FedEx will not renew its ground-delivery contract with Amazon

It is well known that Amazon has been building its own air and ground delivery fleet, giving the e-commerce giant more control over how its packages are delivered, while at the same time cutting its reliance on FedEx, UPS and the U.S. Postal Service.

Amazon has been leasing jets, building a number of package-sorting hubs at airports and recently launched a program that lets contractors start businesses delivering packages in vans stamped with the Amazon logo, reports CTV News.

The FedEx announcement comes just a couple months after it announced it would no longer move Amazon’s air cargo package because it was not profitable for the carrier. “This change is consistent with our strategy to focus on the broader e-commerce market,” FedEx said in an email to Business Insider, “which the recent announcement related to our FedEx ground network have us positioned extremely well to do.”

Amazon, which began testing drone delivery in 2016 in Britain, said Wednesday it will soon begin large-scale deliveries by air as part of an effort to standardize one-day shipping for its Prime members

HO, amazon/AFP/File

In a statement to Business Insider, Amazon said, “We are constantly innovating to improve the carrier experience and sometimes that means reevaluating our carrier relationships. FedEx has been a great partner over the years and we appreciate all their work delivering packages to our customers.”

Interestingly, last month, for the first time in a government filing, FedEx warned that Amazon’s fledgling delivery business could hurt its revenue and “negatively impact our financial condition and results of operations.” The company’s leadership has made it clear that it views Amazon as a threat to its bottom line and not a collaborative partner.

Amazon made up just 1.3 percent of FedEx’s total revenue in 2018, or about $850 million. However, FedEx has the chance to distance itself from Amazon simply because e-commerce has become a priority for other large businesses, like Walmart and Target.

Wall Street analysts also point out that Amazon’s network may not be much of a threat. Goldman Sachs estimated last month that despite Amazon’s 70 planes and 10,000 trucks, it would take another $122 billion in investments to catch up to the infrastructure that UPS and FedEx have built up over the years.