(Reuters) – FedEx Corp confirmed on Wednesday it would terminate its contract with the Amazon.com Inc. small-package ground delivery, as online retailer aims to build up its own delivery network.
The move by the U.S. package delivery company to serve two months after it had been decided not to renew its contract with Amazon is for the US cargo delivery using its aircraft, on the basis of the “express” service.
“This change is in line with our strategy to focus on the broader e-commerce market,” FedEx said in a statement, as it may seem to be to expand, and companies that could be rivals to Amazon’s.
In the Amazon, in a statement said it is “constantly innovating in order to improve the carrier’s experience, and sometimes that means reevaluating our carrier relationships.”
Shares of FedEx were down 2% at $157.91, and Amazon’s shares were down 1% to $1,769.25 at lunch time on Wednesday.
Amazon is expanding its own delivery network-a network of planes, trucks, and vans, and is considered to be a potential long-term threat to FedEx and rival United Parcel Service, Inc. both of which are long counted on the e-commerce company as a customer.
“What was it, a frenemy, she is now out of their competitor’s,” said Reis, Miller, a managing partner at Baltimore-based Gullane Capital, according to FedEx’s relationship with Amazon.
Analysts have said Amazon has helped to get a better rate with UPS, parcel deliveries, in the aircraft, so it makes little sense for the company to cooperate, with FedEx or usps.
Amazon accounted for less than 1.3% of FedEx’s revenue in the previous year. UPS, which has been derived from a relatively larger share of the revenue from on-line retailer, it is generally expected to be able to take advantage of the increased volumes, following the latest move, according to analysts.
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FedEx has already warned in June that the U.S.-china trade tensions, and the termination of the contract with Amazon that would hurt its fiscal 2020 performance.
In the mean time, FedEx Ground is working to wring more residential profits by shifting the provision of up to 2 million SmartPost packages on the U. s. Postal Service mail carriers have their own drivers. That should lower the cost due to the increase of the number of packets that were dropped off at each stop.
The news of FedEx’s termination of the Amazon, under a contract for the supply was first reported by the international monetary Fund.
Reporting by ankit Ajmera and Sanjana Shivdas in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Saumyadeb Chakrabarty and Matthew Lewis