On Wednesday, FedEx revealed it would soon end its ground delivery deal with Amazon. Bloomberg reports the Memphis, Tennessee-based logistics company’s contract with the e-commerce giant won’t be renewed when it expires at the end of August.
In a press statement, FedEx said it’s ending the partnership with Amazon to “focus on the broader e-commerce market.” The move is consistent with the firm’s recent efforts to quietly cut ties with the online retail giant. In June, the courier announced it would no longer provide air delivery for Amazon in the United States.
FedEx is Breaking Up with Amazon
Last year, FedEx made 1.3 percent of its revenue by delivering packages for Amazon. However, despite the lucrative nature of the relationship, the courier is wise to break things off with the e-commerce company. In addition to continually expanding its product offerings, Amazon is also working to establish itself as a delivery service.
In June, it leased 15 Boeing 737-800 airliners from GE Capital Aviation Service for use in its logistics operations. As a result, Amazon now maintains a fleet of 20 planes used to ship parcels around the globe. It intends to expand its Amazon Air division to encompass 70 different aircraft.
Meanwhile, Amazon is also seeking approval from the Federal Aviation Administration to begin bringing packages to its customers via aerial drones.
Amazon has also been developing various autonomous solutions to handle its ground delivery needs. Two months ago, The Burn-In reported Amazon is evaluating the viability of integrating a six-wheeled, self-driving vehicle called the Scout into its supply line. The corporation has even gone so far as to deploy some test vehicles in Washington.
The company’s widespread effort to be more self-sustaining isn’t a secret. As such, FedEx likely surmised Amazon plans to terminate the contracts it has with all of its delivery partners. The courier made a very clever maneuver by getting the jump on the situation and parting ways early. By ending its relationship with Amazon on its own terms now, FedEx will avoid suddenly losing the business in the future.
FedEx + Walmart
Even while cutting ties with Amazon, FedEx is already pursuing a new partnership with another one of America’s biggest retailers.
Ending the agreement with Amazon gives FedEx more capacity to serve other customers. Specifically, the company noted it wants to ink new deals with Walmart, Target, and Walgreens. It makes sense for FedEx to pursue partnerships with those retailers as they are all actively working to grow their e-commerce businesses.
By establishing itself as the default logistics solution for these companies, the courier could more than make up for the revenue it is losing by cutting ties with Amazon. SJ Consulting Group founder Satish Jindel noted that FedEx’s move to stop providing Amazon with ground delivery suggests it is actively pursuing a deal with Walmart. Jindel suggests FedEx is telling Walmart that it’s done working with its biggest competitor.
As America’s largest private package delivery service, FedEx can certainly handle Walmart’s sales volume.
The biggest obstacle to FedEx’s strategy is the amount of competition for Walmart’s logistics business. In January, it announced a partnership with four last-mile courier services to offer local grocery delivery. Meanwhile, Walmart recently launched a pilot program with driverless startup Gatik to make short-range grocery deliveries in Arkansas.
While Walmart offers a broad array of goods, its core business—online and in-store—is selling food. Though FedEx does ship perishables, it’s hardly a rival to Instacart. Still, Walmart CFO Brett Biggs recently said his company urgently wants to expand its online apparel and home furnishing offerings.
If FedEx can meet that need, it might be able to position itself as one of the corporation’s key logistics partners going forward.