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FedEx has decided not to renew a domestic contract with Amazon. (Bill O 'Leary / The Washington Post)
Jay Greene
Journalist Focuses on Technological Coverage in Northwestern Pacific
FedEx announced Friday that it has decided not to renew its key national contract with Amazon, a decision that could corner the online retail giant during its very important holiday season, while it has sometimes to send parcels to customers on time.
This decision highlights tensions between long-standing partners after Amazon has built its own logistics network in recent years and is providing more customer packages, reducing its reliance on FedEx and more. other transportation partners. FedEx executives have repeatedly emphasized that Amazon would not become a competitor and that the retailer would remain extremely dependent on its transportation partners, despite growing logistics.
FedEx has made the decision "to focus on the broader e-commerce market," the company said in a statement on Friday. The ruling applies to FedEx's express national contract with Amazon – the fastest option FedEx offers for air shipments – ending June 30th. The decision affects neither its international services nor the last mile contracts.
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Amazon accounted for less than 1.3 percent of FedEx's revenue in the past calendar year, the company said. That's about 850 to 900 million, according to an estimate by David Vernon, an analyst at Sanford C. Bernstein & Co. In his release, FedEx pointed to the growing need for e-commerce shipments, which is expected to double to reach 100 million parcels a day by 2026.
Amazon spokeswoman Rena Lunak said in a statement that the company was complying with FedEx's decision. (Jeff Bezos, CEO of Amazon, owns the Washington Post.)
Amazon relies less on FedEx than on most of its shipping partners, including the US Postal Service and UPS. And the need for the fastest shipping method has declined since the company built warehouses closer to the country's population centers.
However, it can be difficult to predict the number of packages as holiday shoppers are multiplying online, and the lack of an airline contract with FedEx could have negative consequences for Amazon if last minute orders were flooded and if additional capacity was needed.
Amazon began to seriously strengthen its logistics operations after the 2013 holiday season, when sales flooded the UPS and FedEx networks, causing delays in shipments. Since then, the retail giants have been working to expand their networks to accommodate the high season and have established stricter rules with retailers like Amazon to help prevent this problem.
In the meantime, Amazon has leased a fleet of aircraft, bought thousands of road trailers and hired contractors to build distribution networks in major metropolitan areas. About half of its shipments go to the US Postal Service, which carries the last mile of the parcel route with the mail. UPS and FedEx take the rest.
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Amazon's ambition is to set up a logistics network that will one day compete with UPS and FedEx, even if it is far from this point, according to people familiar with the company's plans that are not allowed to take speech in public. Both FedEx and UPS stock prices suffered from news of Amazon's logistics initiatives, which frustrated logistics managers.
Meanwhile, however, the FedEx gesture gives him the edge in the debate – and can save him money in the long run. Amazon is negotiating with its distribution partners and the contract with FedEx Express has probably not been very lucrative for the company.
FedEx had previously dropped a deal with Amazon to make last-mile deliveries via its Smartpost no-frills delivery service about five years ago. Smartpost, which used the US postal service for final delivery, was perceived as poaching in its terrestrial network at a higher price.
"FedEx has a habit of evading contracts when the economic situation does not suit him," said Vernon.
And while the loss of Amazon's packages could create some pressure on FedEx as it adjusts to lower volumes on its network, Vernon said the decision also removes some of the risks that inevitably affect his actions at the Fed. news of Amazon's encroachment on the transport sector.
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