In an escalation of its war on FedEx (FDX 0.12%), (AMZN -0.68%) last month told third-party merchants that they were unable to use the shipping carrier for ground delivery service on Prime-eligible packages. The e-commerce company had cited poor delivery performance for the ban while increasingly leaning on contract drivers as part of its Amazon Flex last-mile delivery network to pick up the slack.

Amazon is now calling a truce with FedEx. Sort of.

Amazon Flex driver

Image source: Amazon.

Lifting the FedEx ban

Amazon is now easing its restrictions on merchants shipping with FedEx Ground, according to CNBC, effective this week. FedEx has been improving its delivery performance and is now regularly satisfying the on-time delivery requirements. Amazon had previously said that it would allow FedEx shipments once performance improved. The irony is that banning FedEx may have contributed to the better performance by reducing FedEx's shipping volumes over the holiday season.

A FedEx spokesperson told the outlet that the average transit time for FedEx Ground shipments was 2.4 days and that 18% of packages shipped with that service tier were delivered early. "This is good news for our mutual customers who have come to rely on the FedEx Ground offering," the spokesperson said in a statement to CNBC. "We look forward to working with Seller Fulfilled Prime merchants and providing outstanding service."

Investors cheered the news, sending shares higher on the report.

FedEx says it will "start lapping Amazon"

FedEx has regularly downplayed the negative effects of its turbulent relationship with Amazon, initially calling the ban last month "minuscule." But FedEx is facing several headwinds, citing "weak global economic conditions" and the "loss of business from a large customer" for adjusted operating income getting cut in half. CFO Alan Graf didn't mince words, calling the drop "horrific" on the fiscal second-quarter earnings call last month.

Graf also conceded that the Amazon hit was meaningful. "The loss of volume from Amazon had a larger negative impact to the second quarter than the first quarter since the FedEx Ground contract with Amazon expired in August," Graf said, referring to FedEx's direct contract with Amazon, which was separate from the ban on third-party merchants.

Amazon delivered approximately 3.5 billion packages through its in-house delivery and logistics network in 2019, while adding low-cost carrier Sun Country Airlines to its stable of Amazon Air fleet operators. Much like its deals with other aircraft operators, Amazon secured warrants that allow it to acquire a minority stake in Sun Country Airlines, which is owned by private equity firm Apollo Global.

FedEx has been aggressively expanding operations to more days of the week, in part to accommodate greater demand from e-commerce. The company expanded to six-day service in late 2018, followed by year-round seven-day residential delivery service in mid-2019. As FedEx approaches its fiscal 2021, the company is confident that it will "start lapping Amazon," according to Graf.