Will recent talks between FedEx and Amazon lead to a reunion?

When Memphis-based global freight transportation and logistics services provider FedEx and global e-commerce giant Amazon ended their business relationship in 2019, one could have likely assumed, at the time, that the breakup was permanent.

In June 2019, FedEx announced it made a “strategic decision” not to renew the FedEx Express U.S. contract with Amazon, as it focused on serving the broader e-commerce market. And it added that, at that time, Amazon was 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.

What’s more, at the time of this development, FedEx pointed to what it called “significant demand and opportunity for growth in e-commerce,” with expected growth of 50 million-to-100 million packages a day in the U.S. by 2026.” Roughly two months later, in August 2019, FedEx made another strategic decision, this one on the ground, in severing its ties with Amazon and not renewing the FedEx Ground delivery contract with Amazon.

But a recent Wall Street Journal report observed that in 2023 the companies held some discussions, regarding “FedEx accepting returns of Amazon packages at its retail locations, bringing [Amazon] a share of the business.” And the report added that the talks did not result in a deal, while noting that the timing of the talks, in the spring 2023 is interesting, in that was when Amazon rolled out a fee for some customers bringing their returns to UPS stores, coupled with FedEx looking to increase parcel volumes, with demand patterns remaining largely lackluster.

Rob Martinez, founder of San Diego-based parcel consultancy Shipware, explained that it makes sense that the companies would be in discussions given the potential to satisfy needs for both companies.

“FedEx is looking to add package volume and grow its new FedEx Consolidated Returns, featuring no box, no label convenience,” he explained. “Amazon on the other hand is looking to expand its mushrooming returns business as a convenience to customers and as a way to cut the cost of returns. Amazon customers are offered a variety of returns options including returning packages at Whole Foods, Kohls, Amazon Fresh, The UPS Store, and USPS retail locations.  For its part, when UPS acquired Happy Returns last October, the consolidator included FedEx Office locations for pickups, but UPS quickly ended that part of the operation.  If Amazon were to partner with FedEx for returns, that opens that option back up as an added convenience to Amazon shoppers.”

In looking at other returns-focused offerings at both companies, Martinez, observed that Amazon offers at least one “free” return option for customers, describing it as “interesting,” when Amazon-owned or partnered locations such as Whole Foods, Kohl's and Amazon Fresh are closer to the customer than The UPS Store, Amazon charges a small fee when those packages are dropped off at The UPS Store, signaling higher costs incurred at the UPS retail establishments.

As for FedEx, he said FedEx Consolidated Returns allows Amazon (and other retailers) to offer customers another convenient opportunity to drop off packages even without a shipping label and/or box.  Amazon would email the customer a QR code along with the address of the closest FedEx Office location, he said, and FedEx personnel would then build consolidated return boxes, dramatically cutting the cost of shipping individual packages back to the retailer.

So, what does the future hold, in terms of the relationship between FedEx and Amazon? Martinez made it clear not to count anything out.

“It's been a long time since the frayed relationship between FedEx and Amazon that was publicly feuded in 2019,” he said.” Both companies will not allow ego to stand in the way of a smart business relationship that satisfies the needs of both parties.  The issue with concluding a deal is purely based on the economics—can FedEx deliver a proposal that makes sense to Amazon?  These discussions of relationship renewal have been ongoing now for about a year, and we've yet to see an announcement.  We'll all stay tuned.”

With FedEx earnings coming up Thursday, it will be interesting to see if any commentary on the company’s previous business relationship with Amazon, or these talks, will be addressed.