Published: Mon, June 10, 2019
Markets | By Otis Pena

FedEx Won't Renew Amazon's US Air-Delivery Contracts

FedEx Won't Renew Amazon's US Air-Delivery Contracts

The decision doesn't impact any existing contracts with other FedEx business units, including ground service and last-mile delivery or relating to worldwide services.

Thomas Anderson, an EVP and partner with LJM Group, said Amazon's express business was likely low margin for FedEx, plus it has some capacity constraints, so eliminating it made business sense.

Analysts said that the ending of FedEx Express' contract with Amazon is likely to benefit UPS, which gets a relatively larger share of revenue from the online retailer. Mehrotra said Amazon may take a harder look at using, if not acquiring, "asset-light" companies to achieve delivery density and make good on delivery commitments while its parcel traffic continues to spike at a remarkable pace.

FedEx points toward the expectation that daily e-commerce package deliveries in the USA will grow from the current 50 million to 100 million by 2026.

It's "a strategic decision" that will let FedEx focus on thousands of other retailers including Target, Walgreens and Walmart, company spokeswoman Katie Wassmer. "We are excited about the future of e-commerce and our role as a leader in it", the statement added.

FedEx says it is still focused on e-commerce delivery and will focus on "serving the broader e-commerce market".

"This is just a fact of Amazon using less of FedEx over the a year ago or so given that they're building out their own air fleet, combined with the fact their volume probably didn't warrant the kind of discounts they were getting", Klaskow said.

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Amazon already has 40 leased cargo planes and has signed an agreement to induct 10 more planes into the fleet in the next two years.

Amazon's FedEx Express contract is in question, which according to Amazon is used for air transportation of packages and is not used for last-mile and ground deliveries, The Verge reported on Friday.

"Although (FedEx Express) represents a relatively small amount of the total Amazon spend, FedEx and UPS are the only carriers that can effectively move some of the next-day and two-day shipments", Anderson said.

Amazon's emergence as a logistics giant has posed a costly challenge to FedEx and United Parcel Service stepping up pressure for faster deliveries.

In a move not entirely expected but hardly surprising, FedEx Corp. FedEx, which operates on a June 1 to the following May 31 fiscal year, has fiscal year revenues of just under $70 billion.

"They're sending a clear message to other competitors of Amazon, 'We want your business, and we're freeing up capacity to handle it, ' " Jindel said.

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