Fedex split with Amazon continues Ground contract won’t be renewed
Fedex is having another breakup with Amazon.
Fedex Ground will not renew its delivery contract with Amazon, Memphisbased Fedex confirmed Wednesday. The contract with Amazon expires at the end of August, a spokeswoman said.
“This 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,” Fedex said in a statement.
Fedex Ground’s decision came just two months after Fedex Express cut domestic ties with the e-commerce giant, saying it wanted to focus on the broader market. Experts anticipated that move would just be the beginning of a larger Fedex-amazon split as Amazon builds up its in-house logistics capabilities.
Fedex said in a recent SEC filing that Amazon developing a stronger delivery network will reduce its revenue and could hurt financial results.
“We are constantly innovating to improve the carrier experience and sometimes that means reevaluating our carrier relationships,” Amazon said in a statement. “Fedex has been a great partner over the years and we appreciate all their work delivering packages to
our customers.”
Satish Jindel, a founding member of the company that became Fedex Ground, said the move didn’t surprise him since Amazon had been moving its packages out of the Fedex network for months.
Fedex revenue tied to Amazon was less than 1.3% in 2018, according to Fedex.
Analysts have said the average Amazon package probably brings in less revenue for Fedex than other items. Moody’s Jonathan Root recently estimated Fedex sees an average of $15 per Amazon package with the overall average being $18.50.
The loss of Amazon volume could challenge Fedex Ground’s push to improve delivery density, or the weight and space occupied by packages in a truck. Delivery density “has consistently been a challenge with e-commerce,” Fedex President Raj Subramaniam said earlier this year, which hurts the efficiency of a delivery route.
Fedex’s thinking might be that it’s getting so much business from Walmart and other Amazon competitors that it doesn’t want to risk souring those relationships by staying with Amazon, said Jindel, founder of shipping consultancy Shipmatrix.
Amazon shouldn’t have trouble leaning on the U.S. Postal Service, UPS and its own delivery network going forward, even during the busy holiday shopping season, Jindel said. Fedex was already behind the USPS and UPS in terms of Amazon volume handled before the contract splits were announced, he said.
The Amazon announcement continues an eventful year for Fedex Ground. In May, the company revealed its plans to deliver on Sundays year-round and rely less on the U.S. Postal Service. Fedex executives in June earnings said Ground will become the premier low-cost provider of residential deliveries.
Max Garland covers Fedex, logistics and health care for The Commercial Appeal. Reach him at max.garland@commercialappeal.com or 901-529-2651 and on Twitter @Maxgarlandtypes.