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Amazon's threat to FedEx is no longer "fantastic"



FedEx Corp. can finally wake up for the threat that Amazon.com Inc. presents its business model.

The logistics company offers big discounts to help fill in airplanes on its express delivery network with more e-commerce supplies, according to the Wall Street Journal, quoting people familiar with the issue. Transactions are used to attract customers away from competing United Parcel Service Inc., or to persuade them to switch from FedEx's cheaper offerings, the newspaper said, citing people familiar with the issue. For some customers, the delivery of goods through FedEx's two-day air service can now cost roughly the same cost as transporting them through the ground compartment. (1

)

A FedEx spokeswoman told the Wall Street Journal that the company has not changed its pricing. strategy, adding that the two-day express service "has been very successful and continues to bring tremendous value to small and medium businesses competing in the e-commerce market." Discount reports come just weeks after FedEx said internal Express was The delivery device leaked Amazon as a customer to focus on "serving the broader e-commerce market." FedEx lost Amazon as a customer for its Express Delivery department to focus on "serving the wider market e-commerce dice ". from this move is that FedEx has gotten a little spine and has a firmer line of pricing with Amazon in an attempt to boost its profits. Another possibility is that FedEx has admitted that Amazon's efforts to bring more logistics into the house are real, and that it may want to start a decay process with Amazon before Amazon decides to part with it. While FedEx Chief Executive Fred Smith has repeatedly drawn every concept that Amazon violates the logistics industry as "fantastic," his actions increasingly imply another.

The capacity share dedicated to time sensitive legal documents and medical supplies for which the FedEx Express network is initially built will likely continue to shrink. But it is not economical for the fleet of the division, which at the end of 2018 was 670 hired and owning aircraft, to fly partially in whole or in part. Meanwhile, FedEx expects US e-commerce to grow to 100 million packages per day by 2026. It was clear that Amazon was directly responsible for a small percentage of total sales. But Amazon has forever changed the world's expectations for shopping and delivery. So whether his own sales are in the mix, FedEx will be forced to drink deeper than the firewall of e-commerce supplies to keep its network.

FedEx's decision to prioritize shipments from companies such as Walmart Inc., Target Corp. and Walgreens Boots Alliance Inc. gave some analysts the hope of delivering a larger share of packages to higher. – paying business customers and adding more density to delivery routes. But there is some debate about whether the current "Express Air Service" still makes sense. Amazon relies on a network of execution and sorting centers near the metropolitan areas to quickly complete and deliver orders, a model that many competing retailers imitate in some form or shape while trying to remain competitive. If you are only going to deliver a 25 or 50 mile package, you will not use an airplane for that. In fact, when FedEx's decision to release Amazon as a US Express customer was initially announced, Seaport Global Holdings analyst Kevin Stirling marveled at Bloomberg News whether it was the predecessor of the Express Unit that eventually faded. Amazon last week announced an agreement to lease 15 additional Boeing Co. 737-800 processed freight wagons from General Electric Co. Ltd., adding to the existing five-plane agreement. FedEx's reported need to offer discounts to keep aircraft intact, casts doubt on the company's decision to devote a significant portion of its equity budget to refinishing its fleet. The management is clear that it does not expand the capacity of the Express unit, but rather replaces its aircraft with more efficient capabilities to improve performance and cost. Reducing the fleet and redistributing these resources may be a smarter move.

Reported price reductions – combined with FedEx's recently announced plan to offer delivery up to seven days a week by 2020 and add a fleet of flexible, part-time jobs – strengthen Both myself and my colleague, Shira Ovid We have long argued: Amazon should not steal customers from FedEx and UPS on a massive scale to be a threat. It has already forced both companies to rethink the way they work. The revenue lost by the removal of Amazon as an express customer is relatively insignificant, but the world created by the e-commerce giant is not welcoming for the profits and the supply of capital.

(1) The news of the concessions was heavy on stocks Monday, as well as a separate delivery release: FedExhad issued Huawei Technologies's second apology about incorrect packet routing and some reports indicate that China plans to include it. 19659012] To contact the author of this story: Brooke Sutherland at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

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

Brooke Sutherland is a journalist at Bloomberg Opinion, which covers deals and industrial companies. Previously, she wrote a merger and acquisition column for Bloomberg News.

© 2019 Bloomberg L.P.
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