FedEx leaves Amazon on the doorstep as the store becomes a competitor

Amazon’s massive business doesn’t just compete with other retailers anymore.

Kate Cox – Aug 7, 2019 1:02 pm | 151

An Amazon Prime-branded delivery van and driver. Credit: Amazon

Venerable shipper FedEx is cutting one of its few remaining ties with Amazon, saying it won’t renew its ground delivery contract with the retail behemoth when the agreement expires at the end of the month.

Bloomberg News first reported the company’s decision. FedEx said in a statement that the decision “is consistent with our strategy to focus on the broader e-commerce market.”

FedEx ended its US air shipping arrangement with Amazon in June when it declined to renew that contract, but it does still have an agreement with Amazon for international deliveries.

It’s no surprise FedEx would stop working with Amazon: the Internet’s everything store is now direct competition. FedEx’s most recent annual report (PDF) cited the rise of Amazon as a competitor as a potential risk for investors.

High-volume shippers such as Amazon “are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries, and may be considered competitors,” FedEx wrote. Amazon in particular is “investing significant capital to establish a network of hubs, aircraft, and vehicles.”

The everything company

If you feel like all the Prime-branded delivery vans in your neighborhood basically came out of nowhere, you’re not wrong. Amazon’s rise as a shipping company has been staggeringly quick.

Amazon said three years ago it wanted to save costs by bringing delivery and logistics in-house, and it has succeeded wildly in doing so. In July, analytics firm Rakuten Intelligence reported that Amazon now handles about half of all “last mile” shipments—the stuff that literally goes to your doorstep—on its own. By Rakuten’s reckoning, Amazon has more employees than FedEx, UPS, or the US Postal Service, and those employees have 50 planes, 300 freight trucks, and 20,000 local delivery vans at their disposal.

Why it matters

Businesses start and end contracts all the time, and that’s just the way the world works. Except Amazon isn’t really just any old retailer anymore: its outsized market power is the elephant in any room, and it has enormous leverage to make or break competitors.

The company’s share of the US online retail market is somewhere between 40% and 50%, depending on which surveys you read, and pretty much all analysts expect the trend to continue.

The way Amazon uses its size to gain leverage over potential competitors is now the subject of several antitrust investigations worldwide. In the past ten months or so, Germany, Austria, Italy, and the European Union have all launched separate antitrust probes into Amazon’s behavior.

Here in the US, the Department of Justice and Congress are also conducting antitrust reviews of “market-leading online platforms,” a list widely assumed to include Amazon, and media reports strongly indicate that the Federal Trade Commission is working on an investigation as well.