Amazon has been building out its own logistics and delivery network, leading some to view it as competition to companies such as UPS and FedEx.
 - Photo by Deborah Lockridge

Amazon has been building out its own logistics and delivery network, leading some to view it as competition to companies such as UPS and FedEx.

Photo by Deborah Lockridge

FedEx won't renew its contract with Amazon for ground delivery when it expires at the end of the month, the parcel delivery company has announced.

Just two months ago, FedEx said it wouldn’t renew its U.S. air-delivery contract with Amazon. At that time, it said in a statement that it would be focusing on "serving the broader e-commerce market," with U.S. package volume from online shopping expected to double by 2026.

FedEx will still have a contract with Amazon for international deliveries. And Amazon still could use FedEx, but it wouldn't be under a contract that gives it discounted rates.

Responding to HDT’s request for comment on the ground-delivery decision, FedEx said in an e-mail, "This change is consistent with our strategy to focus on the broader e-commerce market, which the recent announcements related to our FedEx Ground network have us positioned extraordinarily well to do."

Customers such as Walmart and Target want to grow their own e-commerce businesses.

FedEx recently added Saturday ground deliveries and it will add Sundays next year to offer seven-day residential delivery domestically.

Amazon has been building out its own logistics network, with hundreds of fulfillment centers, leased jets for next-day air delivery, and its own contractor-based last-mile delivery fleet, which some have compared to the contractor-based ground unit at FedEx. An order for 20,000 Mercedes-Benz Sprinter cargo vans for the Delivery Service Partner program are scheduled to be delivered by the end of 2019.

It’s also still developing drones for last-mile delivery and it’s even testing an autonomous delivery robot.

When asked to comment on the FedEx move, Amazon replied in an e-mail, "We are constantly innovating to improve the carrier experience, and sometimes that means reevaluating our carrier relationships. FedEx has been a great partner over the years and we appreciate all their work delivering packages to our customers."

The Wall Street Journal reports that Amazon will redistribute packages among its other carriers and its own network and doesn't expect disruptions to its new Prime one-day shipping speeds.

"It's not unexpected, because Amazon is building its own infrastructure, from air to long haul to last mile," said Wally Stegall, technical fellow at Morey. "FedEx has been pulling away for some time because Amazon is bypassing FedEx, USPS, UPS, and others. More carriers are starting to follow the Amazon model."

Nic Farhi, partner in global strategy consulting firm OC&C Strategy Consultants, predicts the move will cost FedEx in the short term, as the Amazon package volume comes out of their fixed-cost system – although timing it around the holiday season peak will mitigate that effect until 2020. 

"In the long run, we think this is a smart strategic move," Farhi said. "Amazon’s huge investment in last mile fulfillment enables very rapid delivery, which consumers love. Any retailer unwilling to piggyback off Amazon’s last mile, which is almost any larger retailer, desperately needs an alternative which can compete on speed, and FedEx is a logical partner."

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