Amazon's Relationships with Carriers are Starting to Fray

There has been no greater disruptor of the way business is done than Amazon, possibly ever. From their humble roots as an online bookseller to being one of the few tech companies to survive the dot com bust to their position today as a monolith of the eCommerce world, Amazon always seems to be just a few steps ahead of everyone. With their immense size and influence, Amazon can and often does upend entire markets - and one market that has been in their sites for some time is shipping. In recent months, Amazon's moves into this space have become more aggressive - and carriers are taking notice. Now it seems, some are taking actions to counter their moves.

FedEx Punches Back

The recent decision by FedEx to no longer provide Amazon with its FedEx Express Air services might seem like an innocuous thing - but within the context of the last few years, it speaks volumes to Amazon's position in the world of shipping, and how carriers like FedEx and UPS are reacting. While FedEx's stock has had pressure on it of late, the market seems to approve of its latest move.According to one analyst the move "makes perfect sense given expectations of strong e-commerce growth across the retail sector." According to Moody's, the relationship had a value of around $850 to FedEx, but that "FedEx will achieve higher margins and better returns on its investments in its Express network by re-deploying capacity to customers other than Amazon." In the end, analysts believe that "Amazon, representing less than 1.3% of FedEx's nearly $70 billion of consolidated annual revenue, is one of FedEx' least profitable customers on a margin basis and that the decision implies that Amazon would not agree to financial terms that would meet FedEx' needs."

Amazon's Slow Creep

This is not an isolated incident, it is just one of many tiny cracks that have been hammered into Amazon's relationship with carriers over the last decade.It just might be the straw that breaks the camel's back. Since 2013, Amazon has been on a slow, deliberate trajectory towards not only owning their entire supply chain but becoming a full-fledged carrier themselves.One of the actions they've taken in that time is of particular significance with regards to FedEx Express Air - in 2015, Amazon leased a fleet of 747s. Interestingly, at the time, Amazon claimed this was only meant to supplement its existing network. The trend continued in 2019 with the acquisition of a 40% stake in Atlas Air Worldwide and 33% of Air Transport Services - both companies Amazon works with to operate Prime Air. In addition, Amazon's battles with carriers recently played out in the US court system, to Amazon's benefit.

Court Battles

At the end of May, the United States Supreme Court upheld a decision that allows the US Government to determine USPS delivery charges. The case was brought by one of their biggest rivals, UPS.So where does Amazon fit into this? They are USPS's biggest customer and benefits immensely from these low prices. The case will continue to be fought in the courts, and its outcome could significantly impact Amazon's timeline for going full carrier.

What Does the Future Hold?

Any industry that Amazon has entered has been fully up-ended. Stocks have moved wildly on the mere rumor that Amazon might become a competitor. Therefore, carriers are right to be worried. FedEx is probably doing the right thing by being proactive in their approach and beginning to wean themselves off their relationship with Amazon. As time goes on, other carriers will probably do the same. The real question is USPS and how they will react. Given the recent court decision, that relationship is probably stable for the time being. However, Amazon has been a favorite whipping boy of the President. Though his sites are currently set on a brewing trade war with China, it's possible that he returns to his criticism of Amazon "taking advantage" of USPS for their own gain.