FedEx Ends Its Ground-Shipping Contract with Amazon

FedEx to End Ground-Delivery Partnership with Amazon

As reported by Reuters, FedEx Corp confirmed today it would terminate its contract with Amazon.com Inc for small-package ground deliveries, as the online retailer focuses on building out its own delivery network.

FedEx’s contract with Amazon was set to expire at the end of August, and it comes just two months after FedEx announced that it wouldn’t renew Amazon’s FedEx Express contract, which the online retailer used to transport packages by air.

This newly ended contract focused on FedEx’s ground deliveries that helped bridge the “last-mile” gap between Amazon’s warehouses and its customers.

The move from FedEx comes as Amazon has increasingly become a competitor for the shipping firm.

FedEx has previously said that Amazon isn’t a huge customer for it: the online retailer makes up around 1.3 percent of its total revenue.

A FedEx spokesperson told The Verge that “this change is consistent with our strategy to focus on the broader e-commerce market, which the recent announcements related to our FedEx Ground network have us positioned extraordinarily well to do.”

Essentially, the shipping business is projected to grow in the coming years, and FedEx isn’t interested in helping Amazon.

FedEx announced in May that it's ground unit would begin seven-day service in January, deliver more packages that had been handed off to the U.S. Postal Service and invest to handle oversized packages.

Read: FedEx’s Move to Seven-Day Ground Delivery Raises Stakes in the Parcel Marketplace

The Memphis, Tennessee-based company has also signed up more drop-off and pick-up 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% spike in UPS’s 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.

FedEx and UPS Profit Pressure

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 dropoffs at commercial customers.

In June, FedEx said it was in a “transition year” as it seeks to drive down costs and fix an ailing European business.

The company forecast a mid-single-digit percentage drop in earnings for the current fiscal year, which ends in May.

Amazon Continues To Increase Its Own Delivery Network

In late June, Amazon announced a Delivery Service Partners program in an effort to attract entrepreneurs who can create their own local delivery networks with up to 40 vans each.

Earlier that month, it debuted a delivery drone it hopes will eventually speed up delivery for Prime members in North America.

Amazon also has a $1.5 billion hub opening in northern Kentucky in 2021where it’s expanding its Amazon Air fleet to include 50 planes.

Amazon said its air network can make “two-day shipping possible almost anywhere in the U.S.”

Still, FedEx has helped to provide the “last mile” of delivery services, bringing packages to customer doors.

Related White Papers

Download: The Ultimate Guide to Last Mile & White Glove Logistics

The Ultimate Guide to Last Mile & White Glove Logistics New!
Shippers must adapt to the changing consumer demands and tailor last mile strategies to mesh well with such demands. In this e-book, “The Ultimate Guide To Last Mile & White Glove Logistics”, details these top lessons that shippers need to know about last-mile logistics in the modern era. Download Now!

Download Omnichannel Logistics Leaders: Top 5 Inventory Insights

Bringing Omnichannel to the Forefront of Ecommerce
This white paper is a must read for those who are looking to go omnichannel with their supply chain and want to understand that a major part of that strategy is in the ecommerce channel. Download Now!

Multichannel Fulfillment & Shipping: Streamlining Your Ecommerce Logistics Implementation Process
This white paper is a must read for those shippers of larger freight and surface freight who are wanting to open channels, such as direct to consumer by using e-commerce, beyond traditional ones. Download Now!

Merchants Shift Closer to the Consumer
As Black Friday 2018 made loud and clear, most consumers today would prefer to have an online omnichannel shopping experience than a traditional in-store visit.
Download Now!

Reduce Shipping Costs with a Transportation Management Execution System
Transportation Management Execution Systems can evaluate all aspects of a shipper's business to help increase savings and performance. Download Now!

5 Tips for More Cost-Effective Drop Shipping
Clarity of expectations and processes between the retailer and drop shipper is the key to cost-effective drop shipping. Download Now!

More Resources on Parcel Delivery