FedEx to End Ground-Delivery Partnership with Amazon
As reported by Reuters, FedEx Corp confirmed today it would terminate its contract with Amazon.com Inc for small-package ground deliveries, as the online retailer focuses on building out its own delivery network.
FedEx’s contract with Amazon was set to expire at the end of August, and it comes just two months after FedEx announced that it wouldn’t renew Amazon’s FedEx Express contract, which the online retailer used to transport packages by air.
This newly ended contract focused on FedEx’s ground deliveries that helped bridge the “last-mile” gap between Amazon’s warehouses and its customers.
The move from FedEx comes as Amazon has increasingly become a competitor for the shipping firm.
FedEx has previously said that Amazon isn’t a huge customer for it: the online retailer makes up around 1.3 percent of its total revenue.
A FedEx spokesperson told The Verge that “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.”
Essentially, the shipping business is projected to grow in the coming years, and FedEx isn’t interested in helping Amazon.
FedEx announced in May that it’s ground unit would begin seven-day service in January, deliver more packages that had been handed off to the U.S. Postal Service and invest to handle oversized packages.
Read: FedEx’s Move to Seven-Day Ground Delivery Raises Stakes in the Parcel Marketplace
The Memphis, Tennessee-based company has also signed up more drop-off and pick-up points, including with Dollar General Corp. FedEx is even testing a ground-delivery robot.
Longtime rival United Parcel Service Inc., the largest U.S. courier, is taking a different tack by continuing its relationship with Amazon.
Analysts have estimated that the retailer’s pledge to expand overnight deliveries fueled a 30% spike in UPS’s domestic next-day volume in the second quarter.
UPS hasn’t said how much revenue it generates from Amazon, but if the total were more than 10%, the courier would be obligated to disclose the information in regulatory filings. The amount is probably close to that threshold, according to analyst estimates.
FedEx and UPS Profit Pressure
The surge in e-commerce business has been a double-edged sword for FedEx and UPS by spurring sales growth while squeezing profit margins since home-deliveries are more costly to handle than dropoffs at commercial customers.
In June, FedEx said it was in a “transition year” as it seeks to drive down costs and fix an ailing European business.
The company forecast a mid-single-digit percentage drop in earnings for the current fiscal year, which ends in May.
Amazon Continues To Increase Its Own Delivery Network
In late June, Amazon announced a Delivery Service Partners program in an effort to attract entrepreneurs who can create their own local delivery networks with up to 40 vans each.
Earlier that month, it debuted a delivery drone it hopes will eventually speed up delivery for Prime members in North America.
Amazon also has a $1.5 billion hub opening in northern Kentucky in 2021where it’s expanding its Amazon Air fleet to include 50 planes.
Amazon said its air network can make “two-day shipping possible almost anywhere in the U.S.”
Still, FedEx has helped to provide the “last mile” of delivery services, bringing packages to customer doors.
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