FedEx and Amazon Adjust Service

FedEx said it would not renew its U.S. air-delivery contract with Amazon.   FedEx will still have a contract with Amazon for international deliveries, and Amazon could still use FedEx; however, it wouldn’t be under a contract that gives discounted rates. 

Amazon will redistribute packages among its other carriers and its own network and doesn’t think disruptions to its Prime one-day shipping speeds will occur. 

“It’s not unexpected, because Amazon is building its own infrastructure, from air to long haul to last-mile,” said Wally Stegal, 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.” 

Partner in global strategy consulting firm OC&C Strategy Consultants, Nic Farhi, predicts the move will cost FedEx in the short-term; however, timing it around the holiday season peak will mitigate the 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.”