August 9, 2019
FedEx will not renew its contract, which expires end of August, for ground delivery of packages for Amazon. In June, FedEx ceased shipping Amazon packages by air but continued ground delivery. FedEx is cementing its relationships with Target, Walmart and other big e-tailers that compete with Amazon. The company released a statement that its move is “consistent with our strategy to focus on the broader e-commerce market,” and its chief operating officer Rajesh Subramaniam said FedEx is “all-in on e-commerce.”
The Wall Street Journal reports, “FedEx’s decision will require Amazon to find a new way to handle millions of packages ahead of the critical holiday shopping season at the same time Amazon is looking to speed many home deliveries to one-day shipping.”
One source said that Amazon will “redistribute packages among its other carriers and its own network … [and] doesn’t anticipate any disruptions to its new Prime one-day shipping speeds” due to FedEx’s defection. SJ Consulting reports, “Amazon used its own drivers to deliver 45 percent of its July orders, the U.S. Postal Service for 28 percent and United Parcel Service for 21 percent,” but didn’t use FedEx for any deliveries in July.
According to FedEx, in 2018, Amazon represented 1.3 percent of its total revenue, or less than $1 billion. Amazon senior vice president of operations Dave Clark, who dubbed the split “conscious uncoupling at its finest,” added, “nothing but respect for FedEx, but they were [a] very small piece of our network and vice versa.” Amazon will still be able to send packages via FedEx, but not at the previous favorable rate.
FedEx, meanwhile, just added Saturday ground delivery and, next year plans to expand that to seven-day residential delivery in the U.S., taking over from the U.S. Post Office. The shift, says WSJ, will “seek to lower costs by building density along FedEx Ground routes, while also shifting some two million packages daily out of the Postal Service’s network.”
Last year, Amazon debuted “Shipping with Amazon,” to deliver packages for its independent merchants, “with the aim of expanding to outside businesses on a national scale.” Industry consultant Brittain Ladd reported that “internally, Amazon’s logistics teams discussed becoming a third-party logistics company bigger than FedEx and UPS,” with the ability to eventually control “between 10 percent to 20 percent of the global logistics industry.”
Analysts, however, estimate that Amazon “would need tens of billions of dollars in investment, thousands of trucks, hundreds of planes and thousands of sorting centers to handle the billions of packages it ships each year.”