FedEx Express has terminated its US business with Amazon. On Friday the Memphis based company issued a short statement saying that it had made “the strategic decision to not renew the FedEx Express US domestic contract with, Inc. as we focus on serving the broader e-commerce market. This decision does not impact any existing contracts between and other FedEx business units or relating to international services.”

FedEx continued, asserting that Amazon was not “FedEx’s largest customer. The percentage of total FedEx revenue attributable to represented less than 1.3% of total FedEx revenue for the 12-month period ended December 31, 2018.”

Whilst Amazon does not dominate FedEx’s business, it is hardly a small customer. Presumably the profit margins are low and FedEx thinks that it can redeploy the assets used to serve Amazon at present more profitably. However, it is unclear why FedEx could not simply ask for a higher price from Amazon on contract renewal.

Indeed, the use of the word “strategic” may hint at another reason behind FedEx ending its relationship with Amazon. The Seattle e-retailing giant has made very substantial investments in air express infrastructure in the US, both in terms of aircraft and hubs. It is hard not to think that this a form of competition for FedEx. In the same statement the company comments that “there is significant demand and opportunity for growth in e-commerce which is expected to grow from 50m to 100m packages a day in the US by 2026. 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.” It is hard not think that this is not an oblique statement to the effect that e-retail is important to FedEx and Amazon is aggressively entering the e-retail space, therefore Amazon is a competitor of FedEx.

It also raises questions about the rest of the business that FedEx does with Amazon, such as services outside the US.

It is unclear what the impact will be on Amazon. Whilst it now has very significant air transport resources, it is unlikely to have the coverage of FedEx across the whole of the US. Possibly UPS will benefit although it will be interesting to see if UPS responds to the expansion of Amazon’s air transport resources in the way FedEx has.

Source: Transport Intelligence, June 10, 2019

Author: Thomas Cullen