As shoppers brace for the last stretch of the holiday rush, they’re likely looking to online mega-retailer Amazon for many of their last-minute gifting needs.
And as the e-commerce marketplace gears up for an influx of traffic and time-sensitive orders, it’s taking a hard look at logistics.
Amazon’s feud with FedEx, which began during the summer of 2019, has been well documented—and the fissures in their relationship deepened this week.
In August, the delivery service provider announced that it would no longer be making ground deliveries for Amazon once its contract expired at the end of that month.
On Monday, Amazon expressly forbade some of its third-party sellers (which make up more than half of the site’s business) from using FedEx ground and home delivery services to fulfill Amazon Prime orders.
While the company did not release details about how long the ban would last, The Wall Street Journal reported that the impetus for the shift was FedEx’s sub-par record for on-time delivery.
According to reporting from Reuters that cited ShipMatrix data, FedEx fell down on the job during this year’s record Cyber Monday sales week, with on-time delivery rates of about 90 percent. By contrast, the U.S. Postal Service delivered more than 92 percent of packages on time, while United Parcel Service (UPS) hit nearly 93 percent.
Amazon’s own logistics arm delivered nearly 94 percent of parcels within its stated time frame that week. And the company announced Thursday that its in-house Amazon Logistics network is on track to deliver 3.5 billion packages globally this year.
While the vast majority of deliveries by all carriers were on time, any discrepancy between expectation and reality is enough to rile consumers.
Shoppers have come to expect free shipping and a 20 percent reduction in delivery times during the holiday season—despite the fact that it’s peak season for retailers.
According to data from Accenture, today’s shoppers expect packages to be delivered within an average of 3.1 days. Just a year earlier, they were willing to wait an average of 3.9 days for their goods.
This year’s top-performing retailers fulfilled orders in an average of 1.8 days, Accenture analysts said. At the top of the list were companies like Burberry, Chanel, Timberland, Vans, BestBuy and of course, Amazon.
Amazon’s edict on FedEx came just days ahead of the release of the logistics company’s latest earnings report, which Wall Street analysts across the spectrum broadly described as “dismal.”
FedEx reported $17.3 billion in revenue for the second quarter of the 2020 fiscal year, which ended Nov. 30. That’s down from the $17.8 billion recorded during the same time period last year. The company’s net income plunged 40 percent year over year, hitting just $560 million compared with $935 million in the second fiscal quarter of 2019.
Earnings per share came in at $2.51, falling short of the Zacks Consensus Estimate of $2.79, and plummeting from 2019’s same period earnings of $4.03.
“Fiscal 2020 is a year of continued significant challenges and changes for FedEx, particularly in the quarter just ended due to the compressed shipping season,” FedEx Corp.’s chairman and CEO Frederick W. Smith said.
Smith went on to describe the company’s “significantly enhanced” e-commerce capabilities, which include strategic initiatives like year-round seven-day FedEx Ground delivery, enhanced large-package capabilities and the in-sourcing of FedEx SmartPost packages.
Later in the company’s statement, though, FedEx described “weak global economic conditions, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer, a continuing mix shift to lower-yielding services and a more competitive pricing environment,” as the factors that worked against it this year.
The “large customer” that the company declined to name is more than likely Amazon. Relations soured after the e-tailer announced its plans to implement one-day shipping and invest in building out its own logistics operations this summer.
Despite the pummeling the company has taken during the first two quarters of its 2020 fiscal year, FedEx chief financial officer Alan B. Graf Jr. believes the delivery company is poised for a comeback.
On an earnings call Tuesday evening, Graf told reporters, “If you think about all the positive things we’ve said and that we’re seeing, as we get into 2021, we will start lapping Amazon.”
Acknowledging the company’s precarious position, he continued, “Without giving you specifics, we’re at the bottom, and we’re going to come up off the mat and we’re going to improve through the rest of this year and into the next.”
However, Morgan Stanley research estimates that given Amazon’s growth in logistics, it will deliver 6.5 million customer packages by 2022, ahead of UPS (5 billion) and FedEx (3.4 billion). Today, Amazon Logistics employs 90,000 associates across 150 delivery stations, and 800 Amazon Delivery Service Partners have created 75,000 jobs for drivers.
“Amazon’s transportation network,” Dave Clark, senior vice president of worldwide operations said, “is built on a foundation of 20 years of operations and logistics experience, an unwavering commitment to safety, technological innovation, and talented teams who are obsessed with delivering for our customers.”