Here's What FedEx's Breakup With Amazon Means




 

Amazon (NASDAQ: AMZN) no longer needs FedEx (NYSE: FDX). But that's actually not so bad for the shipping company, which is cutting ties with the e-commerce giant. In many ways, these two companies had long been using each other, all the while knowing that a breakup was inevitable.

So now that FedEx has opted to not renew its domestic FedEx Express partnership with Amazon, the companies become only rivals. The online giant has been building up its delivery capacity for everything from full tractor-trailer loads of freight to last-mile delivery of individual orders using vans, third-party carriers created as Amazon delivery companies, and maybe eventually drones and robots.

In one sense, this split isn't a big deal for either company. FedEx only earned 1.3% of its total revenue from Amazon in 2018, and the online leader has been much more reliant on UPS (NYSE: UPS) and the United States Postal Service. Viewed from another angle, though, it's a nearly unprecedented decision to start saying no to business from a (somewhat) significant customer that is also a competitor.

Amazon has been building out its own shipping service. Image source: Amazon.

What's next for Amazon, FedEx, and UPS?

Amazon and FedEx were a couple that everyone knew was destined to split -- the shipping service just made its move first. That has allowed FedEx to control the narrative, and explain that it ended the relationship so it could pursue other opportunities (the business equivalent of "I think we should see other people").

"There is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026," the company said in a statement. "FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space."

Of course, a lot of that package growth will come from Amazon, but there still will be tens of millions of new packages from other retailers that will need to be delivered. FedEx can compete for that that business alongside Amazon, which intends to use its growing shipping capacity to serve third parties.

FedEx could also reap some reputational rewards from disassociating with a company that's seen as a digital bully. And it's likely to be viewed as a more attractive choice by retailers who now won't have to worry about what their shipping partner might be doing with its data.

Still, the big winners here in the short term will be UPS and the U.S. Postal Service. UPS handles about 21% of Amazon's packages while the USPS handles 62%, according to a January Motley Fool article. Both of those carriers should see small increases in business, at least until the online leader builds up its own shipping capacity.

In the longer term, UPS and to a lesser extent the Postal Service, should also worry about having a huge customer that's also a competitor. Both will be vulnerable if Amazon pushes for a better deal, but that's leverage the retailer probably won't use in the immediate future.

What's next for shipping?

Amazon wants to disrupt the shipping business, which it can do by offering lower prices to third-party customers, since the prime purpose of its fleet of planes, trucks, and vans is delivering its own packages. That doesn't mean many major retailers will take advantage. It's hard to imagine Walmart or Target, for example, choosing to send more revenue into Amazon's coffers.

Given that, there should be plenty of shipping business for FedEx to pursue that could replace what it's giving up -- and then some. This may be the rare instance of a breakup that both companies come out of stronger.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and FedEx. The Motley Fool has a disclosure policy.

COMMENTS

More Related News

Justice Dept. ratchets up antitrust scrutiny of Big Tech
Justice Dept. ratchets up antitrust scrutiny of Big Tech

The U.S. Department of Justice opened a sweeping antitrust investigation of major technology companies and whether their online platforms have hurt competition, suppressed innovation or otherwise harmed consumers. It said the probe will take into account "widespread concerns" about social media, search engines and online retail services. Its antitrust division is seeking information from the public, including those in the tech industry.

U.S. justice department to open new antitrust review of big tech companies: WSJ
U.S. justice department to open new antitrust review of big tech companies: WSJ

UPS launches drone business, seeks to certify multiple pilots
UPS launches drone business, seeks to certify multiple pilots

United Parcel Service Inc , the world's largest package delivery firm, on Tuesday unveiled its drone delivery subsidiary and said it has applied for the Federal Aviation Administration certifications needed to expand the business. The launch of UPS Flight Forward marks the latest move in the battle between UPS, Amazon.com Inc and Alphabet Inc for the lead in the nascent U.S. drone delivery industry. UPS said Flight Forward could receive FAA certification for multiple drones and pilots as early as this year, potentially becoming the first company to win such approvals.

Top Analyst Shares Two Cents on Amazon (AMZN) Stock as Earnings Approach
Top Analyst Shares Two Cents on Amazon (AMZN) Stock as Earnings Approach

As Amazon (AMZN) stock looks unstoppable, many investors are wondering if the party can go on. In about a week, Wall Street will have some clarity as the e-commerce giant reports second-quarter earnings. Amazon has guided for Q2 revenue in the range of $59.5 - 63.5 billion (a rise of 12.5% to 20% compared

Amazon Earnings: Will Profits Continue to Soar?
Amazon Earnings: Will Profits Continue to Soar?
  • Tech
  • 2019-07-22 17:00:00Z

The e-commerce leader reported expanding profit margins last quarter, but one important thing has changed.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy

facebook
Hit "Like"
Don't miss any important news
Thanks, you don't need to show me this anymore.