FedEx Cites Amazon Competition for the First Time in 10k

Despite public pronouncements from FedEx Chairman and CEO Fred Smith that he is unconcerned about Amazon as a logistics competitor, the company used that term in its recently released annual report for the first time in connection with the ecommerce giant.

“I think the prospects that this company is going to be ‘disrupted,’ which just occurs over and over again, to quote a previous statement, is fantastical,” Smith said in a December Q2 call with analysts. “So, I’ll leave it at that.”

In a section of the annual report on competition, FedEx lists the usual suspects in package delivery, including UPS, airlines offering express package services, regional carriers, air freight forwarders and the USPS. Then there’s this:

“In addition, 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. For example, Amazon.com is investing significant capital to establish a network of hubs, aircraft and vehicles.”

Further on in the report, FedEx states: “Moreover, if customers, such as Amazon.com, further develop or expand internal capabilities for the services we provide, it will reduce our revenue and could negatively impact our financial condition and results of operations.”

In like fashion, Amazon cited “transportation and logistics services” like UPS and FedEx as competitors for the first time in its February annual report.

This comes a month after FedEx decided to drop Amazon as an air express customer, with most observers and analysts speculating it was due to the low margins earned. FedEx said at the time that Amazon represented 1.3% of its 2018 revenue, and that there “significant demand and opportunity for growth” across ecommerce shipping. Amazon started night-turn flights out of its Wilmington, OH air hub for next-day deliveries on June 27.

The economics seem to be on Amazon’s side as it takes over more of its own volume. Morgan Stanley analyst Ravi Shanker estimated in February that it costs Amazon $6 to move a package through its own network, vs. $8 or $9 with FedEx or UPS, according to CNBC.

Amazon has quite a bit of work to do to if it wants to catch up with FedEx and UPS. The company would have to invest $122 billion to achieve logistics and delivery network parity with the major carriers, according to Goldman Sachs as reported in Business Insider. But Amazon can create a number of headaches and revenue pain for its new competitors well below that level, as it’s already doing.