FedEx Ends Amazonʼs U.S.

Ground Deliveries
as Retailer Rises as Rival
By David Yaffe-Bellany and Michael Corkery

Aug. 7, 2019

Amazon dominates book sales, online shoe purchases and cloud computing. It owns Whole Foods, the high-end grocery
chain, and just got involved in home-buying.

On Wednesday came the latest sign that Amazon has disrupted yet another industry: shipping. FedEx said it would end
domestic ground deliveries for Amazon packages when the contract between the companies expires at the end of August.
Two months ago, FedEx said it would no longer provide its express shipping service for Amazon.

FedEx is effectively terminating its business relationship in the United States with the company, which has been building its
own delivery capabilities and is becoming a serious competitor to old-line shipping companies.

Furthermore, the decision reflects the reality that Amazon’s economic reach has grown so great that the company has
started to alienate not just rival retailers, but longtime business partners.

That growth has left companies like FedEx with something of a quandary: keep working with Amazon, even if it could hurt
long-term business prospects, or cut ties with the company and try to build a shipping business around other players.

“FedEx has made the decision that is no longer wants to sharpen its executioner’s sword,” said Scott Galloway, a professor at
New York University’s Stern School of Business. “It’s another reflection of this winner-take-all ʻHunger Games’ economy
that is dominated by an increasingly few number of companies.”

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In just a few years, Amazon has become one of the nation’s largest shipping companies, delivering its own packages and
those of small businesses that sell their goods via Amazon’s website. It has transported those packages using its own trucks,
planes and delivery staff, particularly during the so-called last mile, the leg immediately before a package is delivered.

During the holiday season in 2018, Amazon handled 30 percent of its last-mile shipments. That was up from 8 percent in 2016,
according to an analysis by Rakuten Intelligence, an e-commerce data and analysis provider.

Amazon is also moving more packages through the air. The company is expected to end the year with a fleet of 50 aircraft, up
from 40 at the end of 2018. In four years, the company could have as many as 200 aircraft, according to the financial firm
Cowen.

Analysts said Amazon had other advantages over shipping contractors like FedEx. By using its reams of customer and
geographic data, Amazon can choose to handle the shipping of packages going to densely populated areas, which is more
efficient than making deliveries to rural locations. And it can outsource deliveries to far-flung areas to its shipping partners,
like the Postal Service, UPS and, for a few more weeks, FedEx.

In a statement, FedEx said its decision to sever its Amazon ties was “consistent with our strategy to focus on the broader e-
commerce market.”

In May, FedEx moved to bolster its ground-delivery service, announcing that it would soon offer seven-day residential
delivery year-round. Then, in June, it said it was stopping the express deliveries for Amazon, typically the fastest way
customers can send packages, including overnight shipping. FedEx said on Wednesday that “the recent announcements
related to our FedEx Ground network have us positioned extraordinarily well.”

Rena Lunak, an Amazon spokeswoman, said the company was “constantly innovating to improve the carrier experience and
sometimes that means re-evaluating our carrier relationships.”

Despite its outsize role in e-commerce, Amazon has never been a major source of business for FedEx. Last year, Amazon
accounted for 1.3 percent of FedEx’s total revenue. In theory, Amazon could still ship packages via FedEx, but it would not
receive the significant discounts that were built into its ground-shipping and express contracts.
In any case, Wednesday’s announcement had the feel of a final divorce. In a tweet, Dave Clark, who runs Amazon’s global
supply chain and logistics operation, described the situation as “conscious uncoupling at its finest.”

Despite its recent investment, Amazon has a way to go before it can match the logistics infrastructure of the major
packaging companies. In a recent report, Goldman Sachs analysts wrote that Amazon would need to put $122 billion into its
logistics network to catch up with FedEx and UPS.

But those shipping companies have certainly taken note of Amazon’s efforts to build its own logistics infrastructure. In a
May regulatory filing, FedEx hinted at the potential threat those moves posed.

“Some high-volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities
and utilizing independent contractors for deliveries, and may be considered competitors,” FedEx said in the filing, which also
noted that Amazon was “investing significant capital to establish a network of hubs, aircraft and vehicles.”

Dean Maciuba, a former FedEx executive who now works as a consultant, said FedEx had good reasons to cut ties with
Amazon. “They could not afford any longer to directly support a competitor,” Mr. Maciuba said.

But the public nature of FedEx’s decision confounded other longtime freight industry experts.

“I am baffled,” said Satish Jindel, the founder of ShipMatrix, which provides technology to the shipping industry, and a
former employee of a start-up delivery company that later became FedEx’s ground unit. “It is creating bad blood.”

FedEx’s announcement, Mr. Jindel said, appeared to be mostly meant to send a message to Walmart, another large
customer, that it was willing to align itself with the retailer over Amazon in an effort to win more business.

FedEx is joining a number of other large companies — including Microsoft and Google — that have formed strategic
alliances with Walmart to challenge Amazon in areas like cashier-less stores and voice-activated shopping. Walmart said in
March 2018 that it would open FedEx locations in 500 of its stores in the United States. (A Walmart spokesman declined to
comment on Wednesday’s news.)

Not all the major shipping companies are distancing themselves from Amazon. Estimates suggest that Amazon accounts for
5 to 8 percent of UPS’s annual revenue.
Over the years, UPS has made more money shipping Amazon packages than FedEx has, said Mr. Maciuba, the former
FedEx executive.

“Their scale is bigger,” he said. “Historically, they’ve always been able to offer lower rates on the express and ground side
than FedEx for very large customers and profit more from them.”

Karen Weise contributed reporting.

A version of this article appears in print on Aug. 8, 2019, Section B, Page 4 of the New York edition with the headline: FedEx Will End Some U.S. Deliveries for Amazon