Economy

FedEx ends ground-delivery deal with Amazon as logistics competition intensifies

FedEx ends ground-delivery deal with Amazon as logistics competition intensifies

FedEx won't renew Amazon's ground-delivery contract when the agreement expires at the end of this month, the company said in a statement Wednesday.

'We have great strategic partners who are part of our long term plan and we appreciate what they do for customers'.

The news follows FedEx's decision in June to terminate its air shipping contract with Amazon in the USA at a time when Amazon made up 1.3 percent of FedEx's sales. "The company is clearly trying to move away from its partnership with Amazon and we believe it is using this move as a selling point to win new non-Amazon business".

That growth has left companies like FedEx with something of a quandary: keep working with Amazon, even if it could hurt long-term business prospects, or cut ties with the company and try to build a shipping business around other players. A source close to FedEx confirmed late Wednesday morning that the relationship will indeed end.

The change indicates that Amazon may have to rely more on its own network to deliver packages to consumers.

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Amazon has slapped its smile logo on trucks and planes to deliver goods directly to customers. And it can outsource deliveries to far-flung areas to its shipping partners, like the Postal Service, UPS and, for a few more weeks, FedEx.

The move by the USA package delivery company comes two months after it decided not to renew its contract with Amazon for US cargo delivery through its plane-based express service.

What's curious is that FedEx was at pains at that time to emphasize that the "strategic decision" to curb its air-delivery relationship with Amazon didn't affect other business units such as ground or worldwide operations. However, the traffic flows are not stable, and the rates that Amazon demands do not justify the cost of the operational demands and pressures imposed on the FedEx network, the source said.

Amazon was responsible for just over 1% of FedEx's sales in 2018. About half of Amazon's packages are shipped through the U.S. Postal Service; UPS and FedEx handle the rest. "They could not afford any longer to directly support a competitor", Mr Maciuba said. The US-based shipper will stop ground deliveries for the online retail giant. It introduced one-day Prime shipping in April and offers more than 10 million items with that shipping option.

"This will make it not worth mentioning", said Stifel analyst David Ross, in a note to clients.