FedEx to let ground contract with Amazon expire at end of August

Roughly two months after Memphis-based transportation and logistics bellwether FedEx announced it made a strategic decision not to renew the FedEx Express U.S. domestic contract with Amazon.com, Inc., reports issued today indicate it is also severing its ties with the global e-commerce bellwether on the ground side, too.

A Bloomberg report, citing a FedEx statement, noted that the FedEx ground delivery contract with Amazon will not be renewed when it expires at the end of August. And it added that this move is consistent with the company’s strategy to focus on the broader e-commerce market, which echoes its company line, when it made its early June announcement regarding exiting the FedEx Express air contract with Amazon.

What’s more, FedEx said that recent moves to bolster service have it “positioned extraordinarily well” to handle demand, adding its contract with Amazon for international deliveries remains intact.

FedEx has said 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.

FedEx also had made it clear that even without Amazon as part of its customer portfolio that its e-commerce business outlook is bright.

“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,” it said in late June. “FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space. We are excited about the future of e-commerce and our role as a leader in it.”

This news comes at a time when Amazon has been keenly focused on building out its own logistics delivery network on various fronts, including the rollout of its Delivery Service Partner (DSP) program, its ongoing shift to one-day free shipping, and, in turn, what one analyst called an ongoing transition into becoming a unique logistics company, in that it does not make anything and, instead, facilitates the purchase, fulfillment and delivery of items while using the services myriad transportation and logistics services providers.

“Amazon has been increasingly developing its own logistics capabilities since the early 2000s, leading some investors to believe that insourcing from Amazon's logistics efforts have led to margin erosion at UPS (and FDX),” wrote Ben Hartford, Robert W. Baird and Co. analyst in a recent research note. “We think the impact has been less direct but nonetheless still very consequential: Amazon's creation of customer demand and expectations for B2C led to e-commerce's rapid development over the past 10-15 years.”

Morgan Stanley analyst Ravi Shanker wrote in a research note today that this development is significant.

“We characterized the June FDX-AMZN split as a ‘watershed’ moment for the parcel delivery space and we believe today is similarly impactful,” he wrote. “Taking a step back, one of the two largest eCommerce parcel delivery companies in the US is not doing any business with the dominant eCommerce player in the country – this would have been unthinkable 5-7 years ago when eCommerce growth was the main investment thesis for FDX/UPS. Growing with others not a sustainable plan. We have long pointed out that the strategy of ‘growing with everyone else in eCommerce’ is not a viable alternative for the parcel companies because (a) most other non-giant eCommerce retailers are much smaller and are struggling to match the growth of the giants (b) AMZN and others becoming third-party delivery providers could compete for the ‘other’ volumes (c) the omni-channel shift (ship-from-store) will further reduce the ‘other’ slice of the pie in the coming years.”