Express contract with Amazon
FedEx (FDX) has decided to not renew its deal with Amazon (AMZN) for express domestic delivery of the e-commerce giant’s parcels. The company stated that the decision would not impact its other contracts with Amazon.
FedEx’s express agreement with Amazon is set to expire on June 30. However, FedEx plans to continue serving Amazon for last-mile deliveries.
FedEx justified its decision by revealing that Amazon is not its largest customer, with its business representing less than 1.3% of its annual revenue. Losing the business isn’t likely to impact FedEx’s financials significantly.
The company stated that “there is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026. FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space. We are excited about the future of e-commerce and our role as a leader in it.”
Amazon enhances delivery capabilities
Amazon is trying to build an in-house shipping and delivery network, and in the last few years, FedEx has been aggressively investing in its own cargo fleets.
Within two years of starting Amazon Air, Amazon has expanded its cargo fleet to 40 planes, all wide-body Boeing (BA) 767 freighter aircraft. Furthermore, Amazon entered into a contract last December with Air Transport Services Group (ATSG) to lease ten Boeing 767-300 jets, bringing the e-commerce giant’s total fleet to 50 planes.
For exposure to the air freight and courier services industry, you could invest in the iShares Transportation Average ETF (IYT), of which ~21% is allocated to the space. The ETF has gained 10.9% this year, underperforming the Dow Jones and S&P 500, which have risen 11.4% and 14.6%, respectively.