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Amazon Bans FedEx's Ground Network Usage for Prime Deliveries

Zacks Equity Research

Amazon AMZN has temporarily suspended the usage of FedEx’s FDX ground delivery network for its Prime shipments, which require deliveries at ultrafast speed.

Notably, the company is of the opinion that the network is slow and needs to speed up. In fact, despite the flurry of holiday orders and shipments, Amazon will not lift the suspension until the network speeds up.

The latest move reflects the tensions between Amazon and FedEx. Notably, the latter did not renew the delivery contract this year following Amazon’s decision to speed up the Prime shipment from two days to one day.

Nevertheless, the e-commerce giant has kept the option of FedEx's faster Express services including air transport open for Prime deliveries to the third-party sellers who are now barred from using FedEx ground services.

However, the third-party sellers have the alternative option of utilizing United Parcel Service’s UPS ground service. Moreover, the third-party sellers can still use FedEx ground services for non-Prime deliveries.

Consequences of the Move

Interests of the third-party sellers, who account for more than half the products sold on Amazon’s e-commerce site, are likely to be affected. This is because they will have to shift to pricier alternatives for faster deliveries during the peak holiday season.

Further, the company itself has been under strict scrutiny on the issue as to whether it can force these sellers to use its own logistic services, which are comparatively expensive.

Notably, the move might not go down well with the third-party sellers and impact their relationship with the company. However, the move is testament to Amazon’s commitment to deliver goods to customers on time, which is very crucial for any online retailer.

Moreover, the move highlights that the company is working hard to improve delivery timings after receiving complaints against delayed Prime packages post this Black Friday.

Further, speedy deliveries are likely to enhance shopping experience for customers.  Additionally, the latest move is likely to bolster the company’s holiday initiatives.

Amazon.com, Inc. Revenue (TTM)

Amazon Prime: A Key Catalyst

We note that Prime members pay $119 per year for fast and free delivery. Restricting the usage of FedEx’s ground network for Prime shipments reflects Amazon’s solid Prime oriented focus.

Further, strengthening delivery system will not only aid the company in enticing Prime shoppers but also attract customers to subscribe for Prime. This in turn will drive Amazon’s top line.

Moreover, these strong endeavors are likely to bolster Prime momentum, which remains a tailwind.

Zacks Rank & Stocks to Consider

Currently, Amazon carries a Zacks Rank #3 (Hold).

A better ranked stock in the retail-wholesale sector that can be considered is Fiverr International FVRR which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Fiverr International is pegged at 44.18%.

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Click to get this free report Amazon.com, Inc. (AMZN) : Free Stock Analysis Report United Parcel Service, Inc. (UPS) : Free Stock Analysis Report FedEx Corporation (FDX) : Free Stock Analysis Report Fiverr International Lt. (FVRR) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research