FedEx (NYSE:FDX) fired the first shot in this skirmish back in August, when it cut its ties with Amazon (NASDAQ:AMZN). Call that move a preemptive breakup: The shipping company acted when it did to avoid letting the online retailer be the one to end the relationship.
Still, the official cutting of ties only meant that Amazon would no longer use FedEx. Third-party shippers in the Amazon Prime program could still opt to use the carrier as long as orders arrived in the time frame prescribed by Amazon.
Now that option, too, is being restricted -- at least for the moment. Amazon has banned third-party services from using FedEx Ground due to what it describes as concerns over performance. The ban will remain in place "until the delivery performance of these ship[ping] methods improves," the online retailer wrote in a memo to sellers that was published by The Wall Street Journal.
What does this mean for sellers?
Amazon's decision does not totally take FedEx out of the delivery mix for third-party sellers. Those vendors can still use the shipping company's pricier, premium services for Prime deliveries, and can use FedEx Ground to ship non-Prime orders.
FedEx, as you might imagine, was not happy about the move. It noted that Amazon's decision "limits the options for those small businesses on some of the highest shipping days in history," in its own statement to The Wall Street Journal.
Amazon's assertion that FedEx Ground hasn't performed well is not backed up by data from ShipMatrix covering Thanksgiving week. That data shows that all the major carriers performed well, according to an analysis done by Logistics Management.
Looking at the individual carrier performances for the week ending November 30, ShipMatrix reported on-time delivery for UPS, at 98.5%, while it handled rapid growth in volume originating from Amazon, specifically for Next Day Air. FedEx turned in a 98.6% on-time delivery rate for all services, in tandem with providing seven-day residential Ground delivery through Peak Season, which ShipMatrix said will remain as a regular service offering into 2020.
Amazon says those on-time numbers declined after the holiday week, which led it to institute the temporary ban.
The revenue involved is unlikely to be a significant loss for FedEx, which has largely ceased to count on Amazon as a source of business. It did, however, add a hassle for the many small retailers who had to scramble to set up alternative shipping options to comply with Amazon's edict.
Amazon wants to control its destiny
While Amazon still ships a large volume of packages through UPS (NYSE: UPS) and the U.S. Postal Service, the company has made it clear that its future is with its own delivery fleet, which it's steadily building out. Ultimately, we can expect to see the online leader largely in control of its own shipping logistics, and using partners only to supplement its own trucks, planes, and (someday) drones.
FedEx, meanwhile, had already pivoted to adjust to the loss of Amazon's business. The shipping company saw the writing on the wall awhile back, and has essentially been pitching itself as the go-to shipping service for all non-Amazon retailers.
UPS and the USPS will benefit in the short term from the added volume from Amazon's third-party sellers. But neither shipping service should plan on keeping as much of that business in the long term. To meet its one-day and same-day shipping goals, Amazon must keep growing its own delivery capacity. Ultimately, it may handle the vast majority of orders shipped to Prime members including those shipped from third-party sellers.
That may be a good result for the online retailer's customers. It won't be for UPS or the Postal Service. The takeaway from this week's events is that Amazon, as always, is playing a larger, longer game, and will cast aside its partners when it no longer needs them.