FedEx Cuts Ties with Amazon

FedEx says it will no longer make ground deliveries for Amazon as the online shopping giant builds its own fleet and becomes more of a threat to delivery companies. The announcement Wednesday comes two months after FedEx terminated its air delivery contract with Amazon. FedEx said dumping Amazon is part of its plan to go after more e-commerce deliveries from other companies.

Traditional retailers like Walmart and Target want to sell more of their goods online, which in turn allows FedEx to distance itself from Amazon.com without suffering the same competitive damage it might once have.

“This does not come as a surprise to us,” Citi Research analyst Christian Wetherbee said in a note to clients. “The company is clearly trying to move away from its partnership with Amazon and we believe it is using this move as a selling point to win new non-Amazon business.” Cowen analyst Helane Becker said FedEx’s profit margin on Amazon shipments is probably in the “very low single digits,” and she believes the company can replace those packages with more profitable business from other retailers.
Amazon is growing its own fleet of air and ground transportation, giving it more control of how its packages are delivered while reducing its reliance on FedEx, UPS and the U.S. Postal Service. The Seattle-based company has leased jets, built package-sorting hubs at airports and launched a program to let its contractor drivers start their own businesses delivering packages in vans stamped with the Amazon logo.

Amazon spent $27.7 billion on sorting and shipping costs last year, up from $16.2 billion two years earlier. Amazon doesn’t say how much of its packages flow through FedEx, but it’s likely a much smaller amount compared to UPS and the U.S. Postal Service. FedEx said that Amazon made up just 1.3% of its total revenue in 2018, or about $850 million.

Todd “Bubba” Horwitz