UPDATE: Aug. 7, 2019: An Amazon spokesperson provided the following statement after publication: "We are constantly innovating to improve the carrier experience and sometimes that means reevaluating our carrier relationships. FedEx has been a great partner over the years and we appreciate all their work delivering packages to our customers."
Dive Brief:
- FedEx will not renew its ground delivery contract with Amazon when it expires at the end of August, a FedEx spokesperson confirmed to Supply Chain Dive. Bloomberg was first to report the news.
- "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," FedEx said in a statement emailed to Supply Chain Dive. Amazon did not immediately respond to a request for comment.
- This comes two months after FedEx announced it would not renew its Express domestic contract with Amazon, providing similar reasoning, saying it planned to focus on "serving the broader e-commerce market."
Dive Insight:
The competition between Amazon and 3PLs like FedEx has been steadily increasing. Until recently, parcel carriers brushed off the threat of Amazon's growing logistics network. But then, earlier this year, Amazon listed logistics and fulfillment companies among its competitors in financial filings. FedEx also recently acknowledged it viewed Amazon's delivery abilities as a growing threat.
FedEx said in its most recent annual report, "some high volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries, and may be considered competitors." FedEx said these kinds of developments could hurt its revenue and market share.
FedEx COO Raj Subramaniam highlighted some changes to FedEx Ground operations in the company's most recent earnings call. The 3PL announced plans to make residential deliveries seven says per week, it is bringing FedEx SmartPost (previously handled by the U.S. Postal Service) volume into standard ground operations, and it's enhancing network capabilities around large package handling.
"It is significant that we are engineering and enhancing the Ground network in such a way that it'll be more cost-effective to deliver millions of residential packages a day directly by FedEx Ground," Subramaniam said. "In fact, we expect FedEx Ground to become the low cost last mile provider in the industry."
Amazon has recently expanded its Delivery Service Partners program, which provides funding for entrepreneurs and employees to start their own parcel delivery business. It is also increasingly investing in its air cargo capabilities.
"[I]f customers, such as Amazon.com, further develop or expand internal capabilities for the services we provide, it will reduce our revenue and could negatively impact our financial condition and results of operations," FedEx said in its annual report. "News regarding such developments or expansions could also negatively impact the price of our common stock."
Amazon represents 47% of e-commerce retail sales in the U.S., according to eMarketer. By breaking ties with Amazon on the ground and in the air, FedEx is making a bet that the remaining 53% will provide enough volume to sustain its operation.
