FedEx claims it Will “start-lapping” Amazon by 2021

FedEx’s bumpy relationship with Amazon may have instigated its fiscal second-quarter earnings slump, but the shipping company says it could outpace its competitor in fiscal 2021.

“If you think about all the positive things we’ve said and that we’re seeing, as we get into 2021, we will start lapping Amazon,” FedEx CFO Alan B. Graf Jr. said regarding the company’s earnings call on Tuesday evening. “Without giving you specifics, we’re at the bottom, and we’re going to come up off the mat and we’re going to improve through the rest of this year and into the next”.

FedEx’s Move

FedEx has invested a lot to expand its ground-delivery services in order to run seven days a week all year. Graf said those investments, along with “operational synergies” in Europe, will start to pay off in the company’s fiscal 2021.

Earlier Tuesday, FedEx reported weaker-than-expected fiscal second-quarter results and decreased its full-year earnings outlook for 2020. On Wednesday, Its shares slid by 10%. The company has lost just over 4 billion in market value since Tuesday’s close and the stock is down by about 9% year to date.

The company accused the disappointing quarterly results on feeble global economic conditions, increasing costs associated with ground-delivery expansion, online holiday sales moving to the third quarter, and the “loss of business from a large customer”, which Graf later confirmed was Amazon.

Graf said, “The loss of volume from Amazon had a larger negative impact to the second quarter than the first quarter since the FedEx ground contract with Amazon expired in August”.

In August, FedEx declared that it plans to end its ground-delivery contract with Amazon; it stopped its express US shipping contract with Amazon in June.

Amazon’s answer

Earlier this week, Amazon retaliated by announcing it will temporarily avoid third-party sellers, which consists of 58% of its total merchandise sales, and will not be using FedEx’s ground and home delivery services for Prime orders.

Amazon said FedEx’s poor delivery performance was the reason for its decision, as it wanted to make sure shoppers would receive their packages on time for Christmas. The company didn’t indicate when it would resume the service.

Ideally, this is a risky move for sellers during the busiest shopping period of the year; it threatens to throw many of their businesses into a tailspin. Sellers were forced to find a new carrier which may lead to potentially higher upfront costs as a result.

The feud between Amazon and FedEx has heated up significantly in the past year. In September, FedEx started addressing Amazon as a competitor, after denying the company posed a threat. By building up its delivery network, Amazon has gradually distanced itself from FedEx and UPS.

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