If you’re a barber who cuts someone’s hair, and then that person opens a salon next door…you’ll probably stop cutting their hair.
Same goes in the world of logistics. FedEx (-0.33%) said yesterday it will not renew its contract to make ground deliveries for Amazon (+0.31%), which has itself emerged as a major logistics player. The announcement came two months after FedEx said it would discontinue U.S. air delivery service for Amazon.
Cut to the chase: The two companies are taking the arrows from their logos and pointing them straight at each other.
When a customer becomes a rival
Seeing more Amazon Prime-branded trucks on the highway? The company is investing in its own delivery capabilities to include cargo planes, local delivery vehicles, big rig trucks, and a network of warehouses.
- Amazon is already its own biggest shipper. According to Rakuten Intelligence, Amazon delivers 48% of its own packages, up from around 15% two years ago.
- And in classic Amazon fashion, it’s turned a cost into a service it can offer to others. Amazon quietly launched a freight brokerage platform in April that undercuts competitors’ prices by 26–33%, per FreightWaves.
FedEx changes its tune
Last month, FedEx finally admitted that Amazon was opening a competing salon. “Some high-volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries, and may be considered competitors,” it said in a filing.
But going to battle with Amazon may not be as painful for FedEx as you think.
- Amazon accounted for 1.3% of FedEx’s revenue in 2018—not even $1 billion.
- There are other fish in the growing e-commerce sea. Think of this move as a party invite to retailers like Target and Walmart who 1) also need the delivery services FedEx can provide and 2) want to take down Amazon.