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August 7, 2019 10:15 AM, EDT

FedEx Ends Ground-Delivery Deal With Amazon

fedex FedEx has moved to cut ties with Amazon. (Christopher Lee/Bloomberg News)

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FedEx Corp. is ending its ground-service delivery contract with Amazon.com, a sign the delivery giant is pulling away from the largest U.S. e-commerce company and focusing on other clients in the market, such as Walmart and Walgreens.

FedEx’s move also comes as Amazon is expanding its competing logistics company.

The Memphis, Tenn.-based company told Transport Topics it prefers to focus on other clients.

“This change is consistent with our strategy to focus on the broader e-commerce market, which the recent announcements related to our FedEx Ground network have us positioned extraordinarily well to do,” the company said in statement emailed to TT.

FedEx did not announce the change in a formal press release, but sent a statement via email Aug. 7. The ground-delivery contract with Amazon won’t be renewed when it expires at the end of August, FedEx said.

The move is the latest by FedEx in distancing itself from Amazon, which is growing its own logistics and freight segment. In June, FedEx said it would not renew its U.S. air-delivery contract with Amazon.

“FedEx would rather reserve its network for partners it believes are more mutually beneficial,” said Ben Hartford, a senior equity research analyst of transportation at Robert W. Baird & Co.

Hartford told TT that less than 1.3% of FedEx business was with Amazon, according to his research, which likely amounted to about $1 billion in revenue. After the air-delivery cancellation, the rest of the FedEx business probably amounted to several hundred million dollars, Hartford said.

The low level of business FedEx did with Amazon made the retailer a nonpriority to FedEx, especially after the June decision, said David Ross, research managing director of Stifel Financial Corp.

“It means these [Amazon] shipments were not that profitable,” Ross told TT.

Amazon has stronger ties to the U.S. Postal Service and UPS Inc. FedEx has stronger ties with Amazon rival Walmart, analysts said.

With such little business with Amazon, FedEx likely looked at the terms of its contracts with the Seattle-based e-commerce giant and decided to free up capacity for others, Hartford said.

The FedEx decision comes as Amazon builds out a logistics network with hundreds of fulfillment centers and adds next-day air capacity with leased jets, according to Bloomberg News. Amazon also is starting a home-delivery service modeled after the contractor-based ground unit at FedEx, which flagged the competitive risk in its latest annual report to U.S. regulators.

“We are constantly innovating to improve the carrier experience, and sometimes that means re-evaluating our carrier relationships,” Amazon said in an email to Bloomberg on Aug. 7. “FedEx has been a great partner over the years, and we appreciate all their work delivering packages to our customers.”

Amazon is not likely to be damaged by the pullout. It still can rely on UPS, the USPS, regional carriers and its own growing network to deliver packages, said Satish Jindel, founder of SJ Consulting Group, which provides data and advice to logistics companies.

And FedEx will seek to make up for the lost volume with traditional retailers such as Walmart, Jindel told Bloomberg.

Satish Jindel

Jindel

The move is a way for FedEx to “get Walmart to realize that they’re not working with Walmart’s biggest competitor and to have Walmart make FedEx their primary carrier,” Jindel said on Bloomberg Radio.

FedEx has not only indicated it would stay in the final-mile and e-commerce businesses, it also would enhance its service. In May, FedEx said its Ground delivery trucks soon would deliver seven days a week, adding Sunday service to residential customers beginning in January.

FedEx said the move was in part a recognition of the rapid expansion of e-commerce. FedEx already has Sunday service during the November-December holiday shopping season to handle the surge of deliveries.

“Expanding our operations to include Sunday residential deliveries further increases our ability to meet the demands of e-commerce shippers and online shoppers,” FedEx President Raj Subramaniam said in a statement last May.

FedEx also is making changes to its Ground unit systems to accommodate large packages, typically weighing 70 pounds or more. Those items, such as large TVs, furniture and auto parts, often have unconventional dimensions and in some cases must be processed by people instead of running through a conveyor system, the company said in May.

To assist with smaller items, FedEx unveiled an autonomous delivery device designed to help retailers make same-day and last-mile deliveries to customers. The “FedEx SameDay Bot,” unveiled on NBC on Feb. 26, will be able to help retailers accept orders from nearby customers and deliver directly to customers’ homes or businesses the same day.

FedEx said in March it was collaborating with companies such as AutoZone, Lowe’s, Pizza Hut, Target, Walgreens and Walmart to help assess retailers’ autonomous delivery needs.

For now, UPS will pick up what FedEx left behind, although both companies likely generated less than 10% of their revenues from Amazon. UPS hasn’t said how much revenue it generates from Amazon, but if the total were more than 10%, the courier would be obligated to disclose the information in regulatory filings, according to Bloomberg.

UPS ranks No. 1 on the Transport Topics Top 100 list of the largest for-hire carriers in North America, and FedEx is No. 2.