FedEx and Amazon take steps to resume partnership, with a focus on residential large package delivery

Global e-commerce retailer Amazon and freight transportation and logistics services provider FedEx are resuming their business relationship after a years-long hiatus.

A FedEx spokesperson told LM that the company has, “reached a mutually beneficial, multi-year agreement with Amazon to provide residential delivery of select packages, including large items,” adding that, “FedEx has the global network, capacity, and expertise to serve the shipping needs of thousands of retailers in the e-commerce space.” 

Terms of the deal were not disclosed. 

A Wall Street Journal report stated that FedEx will serve as one of several third-party partners to deliver packages to Amazon's customers.

The report added that other Amazon third-party partners include UPS and the United States Postal Service (USPS), in regularly working alongside Amazon’s last-mile delivery network to balance capacity. It also noted that no terms were disclosed, and that FedEx said the partnership is a mutually beneficial, multiyear agreement.

In June 2019, FedEx announced it made a “strategic decision” not to renew the FedEx Express U.S. contract with Amazon, as it focused on serving the broader e-commerce market. And it added that, at that time, Amazon was not FedEx’s largest customer, with the total FedEx revenue attributable to Amazon accounting for less than 1.3% of total FedEx revenue for the 12-month period ended December 31, 2018.

What’s more, at the time of this development, FedEx pointed to what it called “significant demand and opportunity for growth in e-commerce,” with expected growth of 50 million-to-100 million packages a day in the U.S. by 2026.” Roughly two months later, in August 2019, FedEx made another strategic decision, this one on the ground, in severing its ties with Amazon and not renewing the FedEx Ground delivery contract with Amazon.

This development comes on the heels of UPS announcing in late April it is accelerating the glide down of Amazon volume it handles, based on an agreement UPS reached with Amazon to reduce the Amazon volume in the UPS network by more than 50% by June 2026—and is focused on transitioning out Amazon’s fulfillment center outbound volume. And addressing variable costs related to the Amazon volume decline, UPS said it plans to reduce total operational hours by approximately 25 million hours. As for semi-variable costs, related to its Amazon volume, UPS said its operational reduction target for 2025 is around 20,000 positions.

Rick Watson, Founder and CEO of New York-based RMW Commerce Consulting, said that Amazon is known to be investing much more into rural final mile initiatives, particularly as the USPS seems to degrade slowly over time.

“It is an interesting turn of events for FedEx,” he told LM. “Likely the calculation by FedEx is similar to the original calculation by UPS, meaning most of the volume will not be profitable/or at best breakeven. However, Amazon volume will help it build a network it can then resell to other players, and so that is where the margin will eventually come from.”

And Jerry Hempstead, president of Hempstead Consulting, said that this development is an example of how in the parcel sector, there are what he called pendulum swings over time.

“There are ebbs and flows of capacity,” he said. “For example, the loss of the USPS mail contract by FedEx caused them to have excess capacity. There is only so much you can do with scheduling. In the end you have to go out and sell something. In this case, FedEx rekindled its love affair with an old flame and the courtship begins. We shall see how long it lasts.”