FedEx to end express shipping service for Amazon, bet on other retailers

It's unusual when a major corporation boasts about its decision to cut back on doing business with Amazon.

But FedEx's announcement on Friday that it would not renew its contract to provide express shipping service for Amazon in the United States was a signal that it believes e-commerce is bigger than just one company. FedEx said its "strategic decision" would allow it to focus on "serving the broader e-commerce market."

"FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space, including brands such as Target, Walgreens and Walmart,'' a FedEx spokeswoman said in a statement.

Walmart has become a particularly large FedEx customer, analysts say, and the move not to renew the contract shows how the shipping company is deepening ties with Amazon's biggest rival.

The express service is typically the fastest way customers can send packages, including overnight shipping. Such speed and convenience have become a requirement for a growing number of American shoppers.

Friday's move also reflects how Amazon has gone from simply a sought-after customer to a direct competitor of FedEx. As Amazon has built its own delivery capacity through a fleet of airplanes and same-day couriers, the internet giant has been able to ship more of its products on its own and control its costs. That has put FedEx in an untenable position of essentially competing with Amazon for Amazon's own business.

FedEx is betting on other retailers, which are expanding their e-commerce businesses but still need shipping companies to help them fulfill their express orders. FedEx said e-commerce was expected to double to 100 million packages a day in the United States by 2026.

"FedEx is sending a message to all the other customers: We are making delivery capacity available to you that was otherwise consumed by Amazon," said Satish Jindel, founder of ShipMatrix, a technology provider for the shipping industry.

Amazon accounts for just 1.3 percent of FedEx's total revenue, and the express contract was only a portion of that business. Analysts said FedEx was likely to continue to provide other services to Amazon, such as ground, freight and international delivery.

The decision to end the express deliveries is part of the profound reordering of the retail industry driven largely by the escalating battle between Amazon and Walmart.
 

FedEx appears to be siding with Walmart. The retailer has been ramping up its offers of two-day and same-day delivery in more markets, which means vastly more package volume. The two companies also said recently that they were adding 500 FedEx retail locations in Walmart stores.

The e-commerce boom has forced FedEx to look for ways to reduce its costs, especially on time-consuming residential routes in rural areas. Consumers have come to expect free shipping, but it can be costly for retailers and the delivery companies to reach all of these far-flung houses within the short time window.

Earlier this week, FedEx said it was planning to hire 700 flexible, part-time workers, who are expected to earn less than the company's unionised work force. Amazon already uses a large number of flexible workers to make deliveries.

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