FedEx Says Amazon Business Not a Concern

Executives with FedEx took issue with multiple media reports about Amazon’s moves into logistics and transportation as they discussed the company’s third quarter financial results, saying the ecommerce giant was simply addressing capacity issues with its own assets as have other major retailers.

“The concerns about industry disruption continue to be fueled by fantastical, and let me emphasize I chose this word carefully, articles and reports which are devoid of in-depth knowledge of logistic systems and the markets which FedEx serves,” said FedEx Chairman and CEO Fred Smith, in a call with analysts. “As we have previously noted, network design technology, facilities capabilities and route/stop density are the key elements in the FedEx, UPS and U.S. Postal Service systems that make it highly likely. These entities will remain the primary carriers for ecommerce shipments in the U.S. for the foreseeable future.”

Mike Glenn, president and CEO of FedEx Services, reiterated that Amazon has been and will continue to be a valuable customer, and that FedEx is in constant dialogue with them to understand their growing transportation needs.

“We’ve been aware of Amazon’s need for supplemental capacity related to inventory management, which is driving some of the investments they are making in transportation,” Glenn said. “Large retailers have long had their own transportation capabilities, primarily to enable movement and positioning of inventory across their store and fulfillment locations.”

Referring to coverage of Amazon’s logistics moves, he said, “The reality is it will be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx.”

Numerous media reports, including those from Multichannel Merchant, have cited experts who said the major carriers would lose some portion of their business with Amazon to its homegrown transportation efforts, not that it was seeking to replicate their entire networks.

Glenn said FedEx experienced record volumes during the recent holiday season, with multiple days when it handled north of 25 million packages, more double its average daily volume. In all FedEx delivered more than 325 million packages during the peak period, working closely with major ecommerce and retail customers to meet their needs. He also said peak period volumes have become more spread out than in the past, the result of this close collaboration.

“Referring to a specific peak day is quickly becoming a thing of the past,” he said, referring to multiple days with 25-million-plus parcels shipped as consumer habits are changing. “We view this as a positive as Mother Nature can sometimes play havoc with last minute ecommerce shoppers. Smoothing sales throughout peak season is a trend that will benefit retailers and transportation companies alike. We believe online shoppers will have increasing incentives to order earlier in the holiday season.”

For the quarter, FedEx’s net income fell 19% to $507 million, due largely to settling 19 lawsuits regarding its former independent contractor driver model at its ground segment for $204 million. FedEx Ground revenue was up 30% to $4.41 billion, but higher costs due in part to network expansion and peak season demand caused the segment’s operating income to drop from $559 million to $557 million.

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