FedEx Ends Ground-Delivery Deal With Amazon

From TTNews

FedEx Corp. is ending its ground-service delivery contract with Amazon, a further sign the Memphis, Tenn.-based delivery giant is pulling away from the largest U.S. e-commerce company.

“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,” the company said in a statement e-mailed to Transport Topics.

FedEx did not announce the change in a formal press release, but sent a statement via e-mail.

The ground-delivery contract with Amazon won’t be renewed when it expires at the end of August, FedEx said. The move is the latest by FedEx in distancing itself from Amazon, which is growing its own logistics and freight segment. In June, FedEx said it would not renew its U.S. air-delivery contract with Amazon.

FedEx is No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.

FedEx is reducing its dependence on Amazon as the online retailer builds out a logistics network with hundreds of fulfillment centers and adds next-day air capacity with leased jets. Amazon is also starting a home-delivery service modeled after the contractor-based ground unit at FedEx, which flagged the competitive risk in its latest annual report to U.S. regulators.

“We are constantly innovating to improve the carrier experience and sometimes that means re-evaluating our carrier relationships,” Amazon said in an e-mail Aug. 7. “FedEx has been a great partner over the years and we appreciate all their work delivering packages to our customers.”

Amazon can still rely on UPS, the U.S. Postal Service, regional carriers and its own growing network to deliver packages, said Satish Jindel, founder of SJ Consulting Group, which provides data and advice to logistics companies. FedEx will seek to make up for the lost volume with traditional retailers such as Walmart, he said.

The move is a way for FedEx to “get Walmart to realize that they’re not working with Walmart’s biggest competitor and to have Walmart make FedEx their primary carrier,” Jindel said on Bloomberg Radio.

Amazon made up about 1.3% of FedEx’s sales last year. To scoop up more e-commerce business, FedEx announced in May that its ground unit would begin seven-day service in January, deliver more packages that had been handed off to the postal service and invest to handle oversized packages.

The company has also signed up more dropoff and pickup points, including with Dollar General Corp. FedEx is even testing a ground-delivery robot.

By walking away from Amazon, FedEx is looking to increase its profit margins, even though the company could feel “some near-term pain,” said Lee Klaskow, an analyst with Bloomberg Intelligence, in an Aug. 7 note.

“This move is a logical progression after letting its Express contract expire in June,” Klaskow said.

UPS, 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’ 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.

Some of the ground packages that FedEx handled for Amazon will migrate to UPS, said David Ross, an analyst with Stifel Financial Corp. FedEx’s international deliveries for Amazon are likely very small, he said.

UPS ranks No. 1 on the TT Top 100 for-hire list.

Contributing: Bloomberg News