FedEx to End U.S. Express Business With Amazon -- 2nd Update
07 Juin 2019 - 10:18PM
Dow Jones News
By Paul Ziobro
FedEx Corp. is ending its air-shipping contract with Amazon.com
Inc. in the U.S., signaling the delivery company no longer wants to
fly packages for an online retailer that is developing its own
delivery network.
In a surprise move Friday, FedEx said it won't renew the
domestic contract, which runs through June 30, for its Express
unit. It will still have other shipping contracts with Amazon,
including through its ground network and international
services.
Amazon ships millions of packages a day, though it spreads the
orders among FedEx, United Parcel Service Inc. and the U.S. Postal
Service, as well as its own growing delivery operations. FedEx said
Amazon represented 1.3% of FedEx's total revenue in 2018, or less
than $1 billion.
FedEx said it is severing its air relationship with the
e-commerce leader to focus on serving a broader array of retailers,
including large chains such as Walmart Inc., Target Inc. 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 U.S. by 2026," the company said in a
statement. "We are excited about the future of e-commerce and our
role as a leader in it."
Amazon has been building up its own logistics and delivery
network, including leasing cargo jets to fly products from
overseas, hiring semi trucks to ship goods in Amazon-branded
trailers and contracting with local delivery firms to bring
packages to homes. The company has 42 Amazon-branded aircraft in
the U.S. and expects the fleet will grow to about 50 planes by the
end of the year.
"We respect FedEx's decision and thank them for their role
serving Amazon customers over the years," Amazon said.
Last month, Amazon broke ground on its own air-cargo hub in
Hebron, Ky., which is near large air hubs run by UPS in Louisville,
Ky., and FedEx in Memphis, Tenn. The Amazon facility is expected to
open in 2021. Meanwhile, Deutsche Post AG's DHL is handling Amazon
Air packages at its hub in Hebron. The company's goal is to
eventually haul and deliver packages for itself as well as other
retailers, the Journal has reported.
FedEx and UPS have sought to play down the competitive threat of
Amazon in recent years, as analysts and investors have questioned
their exposure to the large online retailer and risks posed by the
Seattle-based company delivering more of packages on its own.
"The level of global investment in facilities, sorting,
aircraft, vehicles, people to replicate the service we provide, or
our primary competitor provides, is just daunting, and frankly, in
our view, unrealistic," FedEx Chief Financial Officer Alan Graf
told the Journal in 2016.
The latest move suggests FedEx has taken a different view of
Amazon, Citi transportation analyst Christian Wetherbee wrote in a
research note Friday. "This is a fairly bold pronouncement from
FedEx to move away from Amazon, which we believe the company views
as a long-term threat to its business," Mr. Wetherbee said.
He said Amazon's business likely comes at a lower margin to
FedEx than other shippers, since larger customers can negotiate
lower rates. And Amazon delivering more packages itself is a more
worrying for sign for UPS, which Citi estimates generates a mid- to
high-single-digit percent of revenue from Amazon.
A UPS spokesman declined to comment on its shipping contract
with Amazon.
But in recent quarters FedEx's business has been under pressure,
with lower revenue in its Express unit and higher costs in its
ground business forcing the company to lower its profit targets.
The Express unit has switched leaders twice in recent months, and
the ground business said it would start home delivery seven days a
week next year. Earlier this week, FedEx said it wouldn't pay
bonuses this year.
FedEx has been building a closer alignment with traditional
retailers, which are increasingly shipping from stores instead of
far-off distribution centers. It has been using its Express
network, which traditionally carries packages long distances by
plane, to ferry packages shorter distances without leaving the
ground. The carrier has developed a service where it picks up
online orders from stores, brings them to its Express unit's
sorting hubs and delivers them to homes the next day.
Jennifer Smith contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
June 07, 2019 16:03 ET (20:03 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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