By Polly Chen
Logistics giant FedEx recently decided not to renew theirground delivery contract with Amazon. FedEx had already announced they would end their air freight delivery contract with Amazon in June. With the split, FedEx will no longer ship any Amazon packages in the U.S.
The split won’t impact other existing contracts between FedEx and Amazon, like FedEx’s contract with Amazon for international services.
According to FedEx’s press release, Amazon represented less than 1.3 percent of FedEx’s total revenue in 2018, or less than $1 billion. FedEx also said the change is a strategic decision so the company can focus on the “broader e-commerce market” in the future.
On Amazon’s side, representatives said they were “confident in our ability to serve customers” despite the split. Amazon will likely turn to other third-party carriers and its own logistics resources to handle the remaining packages.
But the split still has some Amazon sellers and consumers worried the ecommerce giant won’t be able to deliver goods on time during the upcoming peak season.
Risks for carriers of partnering with Amazon
After their split with FedEx, Amazon is expected to deliver their packages with other big carriers like UPS and the U.S. Postal Service (USPS). Amazon also partners with some local carriers to handle regional shipping, like OnTrac and LaserShip Inc.
Big carriers like UPS and USPS have expanded their parcel networks to meet demand. They can likely provide enough capacity to handle Amazon’s packages during peak season. Satish Jindel, President of SJ Consulting, estimated that USPS handled 28 percent of Amazon’s total packages in July.
But in the long run, carriers might not want to bet their future profits on Amazon. Cathy Roberson, founder and chief analyst at Logistics Trends & Insights LLC, says:
Amazon is a very demanding customer, and they can use that to get better rates, to the detriment of their supply-chain partners.
Plus, Amazon might cast off third-party carriers in the future if they can successfully build their own delivery network.Losing a big client like Amazon could hurt a big carrier like UPS and might “kill” small carriers.
Jerry Hempstead, principal of ecommerce delivery consultant Hempstead Consulting, said:
I’m sure that long-term UPS will be handling less packages. If Amazon has a truck coming to my house, why would they pay UPS to do that? …They have their own trucks now, they have their own planes, and the writing’s on the wall.
“Amazon is looking to become a logistics company in their own right”
Amazon has quietly been developing their own delivery capabilities to meet their enormous shipping demand.
The ecommerce giant is now handling delivery for 26 percent of their online orders, according to Wolfe Research. In a press release at the end of 2018, Amazon said they could “transport hundreds of thousands of packages per day” with a new dedicated air network, Amazon Prime Air.
Amazon expanded their air network from 40 to 50 planes last year. And Amazon further expanded their air fleet with 15 more planes in June 2019—the same month FedEx ended their air delivery contract. The ecommerce giant says their fleet will number 70 planes by 2021.
In addition, Amazon has added drones to their Prime Air network as competition in drone delivery has heated up.
What’s more, Amazon has rolled out a new Amazon Flex App to solve last-mile delivery shortages. This app enables people to sign up as part-time drivers to pick up and deliver Amazon packages in their community. Amazon pays $18 to $25 an hour to drivers who deliver goods through Flex.
But Amazon’s growing shipping capabilities haven’t necessarily benefitted Amazon sellers and consumers yet. Many customers reported shipping delays during Amazon Prime Day in July. And some sellers worry Amazon might struggle to deliver goods on time during the peak season without FedEx.
Follow the link below to learn more about FedEx’s split with Amazon in ground shipping.
FedEx-Amazon Split Will Provide a Shipment Windfall for Rivals – Jennifer Smith, The Wall Street Journal
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Polly Chen is a Client Manager at InTouch Manufacturing Services, a QC firm that performs product inspections and factory audits in Asia for clients in the US, EU and Australia.