Fedex Pulls Back on Its Amazon Delivery Services

USPS, UPS, FedEx: there’s hardly a delivery service that Amazon hasn’t leveraged in its pursuit of speed. Yet, these delivery services are apparently fatigued by Amazon’s fast-paced deliveries. FedEx has ended its ground deliveries contract with Amazon, hoping to instead fill the vacancy with consumer goods.

What does this bode for the future of the company? Does this open the door for other enterprises to finally crack Amazon’s years-long dominance in eCommerce?

Let’s take a look.

Out With Amazon, in With Target and Walmart

Amazon is the largest eCommerce retailer in the world, but it isn’t the only eCommerce retailer. Both Target and Walmart have been making moves into this space. With its Amazon contract closing, FedEx can better serve customers such as Target and Walmart.

This isn’t entirely surprising. Amazon’s relationship with its shipping companies has been antagonistic from the start, with Amazon aggressively negotiating lower-than-average rates to improve upon the profitability of its own infrastructure. FedEx had announced that it would end its air shipping contract with Amazon in June.

This may not impact Amazon as much as it might seem. In recent months, FedEx has reduced its Amazon deliveries. Amazon has been performing about 45% of its own deliveries while outsourcing 28% of its deliveries to USPS and 21% of deliveries to UPS.

Amazon’s Own Delivery System May Pick Up the Slack

Amazon’s been bolstering its own delivery system, both in order to reduce its overall costs and to provide same day and one-day shipping to its customers. With the Amazon delivery system up and running (and performing nearly half of the deliveries), it may have been time for FedEx to bow out anyway. Either the third-party shipping solutions are about to be cut out, or they’re going to be negotiated with even more aggressively.

If there was one delivery system that was going to leave, FedEx makes the most sense. Amazon was only 1.3% of FedEx’s annual revenue, whereas it’s estimated that it makes up about 10% of the revenue at UPS. Until Amazon’s own delivery system is able to grow, it’s possible that UPS may pick up some of the slack. Ultimately, though, even UPS is likely to get cut out of the stream.

A Picture of Vertical Integration

Amazon is clearly making a move towards integrating the entirety of its eCommerce portal, from ordering to shipping. Once Amazon is able to take things straight from the warehouse to the customer, it will also be able to optimize its shipping and logistics networks, and vastly reduce the amount of time that it takes to deliver packages to customer’s homes.

Not only is it moving towards its own shipping services, but it’s also promoting “Amazon Prime Days,” which are days of the week that customers might acquire their goods. If it’s able to promote this, it could greatly reduce the cost of its last mile delivery services. Presently, Amazon’s package delivery services are not cost-effective and are extremely unsustainable. This is because delivering packages faster means not optimizing package delivery.

Under the Amazon Prime Day service, Amazon might visit three customers in a single neighborhood on a Saturday. Without the Amazon Prime Day service, Amazon might visit those three customers in that same neighborhood on three different days, increasing their own transportation costs, while also increasing their carbon footprint.

The Future for FedEx

As noted, Amazon really doesn’t represent a significant amount of FedEx’s revenue. And that’s good for FedEx, because Amazon is a harsh negotiator and has very strict standards. FedEx will likely start filling the gap with Target and Walmart packages.

Meanwhile, Target and Walmart are trying to expand significantly into the eCommerce space, and they aren’t doing a bad job of it. Both Target and Walmart are also boosting their fresh, grocery services, which is something that Amazon has not been able to rollout except for in small areas.

As an eCommerce giant, Amazon is probably nigh unapproachable for the time being. But being the leading eCommerce portal also means that it’s the largest target. Customers today have a large number of different services they can choose from, and they’re becoming more comfortable with making their purchases online.

Regards,

Ethan Warrick
Editor
Wealth Authority

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