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In a move not entirely expected but hardly surprising, FedEx Corp. (NYSE:FDX) said Friday that it will not renew its contract for its FedEx Express air and international unit to handle Amazon.com, Inc. (NASDAQ:AMZN) U.S. air delivery business.
The announcement does not affect Amazon’s relationship with FedEx Ground, FedEx’s ground parcel unit. FedEx Ground is believed to handle most of Amazon’s U.S. traffic. It does not affect any domestic last-mile or international services between the two companies.
FedEx has been pivoting from Amazon for some time, increasingly unwilling to accept a deluge of discounted traffic that results in low margins. Today, Amazon represents about 1.3 percent of FedEx’s total revenue based on calendar year 2018 figures. FedEx, which operates on a June 1 to the following May 31 fiscal year, is expected to have fiscal year 2019 revenues of just under $70 billion.
In a statement, FedEx said it made the move to focus on broader e-commerce growth. According to Amit Mehrotra, analyst for Deutsche Bank, companies other than Amazon will account for 55 percent of parcel revenue growth over the next five years.
In a statement, Amazon said that “we respect FedEx’s decision and thank them for their role serving Amazon customers over the years.”
Analysts said the move has the potential to accelerate Amazon’s own delivery capabilities. Mehrotra said Amazon may take a harder look at using, if not acquiring, “asset-light” companies to achieve delivery density and make good on delivery commitments while its parcel traffic continues to spike at a remarkable pace.
