FedEx Corp on Friday made a decision to not renew its contract with Amazon.com Inc for US cargo delivery through FedEx Express, the unit that delivers packages on planes, a move that reflects the broader trend of the e-commerce company moving services in-house.
FedEx said it will "focus on serving the broader e-commerce market" as part of the strategic move, which only impacts air services and not other existing contracts with Amazon and FedEx business units such as FedEx Ground, or worldwide deals. "FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space".
Amazon has 40 leased cargo planes and has signed an agreement to induct 10 more planes to join the fleet in the next two years.More news: Russia Says US Warship Nearly Caused Collision in East China Sea
With a decades-long head start in delivering packages, FedEx and UPS have highly developed global networks.
Last May, Amazon broke ground on an Air Hub in northern Kentucky that is scheduled to open in in 2021 "to ensure fast, free shipping for customers". Amazon, however, is more than three times their size by revenue and was sitting on about $23.5 billion in cash at the end of March.
FedEx said Amazon represented 1.3% of sales previous year. That would work out to about $907 million in revenue for the fiscal year that just ended May 31, according to Cowen Research analyst Helane Becker calculated.More news: Meghan makes first public appearance since son's birth at Queen's birthday
"We would expect UPS to report much stronger volume growth in next-day air products over the next several quarters", Bernstein analyst David Vernon wrote in a client note.
FedEx has said that Amazon is not its biggest customer. In an e-mail, FedEx said it would focus on customers such as Walmart Inc., Target Corp. and Walgreens Boots Alliance Inc.
Memphis, Tennessee-based FedEx cited that outlook when it announced last week that it will go to year-round, seven days a week deliveries in January.More news: European Central Bank pushes back rate hike again as outlook darkens
Shares of FedEx, which rose as much as 1.65% earlier in the session, pared gains and closed up 0.75% at $158.02. Only the headline has been changed.