FedEx ends contract with Amazon for Express shipping

FedEx said Friday that it's not renewing its express air-delivery contract with Amazon.

The contract loss could hamper Amazon's push to one-day delivery for Prime members, which already covers 10 million items.

"FedEx has made the strategic decision to not renew our FedEx Express contract with Amazon as we focus on serving the broader market. We are excited about the future of e-commerce and our role as a leader in it," it said.

FedEx cited the "significant demand and opportunity" in e-commerce as its reason for ending the contract, saying online delivery is expected to grow from 50 million to 100 million parcels every day in the US by 2026.

FedEx also pointed to its e-commerce contracts with Target, Walmart and Walgreens in an emailed statement Friday.

"FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space," it said.

In response, Amazon said it respects FedEx's decision and thanked the company for its past role in serving Amazon's customers, according to an emailed statement.

Amazon still retains access to FedEx Ground and international delivery services, however. The e-commerce giant has been working on expanding its own delivery infrastructure, having leased its own planes and broken ground on a new air cargo hub. 

Earlier this week, Amazon also unveiled its new delivery drone at its re:MARS 2019 conference in Las Vegas.

Commenting on the decision by FedEx, Jonathan Root, Moody's SVP and lead FedEx analyst, said id "makes perfect sense" in light of the growth of retail e-commerce.

"FedEx will achieve higher margins and better returns on its investments in its Express network by re-deploying capacity to customers other than Amazon," Root said in an emailed statement.

"We believe Amazon, representing less than 1.3% of FedEx's nearly $70 billion of consolidated annual revenue, is one of FedEx's least profitable customers on a margin basis and that the decision implies that Amazon would not agree to financial terms that would meet FedEx's needs."

Amazon also has express delivery capabilities through its contracts with UPS and USPS, as well as its own services.

Updated at 5:51 p.m. PT: Adds comments from Moody's.