Like others in the parcel logistics and transportation sector, Supply Chain Matters was taken aback by today’s rather significant announcement from FedEx that essentially breaks full ties with online retailer We expected further announcements in this sector but not as sudden as today’s announcement.   FedEx

Parcel transportation and last-mile delivery provider FedEx announced today that is was ending its ground network contract to deliver parcels for online provider Amazon at the conclusion of the existing contract this month. A statement indicates:

This change is consistent with our strategy to focus on the broader e-commerce market, which the recent announcements related to our FedEx Ground network have us positioned extraordinarily well to do.”

Today’s FedEx announcement is in addition to a June announcement  where the carrier ended its air shipping contract with Amazon. Essentially, we suspension of the existing ground service contract at the end of August, all business ties will now be severed.

In that June announcement, FedEx had indicated that the carrier would continue to serve the online retailer in domestic ground and international parcel shipment services.  That appears to have changed.

Amazon’s senior vice president of operations today thanked FedEx for its longtime services, and wished the carrier well.

As noted in our prior Supply Chain Matters commentary reflecting on the June announcement, Amazon continues to build-out and sustain its own air transport services targeted for the online retailers Prime shoppers and for merchants being hosted on Amazon’s shopping platform. The online provider’s assault on direct logistics and transportation services, including added multi-million-dollar investments to provide Amazon Prime members with standard one-day delivery, have become far more visible to industry players with each and every month.

By some estimates, FedEx handled upwards of 4 percent of Amazon’s parcel shipment needs, which is not a large dependency. None the less, today’s surprise announcement is significant for the parcel delivery services industry.

That stated, Amazon will likely have to scramble over the coming weeks to contract for contingency capacity among the online provider’s three existing parcel delivery providers, that being DHL, UPS and the USPS, for supplementary support in the upcoming Q4 holiday surge fulfillment quarter. From our lens, UPS and the USPS would be the likely recipients for Q4 supplemental services.

Beyond 2019, Amazon will continue its build out of leased logistics and parcel transportation capabilities that includes air, truck and parcel van delivery capabilities.  That will likely overcome the loss of FedEx as a contracted supplemental services provider.

With Amazon now upping the online delivery expectation to one-day, or same day, other online providers are scrambling to be able to deliver such capabilities, but without the deep pockets of Amazon. That may well be the opportunity for FedEx moving forward, and perhaps a prelude to some upcoming new announcement related to services for other online e-commerce providers.

 Stay tuned.

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