FedEx opts not to renew Express U.S. domestic contract with Amazon

The business relationship between Memphis-based transportation and logistics bellwether FedEx and global e-commerce titan Amazon has reached its expiration date.

FedEx made that clear late last week, when it announced it made a strategic decision not to renew the FedEx Express U.S. domestic contract with Amazon.com, Inc. as it focuses on serving the broader e-commerce market. And it added that this decision does not impact any existing contracts between Amazon.com and other FedEx business units or relating to international services.

And the company added that Amazon is not FedEx’s largest customer, with the total FedEx revenue attributable to Amazon accounting for less than 1.3% of total FedEx revenue for the 12-month period ended December 31, 2018.

FedEx made it clear that even without Amazon as part of its customer portfolio that its e-commerce business outlook is bright.

“There is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026,” it said. “FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space. We are excited about the future of e-commerce and our role as a leader in it.”

Robert W. Baird & Co. analyst Ben Hartford wrote in a research note that the decision by FedEx is “immaterial” to the company’s revenue and earnings base and “symbolic” in terms of its strategic focus on other e-commerce opportunities and customers, on the heels of Amazon's recently announced commitment to “One-Day” Prime services.

“Next-day service delivery requires incremental Express/Air network capacity—thus the development of Amazon Air and its $1.5 billion primary air hub at CVG in northern Kentucky,” wrote Hartford. “Near term, we see UPS benefiting on the margin from Prime's “One-Day” service commitment given its larger exposure to Amazon (estimated 7-8% of total UPS revenue), while FDX's announcement on Friday to not renew its domestic US Express contract with Amazon, in our view, creates marginal capacity for incremental domestic US Express volume and publicly underscores its strategic decision to serve and support other customers as they react/respond to Amazon's effort to further shape customer expectations in the e-commerce arena.”

Jerry Hempstead, president of parcel consultancy Hempstead Consulting, noted that that until the new Amazon air hub opens at CVG, Amazon will be flying a night turn for next-day service at the former DHL/Airborne hub in Wilmington, Ohio, where it previous was when it first inaugurated its airline service with ATSG and Amazon before moving the operation to CVG and currently uses the DHL sort during the day for a two-day operation.   

“My guess is that some [this] is on FedEx,” said Hempstead. “I’m sure FedEx was told about this new operation, and I suspect it’s going to hurt FedEx. We are talking premium next day air service here, where Amazon is going to use Amazon resources to satisfy Amazon’s needs. FedEx, I’m sure did not want to (once again - as Amazon did this to FedEx before when they pulled the Smart Post business) be left to explain the revenue loss to Wall Street.”