By Paul Ziobro 

FedEx Corp. is ending its air-shipping contract with Amazon.com Inc. in the U.S., signaling the delivery company no longer wants to fly packages for an online retailer that is developing its own delivery network.

In a surprise move Friday, FedEx said it won't renew the domestic contract, which runs through June 30, for its Express unit. It will still have other shipping contracts with Amazon, including through its ground network and international services.

Amazon ships millions of packages a day, though it spreads the orders among FedEx, United Parcel Service Inc. and the U.S. Postal Service, as well as its own growing delivery operations. FedEx said Amazon represented 1.3% of FedEx's total revenue in 2018.

FedEx said it is severing its air relationship with the e-commerce giant to focus on serving a broader array of retailers, including large chains such as Walmart Inc., Target Inc. and Walgreens Boots Alliance Inc.

"There is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026," the company said in a statement. "We are excited about the future of e-commerce and our role as a leader in it."

Amazon has been building up its own logistics and delivery network, including leasing cargo jets to fly products from overseas, hiring semi trucks to ship goods in Amazon-branded trailers and contracting with local delivery firms to bring packages to homes. The company has 42 Amazon-branded aircraft in the U.S. and expects the fleet will grow to about 50 planes by the end of the year.

"We respect FedEx's decision and thank them for their role serving Amazon customers over the years," Amazon said.

Last month, Amazon broke ground on its own air-cargo hub in Hebron, Ky., which is near large air hubs run by UPS in Louisville, Ky., and FedEx in Memphis, Tenn. The Amazon facility is expected to open in 2021. The company's goal is to eventually haul and deliver packages for itself as well as other retailers, the Journal has reported.

FedEx and UPS have sought to play down the competitive threat of Amazon in recent years, as analysts and investors have questioned their exposure to the large online retailer and risks posed by the Seattle-based company delivering more of packages on its own.

"The level of global investment in facilities, sorting, aircraft, vehicles, people to replicate the service we provide, or our primary competitor provides, is just daunting, and frankly, in our view, unrealistic," FedEx Chief Financial Officer Alan Graf told the Journal in 2016.

But in recent quarters FedEx's business has been under pressure, with lower revenue in its Express unit and higher costs in its ground business forcing the company to lower its profit targets. The Express unit has switched leaders twice in recent months, and the ground business said it would start home delivery seven days a week next year. Earlier this week, FedEx said it wouldn't pay bonuses this year.

FedEx has been building a closer alignment with traditional retailers, which are increasingly shipping from stores instead of far-off distribution centers. It has been using its Express network, which traditionally carries packages long distances by plane, to ferry packages shorter distances without leaving the ground. The carrier has developed a service where it picks up online orders from stores, brings them to its Express unit's sorting hubs and delivers them to homes the next day.

Jennifer Smith contributed to this article.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

 

(END) Dow Jones Newswires

June 07, 2019 15:13 ET (19:13 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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