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FedEx will no longer provide US domestic express shipping for Amazon after choosing to put an end to its contract with the e-commerce giant, according to a company statement. The contract will end on June 30th, although FedEx has stated that its other contracts with Amazon won’t be affected.
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Here’s what this means for Amazon:
- In the short term, Amazon will have to lean on some of its other logistics partners to fill the void left by FedEx’s departure. FedEx delivered 3% of Amazon packages last year, accounting for about 200,000 Amazon boxes a day, according to figures cited by Business Insider.
- In the long term, Amazon isn’t going to rely on legacy logistics firms, it’s going to threaten them. Amazon has been aggressively building out its own logistics unit. This has already helped the firm ship more of its own products — Amazon delivered about one-quarter (26%) of the orders placed on its site last year, up from nearly zero five years ago, according to estimates from Wolfe Research cited by The Wall Street Journal. And as the company continues advancing into the logistics space via investments and new services, it will begin to threaten legacy firms for market share. Amazon even went as far as declaring itself a transportation and logistics company in its 2018 annual report.
Here’s what this means for FedEx: FedEx has stated that Amazon only represented 1.3% of its total revenue in 2018, which means that ending its contract with the firm is unlikely to have any major impact.
In fact, FedEx could end up seeing higher margins as it can now focus on customers that will provide it with higher returns. A large number of Amazon’s shipments are residential small-package deliveries, which are far less lucrative than business-to-business contracts, according to Moody’s. However, in the long term, FedEx could eventually find itself fighting it out with Amazon for these customers.
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