AMZN Threat to FDX Is No Longer ‘Fantastical’
 

Yep, yet another amazon thread.. ;)

I’m posting this in ups forum because fdx has already made the switch. Curious to hear y'alls take on this - should/will ups follow fdx in shedding Amazon’s airside business?

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Amazon Threat to FedEx Is No Longer ‘Fantastical’
Brooke Sutherland | Bloomberg
June 24 at 4:46 PM
FedEx Corp. may finally be waking up to the threat Amazon.com Inc. poses to its business model.

The logistics company is offering big discounts to help fill the planes in its Express delivery network with more e-commerce shipments, according to the Wall Street Journal, which cited people familiar with the matter. The deals are being used to woo customers away from rival United Parcel Service Inc., or to convince them to switch from FedEx’s cheaper ground offerings, the newspaper said, citing people familiar with the matter. For some customers, shipping goods via FedEx’s two-day air service may now cost about the same as shipping them through the ground division.(1)

A FedEx spokeswoman told the Wall Street Journal that the company hasn’t changed its pricing strategy, adding that the two-day Express service “has been very successful and continues to deliver tremendous value to small and medium businesses competing in the e-commerce market.” Reports of the discounts come just weeks after FedEx said its domestic Express air-delivery unit was dropping Amazon as a customer to focus on “serving the broader e-commerce market.” FedEx dropped Amazon as a customer for its Express air-delivery unit to focus on “serving the broader e-commerce market.” The charitable interpretation of that move is that FedEx had found a bit of backbone and was holding a firmer line on pricing with Amazon in an effort to bolster its profit margins. The other possibility is that FedEx recognized that Amazon’s efforts to bring more of its logistics operations in house were real, and that it may want to start the process of breaking up with Amazon before Amazon decides to break up with it. While FedEx CEO Fred Smith has repeatedly painted any notion of Amazon disrupting the logistics industry as “fantastical,” his actions increasingly suggest otherwise.

The share of capacity devoted to the time-sensitive legal documents and medical supplies that the FedEx Express network was originally built for will likely continue to shrink. But it’s uneconomical for the division’s fleet – which numbered 670 leased and owned planes at the end of 2018 – to fly partially full or not at all. Meanwhile, FedEx expects U.S. e-commerce demand to grow to 100 million packages per day by 2026. It’s been adamant that Amazon only directly accounts for a small percentage of its overall sales. But Amazon has forever changed the world’s expectations around shopping and delivery. So whether or not its own sales are in the mix, FedEx will be forced to drink more deeply from the firehose of e-commerce shipments to keep its network humming along. And that will come at a cost to margins.

FedEx’s decision to prioritize shipments from the likes of Walmart Inc., Target Corp. and Walgreens Boots Alliance Inc. gave some analysts hope that it would deliver a greater share of packages to higher-paying business customers and add more density to its delivery routes. But there’s some debate as to whether the Express air-delivery unit as currently constituted still makes sense. Amazon relies on a network of fulfillment and sorting centers close to metropolitan areas to rapidly complete and ship orders, a model that many rival retailers are mimicking in some shape or form as they try to stay competitive. If you’re only going to deliver a package 25 or 50 miles, you’re not going to use a plane to do that. Indeed, when FedEx’s decision to drop Amazon as a U.S. Express customer was first announced, Seaport Global Holdings analyst Kevin Sterling wondered to Bloomberg News whether it was a precursor to the Express unit eventually fading out.

Planes still have a role to play: Amazon last week announced an agreement to lease 15 additional Boeing Co. 737-800 converted freighters from General Electric Co.’s jet-lessor arm, adding to an existing agreement for five planes.But FedEx’s reported need to offer discounts to keep the planes it has full calls into question the company’s decision to devote a significant amount of its capital expenditure budget to refreshing its airplane fleet. Management has been clear it’s not expanding capacity at the Express unit, but rather replacing its planes with more efficient options to improve productivity and costs. Downsizing the fleet and reallocating those resources could be a smarter move.

The reported pricing cuts – coupled with FedEx’s recently announced plan to offer delivery seven days a week by 2020 and add a fleet of flexible, part-time drivers – reinforce a point both I and my colleague Shira Ovide have long argued: Amazon doesn’t need to steal customers away from FedEx and UPS en masse to be a threat. It’s already forcing both companies to rethink the way they operate. The revenue lost from removing Amazon as an Express customer is relatively minor, but the world the e-commerce giant has created isn’t a hospitable one for the package-delivery incumbents’ profit margins and capital-spending budgets.

(1) News of the discounts weighed on shares Monday, as did a separate shipping issue: FedExhad to issue a second apology to Huawei Technologies over the misrouting of packages, and some reports indicate China is contemplating black-listing it.

To contact the author of this story: Brooke Sutherland at [email protected]

To contact the editor responsible for this story: Beth Williams at [email protected]

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

https://www.washingtonpost.com/busin...=.de1e24421f49

As an outsider (I don’t start for 2 weeks), it seems to me that UPS runs much leaner on the air side than FedEx. While the backbone of FedEx is the airplanes and the Express portion of the business, UPS seems to have the minimum fleet size they absolutely need to get by with. You guys would know better than me obviously, but there doesn’t appear to be the room for downsize that may be available to FedEx. I feel like the airplane business models used by FedEx and UPS are quite different leaving FedEx much more susceptible to the issues raised in the article. But what the hell do I know.

You figured it out all by urself😁😁

https://www.freightwaves.com/news/despite-talk-of-budding-rivalry-amazon-and-ups-may-find-theyre-stuck-with-each-other/amp

The author of this article is a 2012 graduate of Washington and Lee University with a degree in journalism. She has worked at Bloomberg writing M&A articles since 2015. On the other hand Fred Smith started a logistics company over 40 years ago and has had some success in that field. You be the judge.

https://www.investopedia.com/articles/markets/120115/ups-vs-fedex-comparing-business-models-and-strategies.asp - This article seems to agree with your premise.

This is the key. UPS runs the airlines because IT HAS TO. And we are somewhat growing, it’s nothing substantial. Fedex Express is the primary business.

The way I see it, she’s actually agreeing with Fred’s decision of shedding Amazon’s airside shipments. I think the title of her article implies “we’ve been telling you Amazon is a threat to you all along”. Maybe I’m misunderstanding it but that’s how I read it.

She might have different views on how to handle the freed up volume space, lowering shipping prices versus downsizing the fleet, but I’m certain Fred knows what he’s doing.

The main question is if ups should follow suit and break off this brown-prime co-competition? Why? ..because it’s a parasitic marriage of convenience which, as all bad marriages, is doomed to fail.

Today we’re helping them grow their business for some short term gains knowing they’ll hurt our business in the long term. Why are we doing that? ..because the way I and many others see it, current leadership’s focus is the dividend and other short term gains. The brand’s future is not even on their agenda.

What say you?

It’s no surprise that UPS will step over a dollar to pick up a dime. But running things “lean” is what enabled the company to survive 110 years in a business that has seen its share of competitors.

I’ve mentioned this before and it deserves a repeat... UPS can take one of those big brown delivery trucks (aka Package Cars) and change out an engine, transmission, 4 new tires and a headlight before the driver shows up for work at 0700. Try doing that with a $75,000 Mercedes Sprinter Van.

While I have the typical laundry list of gripes about my job... watching the company spend money frivolously, or making absurd global business decisions aren’t on the list.

FedEx is in trouble... and Fred/Wall Street know it. They’ve been leveraged for years and their own investors have said quit spending money for over a year now. But who knows, I make no claim to being an intelligent investor or Logistics mastermind.

I do wonder what color you get when you mix Pullman Brown/Yellow & Purple/Orange. Stranger things have happened. [emoji41]




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AMZN Threat to FDX Is No Longer ‘Fantastical’
 

FDX will be fine.

They’ve been the sector’s darling on Wall Street due to their (comparatively) rapid revenue growth, and any threat to continued revenue growth at previous pace gets their share price punished by investors.

Interesting if you look at 2010-2018, FDX’s revenue growth has outpaced UPS but our earnings growth has outpaced theirs. Of course their CAPEX well exceeded ours until last year due to their fleet recapitalization...