FedEx trims Amazon ties as retailer flexes delivery muscles

Bloomberg

FedEx Corp said it wouldn’t renew its US air-delivery contract with Amazon.com Inc, paring a key customer relationship as the largest online retailer deepens its foray into freight transportation.
The new focus will be on “serving the broader e-commerce market,” with US package volume from online shopping expected to double by 2026, FedEx said in a statement.
The Amazon contract with the Express air division expires at the end of this month, and doesn’t cover international operations or other services such as FedEx’s ground deliveries.
FedEx’s surprise move signals that the No. 2 US courier will bank on e-commerce customers that lack Amazon’s bargaining power for big volume discounts.
Amazon’s emergence as a logistics powerhouse is piling pressure on FedEx and United Parcel Service for cheaper and speedier deliveries, as the e-commerce leader builds its own aircraft fleet and delivery capabilities. “FedEx is ripping the Band-Aid off,” said Kevin Sterling, a Seaport Global Holdings analyst. “You could see the Express business eventually fading out and FedEx made the decision to go ahead and exit that side of the business with Amazon.”
“We respect FedEx’s decision and thank them for their role serving Amazon customers over the years,” the Seattle-based retailer said. FedEx said Amazon isn’t its largest customer, representing 1.3 percent of sales last year. Shipping consultant Satish Jindel estimated that FedEx’s domestic air-parcel business with Amazon is probably “a few hundred million a year, at the best,” and poised to decline.
“They know their Amazon business is going to continue to shrink,” said Jindel, founder of SJ Consulting Group, referring to FedEx. “Why have your capacity be used up by a customer that’s going to continue to chip away? They’d rather use that capacity for other customers.”
FedEx said it would focus on customers such as Walmart Inc, Target Corp and Walgreens Boots Alliance Inc.
“There is significant demand and opportunity for growth in e-commerce, which is expected to grow from 50 million to 100 million packages a day in the US by 2026,” the Memphis, Tennessee-based courier said. “FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space.”
XPO Logistics, transportation provider, had to cut its 2019 profit forecast after Amazon abruptly took away business in December. That left XPO with $600 million in lost sales. “FedEx didn’t want to be caught off guard and come in one morning to Amazon saying we’re no longer doing express business with you,” Seaport’s Sterling said.
Amazon has been beefing up its own freight-hauling ability for several years. In 2013, a report proposed an aggressive global expansion of the Fulfillment By Amazon service, which provides storage, packing and shipping for independent merchants selling products on the company’s website.