, which has 10 times the air fleet as Amazon, and has an 85,000 vehicle truck fleet — at least 4x the size of the proposed Amazon truck fleet of 20k vans they plan to purchase or the 100k trucks on pre-order. Amazon is great at pre-announcing and setting the marketing stage, which may just be what they are doing here. To some degree, Amazon might also be able to point to FedEx as the scapegoat for late arrivals during a heavy delivery season. Whatever the differences, the timing will not be too impactful as most regular Amazon customers have moved to Prime already. This can serve as a further incentive/persuasion to… Read more »
Allison McGuire
BrainTrust

I’m sure it’s a combination of many things, but mostly to send FedEx a message about it’s sub par performance during peak season. FedEx’s lack of concern and terrible service is nothing new this year. Amazon is just in a better position to make a statement and that they have! I see FedEx and consumers being hurt the most, which is a sad outcome during what is for many, the happiest time of the year.

Jeffrey McNulty
BrainTrust

This is poor sportsmanship from Amazon. I disagree with their unprofessional antics. I am concerned about third party sellers and their ability to satisfy their customers during this time. The timing is questionable at best and disruptive at worst.

Rich Duprey
Guest
This is a perfectly reasonable response by Amazon. While it seems like payback for FedEx’s decision to stop making air express and ground deliveries, FedEx has been having trouble delivering packages on time and Amazon wants to ensure its Prime customers are getting the best service. Third party sellers are only restricted from using Express or Ground deliveries for Amazon’s Prime members; they can continue using the services for other customers. Amazon has promised its loyalty program customers 1-day shipping guarantees and if FedEx is unable to meet the requirements then it’s completely fair for Amazon to restrict usage of the option. Amazon is able to get 94% of its packages delivered on time and UPS can do it 93% of the time. FedEx, on the other hand, can barely get 90% of them delivered on time. That reflects poorly on Amazon with its customers, not FedEx, because customers blame the seller for slow delivery, not the carrier. It was why Amazon began building out its logistics operations in the first place after the Christmas… Read more »
wpDiscuz
Braintrust
"The timing is utterly awful for Amazon's sellers, and will generate surprisingly bad press for the giant."
"The only winner here is Amazon! Customers, FedEx, UPS (et al.) and third-party sellers will all be hurt by the ban."
"Just the fact that Amazon wants to enforce this before Christmas’s huge shipping season shows this argument has become political."

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