- Amazon has suggested FedEx’s services are below par.
- FedEx earlier in the year dubbed the company a rival.
- The courier firm expects to be “lapping Amazon” in the next fiscal year.
When Amazon (NASDAQ: AMZN) blocked third-party merchants from using FedEx’s (NYSE: FDX) Ground and Home services to make deliveries to Prime customers, the implication was clear. The courier company’s standards had deteriorated.
This came on the back of FedEx declining to renew a ground shipping contract with Amazon earlier this year. With these developments, the relationship between the two firms is only likely to get worse, perhaps irredeemably.
Here are three reasons why FedEx has likely lost Amazon’s business forever.
#1. Speed is king for Amazon
Amazon CEO Jeff Bezos has consistently attributed the online retailer’s revenue growth to customer satisfaction, and speedy shipping features prominently in that metric.
Consequently, it’s telling that Amazon cited “delivery performance” issues in its decision to sever ties with FedEx.
As recently as the Thanksgiving holiday, FedEx’s deliveries were on-time 90.4% of the time. This worse than UPS, which made on-time deliveries 92.7% of the time. Amazon did even better than UPS by a percentage point, according to shipping data analytics firm ShipMatrix.
With such dreary numbers, FedEx would have to make considerable improvements to keep up, further reducing its chances of getting its lost Prime business back.
#2. FedEx and Amazon used to be frenemies – now they’re just enemies
Currently, Amazon’s in-house delivery fleet ships about half of its own packages, and the company continues to build out its shipping infrastructure to reduce dependence on outside firms.
That’s bad news for FedEx, given that Amazon has proven its ability to dive into an industry and flatten the competition.
Still, FedEx has chosen to fight rather than assist its archrival in digging its own grave. CEO Fred Smith recently conceded that the online retailer had joined the likes of UPS, DHL, and the US Postal Service as a true competitor, after years of denying that Amazon posed a competitive threat:
…we basically compete in an ecosphere that’s got five entities in it. There’s UPS, there’s DHL, there’s the U.S. Postal Service, and now increasingly, there’s Amazon.
#3. Shots have been fired (on both sides!)
More than that, it’s clear that FedEx is already more concerned about Amazon than its longstanding rivals.
While announcing results for the quarter that ended in November, FedEx mentioned Amazon five times, compared to just three references to UPS. FedEx Freight CEO John Smith told shareholders he’s confident they’ll be “lapping” them in short order.
The other thing is, is that, I think, if you think about all the positive things we’ve said and that we’re seeing, as we get into [fiscal year] 2021, we will start lapping Amazon.
That doesn’t sound like the tone of a company begging to get back in Jeff Bezos’ good graces.