FedEx will not renew Express U.S. domestic contract with Amazon: Company says it's a strategic decision, with a focus on serving broader e-commerce customers.
The business relationship between Memphis-based transportation and logistics bellwether FedEx and global e-commerce titan Amazon has reached its expiration date.FedEx made that clear late last month, when it announced it made a strategic decision not to renew the FedEx Express U.S. domestic contract with Amazon.com Inc. as it focuses on serving the broader e-commerce market. The company added that this decision does not affect any existing contracts between Amazon.com or other FedEx business units relating to international services.
FedEx added that Amazon is not its largest customer, as total FedEx revenue attributable to Amazon accounted for less than 1.3% of total FedEx revenue for the 12-month period that ended December 31, 2018.
FedEx emphasized that even without Amazon as part of its customer portfolio its e-commerce business outlook is bright.
"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 United States by 2026," stated the company in an investor release. "FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space. We are excited about the future of e-commerce and our role as a leader in it."
Robert W. Baird & Co. analyst Ben Hartford wrote in a research note that the decision by FedEx is "immaterial" to the company's revenue and earnings base and "symbolic" in terms of its strategic focus on other e-commerce opportunities and customers on the heels of Amazon's recently announced commitment to "One-Day" Prime services.
"Next-day service delivery requires incremental Express/Air network capacity, thus the development of Amazon Air and its $1.5 billion primary air hub at CVG in northern Kentucky," wrote Hartford. "Near term, we see UPS benefiting on the margin from Prime's 'One-Day' service commitment given its larger exposure to Amazon, estimated at 7% to 8% of total UPS revenue. The announcement to not renew...in our view, creates marginal capacity for incremental domestic U.S. Express volume and publicly underscores its strategic decision to serve and support other customers as they respond to Amazon's effort to further shape customer expectations in the e-commerce arena."
Jerry Hempstead, president of parcel consultancy Hempstead Consulting, noted that until the new Amazon air hub opens at CVG, Amazon will be flying a night turn for next-day service out of the former DHL hub in Wilmington, Ohio, where it operated when first inaugurated its airline service with ATSG.
"My guess is that some of this is on FedEx," said Hempstead. "I'm sure FedEx was told about this new operation, and I suspect it's going to hurt FedEx. We're talking premium next day air service here, where Amazon is going to use Amazon resources to satisfy Amazon's needs. FedEx, I'm sure, did not want to be left to explain the revenue loss to Wall Street."
This development followed a previous announcement by FedEx in late May that it planned to launch residential delivery seven days a week for most of the United States, effective 2020, in an effort to "further serve the fast-growing e-commerce market."
This will not come as an entirely new effort for FedEx, as it already delivers seven days a week during the holiday peak season.
"We have made significant investments in capacity, technology and automation at FedEx Ground over the past 20 years," said Raj Subramaniam, president and chief operating officer, FedEx Corp. "These investments have allowed us to gain ground market share for 19 of the last 20 years, and we are now ideally positioned to extend that growth as the average daily volume for small parcels in the United States is expected to double by 2026."
This comes on the heels of a September 2018 announcement in which FedEx said that it was upping its FedEx Ground U.S. operations to six days a week from five. Company officials said at the time that this move was made in response to a combination of increasing e-commerce demand and record influx of volume expected for the 2018 holiday season, and beyond.
BY JEFF BERMAN, GROUP NEWS EDITOR
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| Title Annotation: | NEWS analysis |
|---|---|
| Author: | Berman, Jeff |
| Publication: | Logistics Management (Highlands Ranch, Co.) |
| Date: | Jul 1, 2019 |
| Words: | 684 |
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