Here's What FedEx's Breakup With Amazon Means

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Amazon (NASDAQ: AMZN) no longer needs FedEx (NYSE: FDX). But that’s actually not so bad for the shipping company, which is cutting ties with the e-commerce giant. In many ways, these two companies had long been using each other, all the while knowing that a breakup was inevitable.” data-reactid=”11″>Amazon (NASDAQ: AMZN) no longer needs FedEx (NYSE: FDX). But that’s actually not so bad for the shipping company, which is cutting ties with the e-commerce giant. In many ways, these two companies had long been using each other, all the while knowing that a breakup was inevitable.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="So now that FedEx has opted to not renew its domestic FedEx Express partnership with Amazon, the companies become only rivals. The online giant has been building up its delivery capacity for everything from full tractor-trailer loads of freight to last-mile delivery of individual orders using vans, third-party carriers created as Amazon delivery companies, and maybe eventually drones and robots.” data-reactid=”12″>So now that FedEx has opted to not renew its domestic FedEx Express partnership with Amazon, the companies become only rivals. The online giant has been building up its delivery capacity for everything from full tractor-trailer loads of freight to last-mile delivery of individual orders using vans, third-party carriers created as Amazon delivery companies, and maybe eventually drones and robots.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="In one sense, this split isn't a big deal for either company. FedEx only earned 1.3% of its total revenue from Amazon in 2018, and the online leader has been much more reliant on UPS (NYSE: UPS) and the United States Postal Service. Viewed from another angle, though, it’s a nearly unprecedented decision to start saying no to business from a (somewhat) significant customer that is also a competitor.” data-reactid=”13″>In one sense, this split isn’t a big deal for either company. FedEx only earned 1.3% of its total revenue from Amazon in 2018, and the online leader has been much more reliant on UPS (NYSE: UPS) and the United States Postal Service. Viewed from another angle, though, it’s a nearly unprecedented decision to start saying no to business from a (somewhat) significant customer that is also a competitor.

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Amazon has been building out its own shipping service. Image source: Amazon.

What’s next for Amazon, FedEx, and UPS?

Amazon and FedEx were a couple that everyone knew was destined to split — the shipping service just made its move first. That has allowed FedEx to control the narrative, and explain that it ended the relationship so it could pursue other opportunities (the business equivalent of “I think we should see other people”).

“There is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026,” the company said in a statement. “FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space.”

Of course, a lot of that package growth will come from Amazon, but there still will be tens of millions of new packages from other retailers that will need to be delivered. FedEx can compete for that that business alongside Amazon, which intends to use its growing shipping capacity to serve third parties.

FedEx could also reap some reputational rewards from disassociating with a company that’s seen as a digital bully. And it’s likely to be viewed as a more attractive choice by retailers who now won’t have to worry about what their shipping partner might be doing with its data.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Still, the big winners here in the short term will be UPS and the U.S. Postal Service. UPS handles about 21% of Amazon's packages while the USPS handles 62%, according to a January Motley Fool article. Both of those carriers should see small increases in business, at least until the online leader builds up its own shipping capacity.” data-reactid=”31″>Still, the big winners here in the short term will be UPS and the U.S. Postal Service. UPS handles about 21% of Amazon’s packages while the USPS handles 62%, according to a January Motley Fool article. Both of those carriers should see small increases in business, at least until the online leader builds up its own shipping capacity.

In the longer term, UPS and to a lesser extent the Postal Service, should also worry about having a huge customer that’s also a competitor. Both will be vulnerable if Amazon pushes for a better deal, but that’s leverage the retailer probably won’t use in the immediate future.

What’s next for shipping?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Amazon wants to disrupt the shipping business, which it can do by offering lower prices to third-party customers, since the prime purpose of its fleet of planes, trucks, and vans is delivering its own packages. That doesn’t mean many major retailers will take advantage. It’s hard to imagine Walmart or Target, for example, choosing to send more revenue into Amazon’s coffers.” data-reactid=”34″>Amazon wants to disrupt the shipping business, which it can do by offering lower prices to third-party customers, since the prime purpose of its fleet of planes, trucks, and vans is delivering its own packages. That doesn’t mean many major retailers will take advantage. It’s hard to imagine Walmart or Target, for example, choosing to send more revenue into Amazon’s coffers.

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