FedEx is making a series of bold moves to consolidate its network and walk away from contracts that aren’t beneficial in the long term. This past Friday, the company announced that it won’t be renewing a critical domestic contract with Amazon. The contract in question concerns domestic Express, FedEx’s fastest air service.
FedEx previously severed a last-mile contract with Amazon, opting instead for the Smartpost arrangement with the USPS. Now, the company is walking away from SmartPost and taking most of those deliveries in-house again.
These relationship shifts also come in conjunction with FedEx’s expansion to seven-day delivery, and reflect an even more broad change in focus toward meeting the current and future demands of the e-commerce explosion, which is expected to generate 100 million packages a day by 2026.
Since about 2014, Amazon has gradually focused its attention on building its own logistics and distribution networks, and the company has been vocal about its intent to deliver more of its own packages. Many industry observers have wondered if, and how soon, Amazon’s dependence on other shippers will lessen.
More to the point, could Amazon ultimately become a real rival to the likes of UPS and FedEx? FedEx says no, reporting that its Amazon partnerships accounted for less than 1.3% of the company’s revenue in 2018.
Parcel shippers who have been watching the growing tension between Amazon and its parcel carrier partnerships know this may be a major milestone. Is this the beginning of a period of Carrier pushback? FedEx has given itself an upper hand. If UPS follows suit, this could be a market-changer. However, Amazon relies more heavily on UPS (and the USPS) than FedEx. It’s difficult to say at this point how drastically the move will pinch Amazon during the critical holiday shipping rush, or whether UPS can afford to make a similar stand.