FedEx has taken the “strategic” decision not to renew FedEx Express’ US air shipment contract with Amazon.com as it “focuses on serving the broader e-commerce market”.
It did not elaborate further on the reasons for the move as media reports speculated that in cutting ties with the online retailing giant for airborne cargo, the Memphis-based operator seemed to be portraying a lack of interest in delivering packages for a company building out its own air network. FedEx is itself broadening its e-commerce delivery services.
Last month, Amazon broke ground on a new 3-million-sqft air cargo hub at Cincinnati/Northern Kentucky International Airport. First announced early-2017, the $1.5 billion facility is scheduled to open in 2021, lead to the creation of 2,000 jobs and help “get you your packages faster,” said CEO Jeff Bezos at the ground-breaking ceremony.
"That's a big deal," he added. "We're going to move Prime from two-day (delivery) to one day and this hub is a big part of that. I'm super excited about that." The hub will have parking space for 100 planes.
Over the next couple of years, Amazon will also expand its 40-strong freighter fleet while increasing its equity stakes in the leasing operators supplying it with aircraft, Atlas Air Worldwide (AAWW) and Air Transport Services Group (ATSG).
Market analysts have regularly warned of the competition posed by Amazon Air to integrators such as UPS and FedEx, a threat that both companies have consistently played down.
At a conference call with analysts at the end of last year, FedEx chairman CEO, Fred Smith, said: "We look at Amazon as a wonderful company in service and they're a good customer of ours. We don't see them as a peer competitor at this point in time for many reasons. We think it is doubtful that, that will be the case.”
FedEx noted that the decision to end FedEx Express' US air shipment contract with Amazon.com “does not impact any existing contracts between Amazon.com and other FedEx business units or relating to international services.”
It added: “As previously disclosed, Amazon.com is not FedEx’s largest customer. The percentage of total FedEx revenue attributable to Amazon.com represented less than 1.3 % of total FedEx revenue for the 12-month period ended December 31, 2018.
“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 US by 2026. 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.”
At the end of last month, FedEx announced it was improving its US e-commerce capabilities with the launch of seven-day residential deliveries, integrating final-mile volume currently given to USPS, and expanding sorting capacity for large and heavy consumer goods.
The three connected measures are designed to make FedEx Ground more competitive to UPS and the US Postal Service as an attractive service partner for e-retailers as online shopping continues to grow strongly in the US.
From next January, FedEx Ground will also deliver on Sundays to the bulk of US residential addresses throughout the year. It already does so for the peak season as a temporary expansion of its normal six-day consumer deliveries.
Returning to FedEx's relations with Amazon, in an interview in the US media in January this year, chief marketing officer, Brie Carere, noted that the company was looking beyond Amazon for growth in e-commerce with the launch of a new delivery service which rivalled the mega online retailer's own offering.
Unveiled at the end of 2018, 'FedEx Extra Hours,' enables participating retailers to fulfill e-commerce orders into the evening and receive late pickups by FedEx Express, with next-day local delivery and two-day shipping to any address in the continental United States.
Retailers can extend evening order cutoff times by 5-8 hours, with some as late as midnight, depending on their current order fulfillment process, the company said. FedEx Extra Hours has been launched in multiple markets across the United States with customers that include retailers AutoZone and Best Buy.
Carere said FedEx saw scope to help customers compete against Amazon through services like FedEx Extra Hours which aligns with the needs of online shoppers, while offering retailers a way to balance inventory and reduce transportation costs.
“We are not dependent on Amazon for growth. We’re very optimistic and very, very confident in the growth of the market outside of Amazon,” she said.
