The decision to end the contract quickens the company's retreat from the largest online retailer just two months after FedEx said its Express unit wouldn’t extend an agreement to fly Amazon’s packages in the U.S.
“This change is consistent with our strategy to focus on the broader e-commerce market,” FedEx said in the statement. Recent moves to bolster service “have us positioned extraordinarily well” to handle demand, it said. The courier will still have a contract with Amazon for international deliveries.
FedEx is reducing its dependence on Amazon as the online retailer builds out a logistics network with hundreds of fulfillment centers and adds next-day air capacity with leased jets. Amazon is also 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.FedEx shares dropped 1.8% to $158.24 at 9:41 a.m. EDT amid broad market declines. Amazon fell 1% to $1,770.05.
The Memphis, Tenn., company has also signed up more drop-off and pickup points, including with Dollar General Corp. FedEx is even testing a ground delivery robot. Longtime rival United Parcel Service Inc., the largest U.S. courier, is taking a different tack by continuing its relationship with Amazon. Analysts have estimated that the retailer’s pledge to expand overnight deliveries fueled a 30% rise in UPS’ domestic next-day volume in the second quarter.
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. The amount is probably close to that threshold, according to analyst estimates.The surge in e-commerce business has been a double-edged sword for FedEx and UPS by spurring sales growth while squeezing profit margins, since home deliveries are more costly to handle than drop-offs at commercial customers.
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