FedEx Express ditches Amazon in US domestic market - The Daily Memphian

FedEx will stop delivering Amazon packages by air express in the U.S. after June 30.

It’s the strongest sign yet that FedEx views Amazon as a growing threat and that the best way to fight back is to align with Amazon’s e-commerce rivals.

Memphis-based FedEx said Friday it made a strategic decision to back off Amazon business and instead focus on growth in the broader e-commerce market.

“There is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026,” a company statement said.

“FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space, including brands such as Target, Walgreens and Walmart.”

<strong>FedEx’s contract to carry Amazon packages in the U.S. domestic market will end June 30.</strong> (Daily Memphian file)” data-large=”/api/image/11364/960″ data-largeheight=”2266″ data-largewidth=”3000″ src=”http://dailymemphian.com/api/image/11364/740″></img></p><figcaption>
<p><strong>FedEx’s contract to carry Amazon packages in the U.S. domestic market will end June 30.</strong> (Daily Memphian file)</p>
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<p>“FedEx has made the strategic decision to not renew our FedEx Express contract with Amazon as we focus on serving the broader market. We are excited about the future of e-commerce and our role as a leader in it,” the statement added.</p>
<p>Amazon said in a statement, “We respect FedEx’s decision and thank them for their role serving Amazon customers over the years.”</p>
<p>FedEx Express carries the bulk of Amazon shipments moved by FedEx’s various operating units.</p>
<p>The announcement doesn’t affect Amazon shipments moving by FedEx Ground or other units or internationally within the FedEx network, FedEx said.</p>
<p>FedEx’s reported move comes amid increasingly competitive moves by Amazon and widespread industry speculation that Amazon is becoming a bigger threat to FedEx, UPS and other carriers.</p>
<p>FedEx officials have long maintained publicly that they don’t view Amazon as true competition, but analysts have suggested that FedEx has every reason to be concerned.</p>
<p>The FedEx action could force Amazon to scramble to keep pace with delivery demand in the short run. It also may be a signal FedEx is growing weary of continuing to enable the growth of a would-be competitor, industry observers said.</p>
<p>“It’s no surprise to me,” said Satish Jindel, SJ Consulting Group president. “The last few months they have more openly recognized that Amazon is a competitor while it is a customer.”</p>
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<p><img alt= — **Memphis-based FedEx says it has made a strategic decision to back off Amazon business and instead focus on growth in the broader e-commerce market.** (Jim Weber/Daily Memphian file)

Jindel said FedEx’s share of Amazon volume likely has declined to the point that FedEx couldn’t justify shipping discounts that were negotiated when it was carrying more volume for Amazon.

“Then I have to look at what rates I need for the reduced volume, and Amazon may be saying ‘I can’t pay that.’ FedEx (is) saying ‘Then, goodbye,’” Jindel said.

It was telling that FedEx made the news public, Jindel added.

“It’s another reason they would put a press release out on it, which they otherwise may not, is to send a clear message to all the competitors of Amazon in the e-commerce world, including Walmart, Target, Macy’s and others, that we have greater interest in being your carrier than Amazon, and we have the capacity to handle your business, so they would be more likely to embrace FedEx,” Jindel said.

Trip Miller, managing partner of Gullane Capital Partners in Memphis, said, “This is a sign that FedEx sees Amazon as more of a long-term competitor than a customer, and the Express business FedEx had from Amazon was low margin.”

“In the short run this move will most likely put network pressure on Amazon as its short- term shipping needs will need to be picked up by other third parties and its own growing network, most likely at a higher cost than they had under their FedEx contract,” Miller said.

“While in the short run Amazon may need FedEx more than FedEx needs Amazon, the long-term reality for FedEx core business is it will have a significant challenger in Amazon in e-commerce and general package delivery,” Miller said.

Jindel didn’t see the FedEx move causing much short-term pain for Amazon. “Not at all. They have different options to divert that business to UPS and to move it to their private fleet with ATSG and Atlas Air,” he said.

Amazon has expanded an air network, built out a distribution network and deployed trucks and drivers around the country while upping its service standard for Amazon Prime customers to one day delivery from two day.

FedEx has responded by rolling out new services that cater to Amazon’s e-commerce competitors. It added FedEx Express Extra Hours to give e-tailers later cutoffs for next-day deliveries. It also just announced plans for seven-day deliveries by FedEx Ground coming out of the 2019 holiday peak shipping season.

FedEx said earlier this year Amazon business represented less than 1.3 percent of total revenues in the year ending last Dec. 31. Based on companywide revenues of $65 billion in the fiscal year ended last May 31, it would translate into less than $845 million in revenues.

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