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FedEx and Amazon Cut Ties as E-Commerce Logistics Competition Heats Up

Amazon‘s role as market disruptor extends from retail to logistics.

With Amazon developing its own delivery fleet, putting it in direct competition with the shippers that had long delivered its packages, FedEx said Wednesday that it will no longer make ground deliveries for Amazon once its contract expires at the end of August.

“This change is consistent with our strategy to focus on the broader e-commerce market, which the recent announcements related to our FedEx Ground network have us positioned extraordinarily well to do,” the company told Sourcing Journal.

FedEx recently added Saturday delivery and plans to deliver seven days a week starting next year. The move follows FedEx’s terminating its air delivery contract with Amazon in June. Amazon is building its own fleet of air and ground transportation to have more control of how its packages are delivered and cut its reliance on FedEx, UPS and the U.S. Postal Service, and middle-man costs.

Amazon said in June it was partnering with GE Capital Aviation Services to lease an additional 15 Boeing 737-800 cargo aircraft that will enter the air network by 2021.

“These new aircraft create additional capacity for Amazon Air, building on the investment in our Prime Free One-Day program,” Dave Clark, senior vice president of worldwide operations at Amazon, said. “By 2021, Amazon Air will have a portfolio of 70 aircraft flying in our dedicated air network.”

In April, Amazon announced that Prime member purchases would be delivered within one day, instead of two. The company projected at the time that the roll-out of the new shipping strategy, which it’s working on over the course of this year, would cost around $800 million.

Speaking on an earnings call last month, Amazon chief financial officer Brian Olsavsky said costs have exceeded that figure, though he wouldn’t say by how much.

“It does create a shock to the system, we’re working through that now, and we expect we will be working to that for a number of quarters,” he said. “But when the dust settles, we will regain our cost efficiency over time.”

Last year, Amazon launched a program aimed at helping entrepreneurs build their own companies delivering Amazon packages, while serving as a solution to the “last mile” challenge. Under the initiative, successful owners can earn as much as $300,000 in annual profit operating a fleet of up to 40 delivery vehicles, with Amazon taking an active role in helping interested entrepreneurs start, set up and manage their own delivery business.