"We look at Amazon (NASDAQ:AMZN) as a wonderful company and service and they're a good customer of ours," FedEx (NYSE:FDX) CEO Fred Smith said in December of last year. "We don't see them as a peer competitor at this point in time." The notion that FedEx could be disrupted was "fantastical," Smith added.
That was despite Amazon's aggressive, yearslong expansion of its in-house delivery and logistics operations, Amazon Air. Slowly but surely, FedEx has started to acknowledge the growing threat that Amazon Air represents. FedEx reported fiscal first-quarter earnings last night. On the subsequent conference call to discuss the results, Smith finally conceded that he thinks about the Amazon threat every day.
Amazon is now one of four main rivals
Remember that FedEx said in June that it was not renewing its contract with Amazon for FedEx Express, the expedited shipping service that uses the carrier's cargo aircraft. At the time, FedEx pointed out that Amazon represented less than 1.3% of total revenue in 2018.
"While the Amazon contracts represented only a small proportion of our revenues, the nature of our business is such that near-term profits will be adversely affected since the last bit of volume has significant flow through to the bottom line," Smith said in the latest conference call. FedEx CFO Alan Graf added that the "loss of volume from Amazon had a negative impact to the quarter."
Smith proceeded to say that Amazon is one of the four primary competitors that management thinks about on a daily basis:
And the last thing I'm going to say is, we basically compete in an ecosphere that's got five entities in it. There is UPS. There is DHL. There is a U.S. Postal Service. And now increasingly there is Amazon. That's who we wake up every day trying to think about how we compete against and give the best services to our sales force.
That's quite a reversal from Smith's dismissive comments in the past.
Regulatory filings tell all
FedEx and Amazon are both more forthright with investors in regulatory filings. Amazon's most recent 10-K filed this year had a new addition: The tech giant said it now competes in the market for "transportation and logistics services."
"In addition, some high volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries, and may be considered competitors," FedEx warned in its most recent 10-K filing. "For example, Amazon.com is investing significant capital to establish a network of hubs, aircraft and vehicles."
Speaking of investing in vehicles, Amazon CEO Jeff Bezos this morning unveiled a comprehensive plan to address climate change, which includes buying 100,000 electric delivery vans from EV start-up Rivian. The e-commerce giant invested in Rivian earlier this year.
Our fleet is Electrifying! Thrilled to announce the order of 100,000 electric delivery vehicles – the largest order of electric delivery vehicles ever. Look out for the new vans starting in 2021. pic.twitter.com/y5qYpuy2WP— Dave Clark (@davehclark) September 19, 2019
Combined with Amazon continuing to accumulate warrants to acquire substantial stakes in various aircraft operators, Smith is right to be concerned.