FedEx on the ‘retail revolution’ and whether Amazon is a rival

by Aaron Karp
Mar 18, 2016

It would be a “daunting task” for Amazon to replicate FedEx’s network, FedEx says.


FedEx executives expressed some interesting thoughts this week about the “retail revolution” brought on by e-commerce and the implications for expedited delivery companies. Their message: the world is changing, but we are successfully adapting.


During a conference call with analysts to discuss the Memphis-based company’s fiscal third-quarter earnings, EVP-market development and corporate communications Mike Glenn said the quarter, which included the 2015 holiday season, reinforced a number of express cargo delivery trends driven by e-ecommerce. He focused on three: 1) “Referring to a specific peak day [during the holiday season] is quickly becoming a thing of the past. As evidenced [in 2015], there were multiple days where volumes exceeded 25 million packages as consumer buying habits are changing … smoothing sales throughout the peak season.” 2) “More and more retailers are fulfilling e-commerce orders from individual stores or what we call store to home delivery. 3) “We are seeing a significant increase in non-traditional items now being purchased online from mattresses to new swing sets and big screen TVs.”


Of course, one of the main drivers of the “retail revolution” is Amazon, which has announced it is wet leasing 20 Boeing 767 freighters from Air Transport Services Group (ATSG) to create an Amazon-dedicated air cargo network for US customers. Some pointed to the move as a sign that Amazon is looking to challenge FedEx and UPS in the expedited delivery arena. But while FedEx acknowledged that the ATSG deal will inevitably cut into its Amazon-related business, company executives say they do not view Amazon as a threat.


Glenn noted that 95% of all e-commerce orders placed in the US today are delivered by either FedEx, the US Postal Service or UPS. “In fact, if we were to isolate our e-commerce business one could argue that FedEx is one of the most profitable e-commerce companies in business today,” he said.


Glenn added that “Amazon is a valuable customer that we’ve worked with for many years and we expect to work with them for many years to come … We’ve been aware of Amazon’s need for supplemental capacity related to inventory management, which is driving some of the investments they are making in transportation.”


He noted that “large retailers have long had their own transportation capabilities, primarily to enable movement and positioning of inventory across their store and fulfillment locations.” But reports that Amazon could actually compete head-to-head with FedEx shouldn’t be taken seriously, he argued.


“The reality is it will be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx,” Glenn said. He and CFO Alan Graf said FedEx could withstand a small hit to its Amazon-related business without much damage.


“No single customer represents over 3% of our total revenue, so we are not exposed to any one customer and we try to manage our business so that we don’t get over exposed in that regard,” Graf explained. “So we’re well positioned for growth long term and … Amazon is a good customer we expect to be a good customer long term.”

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