FedEx fights Amazon intrusion on its home turf
'That’s who we wake up every day trying to think about how we compete against'
The shipping wars are heating up.
Amazon has blocked third-party sellers, who make up more than half of all sales on its website, from using FedEx for Prime shipments due to declining performance, The Wall Street Journal reported on Monday. The ban comes ahead of some of the busiest shipping days of the year as Christmas is just over a week away.
“While this decision affects a very small number of shippers, it limits the options for those small businesses on some of the highest-demand shipping days in history and may compromise their ability to meet customer demands,” FedEx told FOX Business in a statement.
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It was the latest blow in a battle between the longtime shipping giant and the e-commerce behemoth rapidly encroaching on its turf.
Amazon has been building out its fleet of cargo planes to chip away at a business long dominated by FedEx, UPS and the U.S. Postal Service. In June, it announced plans to lease an additional 15 aircraft to join the five it was already using. The company expects to have 70 planes in its fleet by 2021.
FedEx, far from standing down, has taken aggressive action to get out ahead of Amazon.
In August, it severed ground-shipping ties with Amazon. A couple months before that, FedEx ended its relationship with Amazon’s air-freight division, stopping its delivery of about 200,000 Amazon packages each day.
FedEx workers on LaSalle Street in Chicago's Loop.
Cowen analyst Helane Becker told Fox 5 in Atlanta that FedEx's profit margin on Amazon shipments is probably in the "very low single digits," and she believes the company can replace those packages with more profitable business from other retailers.
FedEx CEO Fred Smith had repeatedly dismissed Amazon as a threat to his business, but that changed in August when he told investors the company competes in an ecosphere of five shippers.
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“There is UPS. There is DHL. There is a U.S. Postal Service. And now, increasingly, there is Amazon,” Smith told investors. “That’s who we wake up every day trying to think about how we compete against and give the best services to our sales force.”
While FedEx has been moving away from Amazon, rival UPS, which receives about 10 percent of its revenue from the e-commerce giant, is looking to fill the void.
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Still, Morgan Stanley, in a note sent to clients on Dec. 12, cut its long-term outlook for both FedEx and UPS, citing “high sourcing and competitive risk from Amazon Logistics' already rapid growth and planned capacity expansion to come.”
The firm expects Amazon's delivery volume will balloon to 6.5 billion packages a year by 2022 – up from its current volume of 2.5 billion. Estimating a cost of $10 a package, the analyst says Amazon's expansion will drain $65 billion in revenue from UPS, FedEx and the Postal Service.
FedEx reports its fiscal year 2020 second-quarter results after Tuesday’s closing bell. Wall Street analysts surveyed by Refinitiv are expecting a profit of $744 million, or an adjusted $2.83 a share, on revenue of $17.7 billion.
Ahead of the results, Wall Street analysts are bullish on FedEx. Of the 13 analysts surveyed by Refinitiv, five say “buy” and eight suggest “hold.”
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Through Monday, FedEx shares had gained 1.7 percent this year.
