Parcel logistics and transportation provider FedEx announced today that the services firm has elected not to renew its U.S. Express service contract with online retailer Amazon. FedEx will, however, continue to serve the online retailer in domestic ground and international parcel shipment services.  FedEx Express

In a published strategic statement, the carrier indicated that the decision involves the FedEx Express domestic contract with the online retailer and does not impact existing contracts between Amazon.com and other FedEx business units or international related services. According to the statement: “The percentage of total FedEx revenue attributable to Amazon.com represents less than 1.3 percent of total FedEx revenue for the 12-month period ended December 31, 2018.” The statement further indicates that there is significant opportunity for added growth in e-commerce space and that FedEx’s built-out capabilities are ready to serve thousands of retailers.

An Amazon representative confirmed the action to business network CNBC, indicating respect for the FedEx decision and thanking the carrier for serving its customers over the years.

 

Supply Chain Matters Perspective

This latest news from FedEx should not be a surprise to retail industry supply chain management teams. As we have highlighted on numerous prior Supply Chain Matters blog commentaries and in our Annual Predictions, Amazon continues to build-out and sustain its own air transport services targeted for the online retailers Prime shoppers and for merchants being hosted on Amazon’s shopping platform. The online provider’s assault on direct logistics and transportation services have become far more visible to industry players with each and every month.

When we first called attention to Amazon’s planned buildout of leased air transport capabilities In August of 2016 , we opined that Amazon had all strategic options covered while being careful to not disrupt current service agreements with existing parcel transportation partners FedEx and UPS. In essence, our view was that Amazon was taking more direct control of both its transportation and logistics capabilities as well as its cost structures along with the potential opportunity to share such capabilities with other manufacturers and online fulfillment partners. Today, in some cases, Amazon’s direct DC to DC air cargo hub operations are providing more flexible in supporting two-day or next-day delivery options than either FedEx or UPS.

Today’s news can be considered as somewhat of a “shot across the bow” from a major parcel air transport carrier indicating that it will move on to serve the air transport and logistics needs of other online retailers. Whether UPS follows remains an open question.

The implication of today’s decision is further a matter of time and context, as online buying volumes as a whole, and Amazon specifically, continue to grow as a percentage of total shopping.

A potential vulnerability for Amazon is that pilots employed by its leased air transport carriers have been rather vocal over past months in protesting existing compensation levels and excessive work hours. At some point, this will have to be resolved, either in formal work contracts or by added coordinated work slowdowns.

 

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