As reported by LM earlier this week, global e-commerce retailer Amazon and freight transportation and logistics services provider FedEx are resuming their business relationship after a years-long hiatus.
That resumed relationship, according to a FedEx official in a statement provided to LM, will be in the form of “a mutually beneficial, multi-year agreement with Amazon to provide residential delivery of select packages, including large items,” adding that, “FedEx has the global network, capacity, and expertise to serve the shipping needs of thousands of retailers in the e-commerce space.”
Following this development two executives from San Diego-based parcel consultancy Shipware offered up some observations on this development, with Amazon and FedEx renewing business ties, following a June 2019 breakup, in which FedEx announced it made a “strategic decision” not to renew the FedEx Express U.S. contract with Amazon, as it focused on serving the broader e-commerce market. And it added that, at that time, Amazon was not FedEx’s largest customer, with the total FedEx revenue attributable to Amazon accounting for less than 1.3% of total FedEx revenue for the 12-month period ended December 31, 2018.”
Paul Yaussy, Shipware’s Senior Director of Parcel Consulting, explained that it’s very interesting that Amazon and FedEx struck a deal to rekindle their relationship after nearly six-year hiatus, especially on the heels of UPS cutting Amazon volume by 50% by the end of 2026 (UPS announced in late April it is accelerating the glide down of Amazon volume it handles based on an agreement UPS reached with Amazon to reduce the Amazon volume in the UPS network by more than 50% by June 2026—and is focused on transitioning out Amazon’s fulfillment center outbound volume. And addressing variable costs related to the Amazon volume decline, UPS said it plans to reduce total operational hours by approximately 25 million hours. As for semi-variable costs, related to its Amazon volume, UPS said its operational reduction target for 2025 is around 20,000 positions).
“FedEx will mostly deliver large packages that Amazon struggles with, so this does not appear to be a replacement of UPS,” said Yaussy. “Generally, FedEx does a better job with the larger packages and has likely figured out the cost complexities of those deliveries, as UPS walked away from them, but FedEx and Amazon both view it a favorable relationship. FedEx is picking up volume and revenue and Amazon doesn’t have to handle the packages they don’t want.
In what he admittedly called a big leap. Yaussy added that this development may also be a small indicator that Amazon Shipping might be a longer way off than some shippers had hoped for.
“If Amazon needs help from USPS, UPS, and now FedEx, it may be another three-to-five years before Amazon Shipping is a completely viable national option for all shippers,” said Yaussy.
In his assessment of this renewed relationship, Shipware Founder Rob Martinez said it is akin to the saying, “one man’s trash is another man’s treasure, noting that while UPS was able to maintain its relationship with Amazon while shaking free its least profitable freight segment —big and bulky—FedEx gladly stepped in to accept the relationship opportunity with its largest potential customer.
“That said, it’s surprising to see FedEx jumping back into the oversized package game, especially given how intentionally they’ve distanced themselves from that freight in the past,” he explained. “Bulky items are more prone to damage, harder to automate, more expensive to move, and reduce delivery density. FedEx has been focused on higher-margin, small-to-mid-sized parcels where their ground and express networks could operate with greater efficiency and density. However, economic realities have a way of changing things. With persistent challenges filling its network and growing, I’m not surprised that FedEx is more open to filling excess capacity even if the margins aren’t stellar. Moreover, FedEx has made recent investments in regional facilities and automation that may better handle non-conveyable freight.”
Without knowing some specific details, including if this deal is structured around linehaul or hub-to-door rather than full last-mile (or limited to regions FedEx selects), margin dynamics might improve, according to Martinez, adding that if FedEx accepts low-margin, high-complexity freight just to fill trailers, it could stress their network again and compress margins.
“In summary, the deal appears to be a win/win: One, it helps Amazon continue to grow its delivery dominance by removing bulky items that strain its network,” he said. “Two, it helps provide FedEx package and revenue growth, and reestablishes a relationship with the U.S.’s largest ecommerce business dormant since 2019.”
What happens from here remains to be seen, but one thing is clear is that this news came somewhat unexpected while receiving a large amount of attention. And, really, why wouldn’t it? It is two of the biggest name brand players in any space, deciding they are ready to work together again and, as Martinez said, help each other out. It seems promising, and it will be interesting to see where things go from here.
