A FedEx delivery worker carries a package in Wilmette, Illinois, the US. Picture: REUTERS/JIM YOUNG
A FedEx delivery worker carries a package in Wilmette, Illinois, the US. Picture: REUTERS/JIM YOUNG

Bengaluru — FedEx says it has decided to not renew its contract with Amazon.com for US cargo delivery through FedEx Express, the unit that delivers packages on planes.

The move comes as Amazon builds out its own delivery network of planes, trucks and vans, a move seen as a long-term challenge to FedEx and delivery rival United Parcel Service (UPS).

FedEx described the decision as a strategic move that would allow it to focus on the broader e-commerce market, a group that would include rivals of Amazon that are scaling up one-day and two-day delivery. FedEx forecast that the market would double to 100-million packages a day in the US by 2026.

The decision does not affect any existing contracts between Amazon and other FedEx business units or relating to international services, the package delivery company said.

Amazon accounted for less than 1.3% of FedEx's revenue in 2018, the company said in its statement.

In recent years Amazon has steadily grown its fleet of delivery aircraft, which Air Transport Services Group (ATSG) and Atlas Air Worldwide Holdings have operated. The company is investing $1.5bn to build an air cargo hub in northern Kentucky, setting it up to rely less and less on others for air shipping.

Amazon has leased 40 cargo planes and has signed an agreement to induct 10 more planes to join the fleet in the next two years.

Growing delivery infrastructure

DA Davidson analyst Tom Forte said that even though Amazon has ramped its delivery infrastructure, it is still heavily dependent on UPS and FedEx.

Forte said that FedEx and UPS operate a duopoly in shipping and Amazon is trying to break that by trying to be more self sufficient to lower shipping costs.

“We respect FedEx’s decision and thank them for their role serving Amazon customers over the years,” Amazon said.

A task force set up by President Donald Trump recommended in December that the US Postal Service should have more flexibility to raise rates for packages, a move that could hurt profits of Amazon and other large online retailers.

Shares of FedEx pared gains and were up nearly 1% at $158.28 in Friday afternoon trading. Amazon shares were up 2.8% at $1,802.78.