Washington: FedEx is cancelling a contract for air shipment of packages for Amazon within the United States, ending its ties with the online retail giant.
FedEx said Friday that it will not renew the contract for domestic FedEx Express handling of Amazon shipments when the deal expires June 30.
It’s ‘a strategic decision’ that will now let FedEx focus on thousands of other retailers including Target, Walgreens and Walmart, according to company’s Spokeswoman Katie Wassmer.
Amazon released a statement saying it respected FedEx’s decision and thanked the delivery company for serving Amazon customers over the years.
Amazon.com Inc. is emerging as a potentially formidable challenger to FedEx Corp. and United Parcel Service Inc. as it’s been expanding its fleet of planes and is building package-sorting hubs at two airports. It’s also launching a program that lets contractors start businesses delivering packages in vans bearing the Amazon smile logo.
Despite of FedEx and UPS having a highly developed global networks courtesy a decades-long head start in delivering packages, Amazon, is still more than three times their size by revenue and was sitting on about USD23.5 billion in cash at the end of March.
FedEx did not disclose details of the Amazon contract, but Wassmer said Amazon represented less than 1.3 per cent of FedEx revenue last year. That would work out to about USD907 million in revenue for the fiscal year that just ended May 31, according to Cowen Research analyst Helane Becker calculated.
The loss of the contract will be ‘minimal’ to FedEx because it is a low-margin business, Becker wrote in a note to clients.
Citi analyst Christian Wetherbee also downplayed the financial risk to FedEx but said it was “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.”
Weatherbee said it would be harder for UPS to break with Amazon because he believes it derives a greater percentage of its revenue from the retailer.
Even without Amazon, FedEx sees the potential for significant growth in handling online-shopping deliveries, which FedEx believes will double by 2026.
Memphis, Tennessee-based FedEx cited that outlook when it announced last week that it will go to year-round, seven days a week deliveries in January.
The company is also taking back nearly 2 million daily residential deliveries that it currently outsources to the post office.
FedEx shares rose USD1.17, or 0.7 per cent, to close at USD158.02, while Amazon gained USD49.67, or 2.8 per cent, to USD1,804.03.
AP
