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FedEx is abandoning a parcel shipping contract for Amazon in the United States, reducing its ties with the online retail giant, which is already developing its own delivery business.
FedEx announced on Friday that it will not renew the Amazon FedEx Express National Shipping Agreement when the contract expires on June 30th.
It's a "strategic decision" that will allow FedEx to focus on thousands of other retailers, including Target, Walgreens and Walmart, the company's spokesperson, Katie Wbadmer.
In a statement, Amazon only stated that it respected the FedEx decision and thanked the delivery company for serving Amazon's customers over the years.
Amazon.com Inc. is becoming a formidable challenger for FedEx Corp. and United Parcel Service Inc. Amazon is expanding its fleet of aircraft and is currently building parcel sorting centers at two airports. It also launches a program that allows entrepreneurs to start activities by delivering packages in vans bearing the Amazon smile logo.
Fedex and UPS, which have a long lead in parcel delivery for decades, have highly developed global networks. Amazon, however, is more than three times larger in business and had about $ 23.5 billion in cash by the end of March.
FedEx did not disclose the details of the deal with Amazon, but Mr. Wbadmer said that Amazon accounted for less than 1.3 percent of FedEx's revenue last year. That would be about $ 907 million in revenue for the fiscal year ended May 31, according to Cowen Research badyst Helane Becker.
The loss of the contract will be "minimal" for FedEx because it is a low margin company, wrote Becker in a note to customers. "FedEx will focus on the most profitable eCommerce customers, which should help improve the margin profile in the Express segment over time."
Citi's badyst, Christian Wetherbee, also downplayed the financial risk for FedEx, but said it was "pretty bold on the part of FedEx to abandon Amazon, which we believe poses a long-term threat to its business. "
Weatherbee said it would be harder for UPS to break with Amazon because it thinks the retailer will earn it a higher percentage of its revenue.
Even without Amazon, FedEx sees significant growth potential in processing online shipments, which, according to FedEx, is expected to double by 2026.
The Memphis, Tennessee-based FedEx company has reported on these prospects when it announced last week its shipment year-round, seven days a week in January. The company also recovers nearly 2 million daily residential shipments that it currently outsources to the post office.
FedEx shares rose $ 1.17, or 0.7%, to close at $ 158.02, while Amazon gained $ 49.67, or 2.8%, at $ 1,804.03 .
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