FedEx is ending its domestic delivery contract with Amazon.
On Friday, FedEx announced it would not renew its Express U.S. domestic contract with Amazon. The company said it will focus its efforts on the remainder of the e-commerce market, which includes customers like Walmart.
FedEx’s announcement was largely well-received by investors. Bernstein analyst David Vernon said that this will cause a short-term problem for FedEx but over the long haul, it will be more beneficial for the company.
The market seemed to celebrate this decision as well. On Monday, FedEx’s stock was up 2.4% as trading came to a close.
FedEx opts out of its partnership with Amazon
At first glance, it seems baffling why FedEx would choose not to partner with the largest e-commerce retailer in the world. But what started out as a mutually beneficial relationship has soured in recent years.
In some ways, it isn’t that surprising that FedEx ended its contract with Amazon. Amazon accounts for a small percentage of the company’s annual revenue.
And Amazon continues to push the envelope on delivery times, which has put a huge strain on both FedEx and UPS. Plus, Amazon continues to expand its own shipping network which puts it in the awkward position of being both a customer and the competition.
FedEx says that letting go of Amazon will allow it to focus on the remainder of the e-commerce industry. But the company will continue to deliver packages for Amazon internationally.
This could be a good move long-term but FedEx will undoubtedly feel an initial pinch. Amazon may only account for 1.3% of FedEx’s revenue but this came to $200 million in 2018 alone.
Will Amazon dominate the delivery industry?
FedEx’s decision to drop Amazon could be a good move for FedEx but it’s likely an even better move for Amazon. This frees Amazon up to focus more of its resources on its own shipping business.
The company is known for being an industry disruptor and now, it seems to have set its sights on logistics. Delivery is a core part of Amazon’s business and it has continued to move forward with Amazon Air. And the company is expected to launch its highly anticipated drone delivery service in the coming months.
So FedEx will probably fare just fine without Amazon. But in the coming years, Amazon will likely pose a very real threat to both UPS and FedEx.