Why FedEx Is Terminating Its US Express Contract with Amazon

Cornelia Mascio
Giugno 13, 2019

Amazon has increasingly situation its sights on the segment, which is most fundamental for its core industry, threatening the possibilities of the incumbents UPS and FedEx.

FedEx is dropping a contract for air shipment of packages for Amazon within the United States, reducing its ties with the online retail giant that is already expanding its own delivery business.FedEx said Friday that it will not renew the contract for domestic FedEx Express handling of Amazon shipments when the deal expires June 30.

The carrier will proceed to ship packages for Amazon internationally.

Amazon has been splurging to build up its delivery network to reduce its dependence on the likes of FedEx and UPS.

FedEx's long-term play is for carrying more profitable packages without growing volume to keep up with Amazon's rapid growth. Amazon is investing $1.5 billion to set up an air cargo hub in Kentucky to rely less on others for air shipping. "FedEx, I'm sure did not want to (once again - as amazon did this to FedEx before when they pulled the Smart Post business) be left to explain the revenue loss to Wall Street". The provider will continue to advise programs for Amazon internationally.

The volume of Amazon packages being affected by the policy change - which Moody's estimates is less than 200,000 packages a day out of a total of 2.9 million packages for FedEx Express US domestic - can be replaced with packages sent by e-commerce shippers who will pay more per package, resulting in increased revenue for the same volume sent through FedEx's logistics network, Root argues.

It's "a strategic decision" that will let FedEx focus on thousands of other retailers including Target, Walgreens and Walmart, company spokeswoman Katie Wassmer.

And whereas the ramifications are huge, FedEx might maybe maybe now not be beaten by its contract with Amazon ending.

Amazon is upping the ante in the race to the consumer's door with the announcement that it is slashing delivery times for its Prime customers from a standard two-day window to next day in the US.

The move will not affect any existing contracts or Amazon shipments through other FedEx business units, like FedEx Ground, or last-mile deliveries and global shipments.

"We respect FedEx's decision and thank them for their role serving Amazon customers over the years", Amazon said in a statement after FedEx announced its decision on Friday.

And the company added that Amazon is not FedEx's largest customer, with the total FedEx revenue attributable to Amazon accounting for less than 1.3% of total FedEx revenue for the 12-month period ended December 31, 2018.

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