FedEx withdraws from Amazon contract, dealing blow to next-day delivery
Amazon may face a setback with its one-day delivery aspirations after FedEx said it was not renewing its contract with Amazon for FedEx Express, the carrier's expedited shipping service that leverages FedEx cargo aircraft.
It isn’t clear when the current FedEx Express contract expires, and it should be noted that FedEx has said the decision doesn't affect its other contracts with Amazon, such as last mile ground delivery.
FedEx says it will "focus on serving the broader e-commerce market," which the company estimates will see daily packages soar from 50 million to 100 million by 2026.
The news comes amid Amazon's ongoing expansion of its own fleet of Amazon Air cargo aircraft, which consists of leased aircraft operated by partners Air Transport Services Group and Atlas Air Worldwide.
Amazon deepened its partnership with ATSG last year, bringing its total fleet to 50 planes. Of that total, 40 aircraft are already in operation, and the remaining 10 are expected to be delivered by December 2020.
Amazon's continued push to take greater control of delivery was always destined to create tensions with carrier partners like FedEx and UPS, although the shipping companies have continued to downplay concerns.
To that end, FedEx even went as far as to note that Amazon represented just 1.3% of revenue in 2018.
“Some high volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities and utilising independent contractors for deliveries, which could in turn reduce our revenues and market share," FedEx wrote in its most recent annual report.
"Moreover, if our current customers, such as Amazon.com, become competitors and bundle transportation with other services, it will reduce our revenue and could negatively impact our financial condition and results of operations," the report added.
Even though it's unclear what precise operational impact the decision might have on Amazon's one-day delivery capabilities, losing a major shipping partner will undoubtedly be an incremental blow to the progress that the company is making.
However, the e-commerce giant is keeping its options open with warrants secured in both of its partnerships with ATSG and AAWW, which could let it acquire significant stakes in either operator. As part of those deals, the more aircraft Amazon leases, the more warrants it gets.
Amazon and AAWW amended their agreement in March, granting Amazon enough warrants to acquire 39.9% of the company, up from a previous 30% potential stake.
Amazon currently has enough warrants to acquire 33.2% of ATSG, but if it leases up to 17 more aircraft before January 2026, it will get enough warrants to acquire a comparable 39.9% of ATSG.
The measures put Amazon in a position to go it alone if necessary and acquire one or both of its aircraft operator partners.