Northwest Arkansas Democrat-Gazette
FedEx sends Amazon packing
Courier ending ground deliveries for e-commerce giant
FedEx is ending its contract with Amazon for ground deliveries in the United States at the end of the month, a spokeswoman for the shipping giant said Wednesday.
The move came two months after FedEx said it would no longer provide express shipping service for Amazon. By severing another tie to the e-commerce giant, FedEx indicated it was focused on expanding its business outside of Amazon and signaling to other retailers that it was on their side.
“This change is consistent with our strategy to focus on the broader e-commerce market,” FedEx said in a statement.
Over time, Amazon’s relationship with FedEx has shifted from customer to competitor, as the online retailer has beefed up its own delivery capacity with a fleet of airplanes and same-day couriers, giving it more control of how its packages are delivered while reducing its reliance on FedEx, UPS and the U.S. Postal Service.
In a May regulatory filing, FedEx noted the potential threat that Amazon’s moves posed.
“Some high-volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries, and may be considered competitors,” FedEx said in the filing, which also noted that Amazon was “investing significant capital to establish a network of hubs, aircraft and vehicles.”
In a statement Wednesday, Rena Lunak, an Amazon spokeswoman, said the company was “constantly innovating to improve the carrier
experience and sometimes that means re-evaluating our carrier relationships.”
“FedEx has been a great partner over the years, and we appreciate all their work delivering packages to our customers,” Lunak said.
Despite its outsize role in e-commerce, Amazon is not a major source of business for FedEx. It accounts for just 1.3% of the shipping company’s total revenue.
In May, FedEx moved to bolster its ground-delivery service, announcing that it would soon offer seven-day residential delivery.
“The recent announcements related to our FedEx Ground network have us positioned extraordinarily well,” FedEx said in its statement Wednesday.
Still, FedEx’s decision to end its ground contract with Amazon so publicly confounded some longtime freight industry experts.
“I am baffled,” said Satish Jindel, founder of ShipMatrix, which provides technology to the shipping industry, and a former employee of a startup delivery company that later became FedEx’s ground unit. “It is creating bad blood.”
FedEx’s announcement, Jindel said, appeared to be mostly designed to send a message to Walmart, another large customer, that the shipping company was willing to align itself with it over Amazon in an effort to win more business.
FedEx is joining a number of other large companies — Microsoft and Google are two others — that have formed strategic alliances with Walmart to challenge Amazon in areas like cashier-less stores and voice-activated shopping. Walmart said in March 2018 that it would open FedEx locations in 500 of its stores in the United States.
The move Wednesday was also an acknowledgment that Amazon’s in-house delivery capabilities are expanding so rapidly that the services of FedEx and the U.S. Postal Service might eventually become mostly obsolete to the e-commerce giant.
The Seattle-based company has been leasing jets, building package-sorting hubs at airports and has launched a program that lets contractors start businesses delivering packages in vans stamped with the Amazon logo.
Last year, its expanded its in-house “last-mile delivery” services to 30% of all grounddelivered packages, about 4 million items a day, from 20%, Jindel said.
“They have enough capacity of their own now,” he said.
Last month, FedEx warned for the first time in a government filing that Amazon’s fledgling delivery business could lower prices, hurt its revenue and “negatively impact our financial condition and results of operations.”
It was a departure from previous statements by FedEx officials — and those at UPS — who have long downplayed the idea that Amazon could become a competitor in the delivery business. They noted that it took many years and billions of dollars for their companies to build extensive, worldwide networks of planes and delivery trucks.
“I mean, we look at Amazon as a wonderful company and service, and they’re a good customer of ours,” said FedEx Chairman and Chief Executive Officer Fred Smith during an earnings call in December. “We don’t see them as a peer competitor at this point in time. For many reasons, we think it is doubtful that that will be the case.”
Amazon doesn’t say how much of its packages flow through FedEx, but it’s likely a much smaller amount compared to UPS and the Postal Service.
Besides building its own delivery business, the online retailer wants to drop off packages to its shopper’s doorsteps even faster, which is proving to be a bigger expense than expected. Last month, Amazon admitted it would cost more than the $800 million it had said it would spend to switch its Prime two-day delivery promise to one-day delivery. The higher costs were related to reconfiguring its warehouses and moving products and goods to facilities that were closer to its customers.
Analysts said FedEx would still have a role in moving some Amazon packages, but it would be an even smaller part of its business.
“This will make it not worth mentioning,” said Stifel analyst David Ross, in a note to clients.