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Amazon Disallows Third-Party Sellers to Use FedEx Ground for Shipping Prime Packages

GuruFocus.com

Amazon Inc. (NASDAQ:AMZN) announced on Sunday that it will disallow its third-party sellers from using the FedEx Corp. (NYSE:FDX) ground delivery network for managing Prime shipments. The company cited a decline in the performance of FedEx ground service in times when holiday shipments were huge. The ban is slated to start this week.

Bird's-eye view

Third-party merchants make up more than 50% Amazon's total goods sold, but neither Amazon nor FedEx mentioned how many shipments would be affected by the restriction. The online retail giant said the decision to temporarily ban FedEx ground for shipment is based on the need to speed up the delivery process during the holiday season and ensure that packages are delivered to customers on time. Amazon says the ban will be effectively removed once FedEx's service level starts improving.


The ban will not prohibit third party sellers from using FedEx's Express shipping services for Prime orders, and non-Prime orders will still be handled using FedEx's ground and home delivery services.

A FedEx spokeswoman said that although Amazon's move affects only a small number of, it "limits the options for those small businesses on some of the highest shipping days in history." FedEx remains optimistic about achieving a record-breaking volume this holiday season.

FedEx terminated its two major shipping bonds with Amazon earlier this year and has shifted its focus to other e-commerce partnerships, teaming up with Wal-Mart (NYSE:WMT) and Target (NYSE:TGT)

Amazon's efforts to ensure faster package deliveries

Amazon's efforts in accelerating its delivery time and managing its own delivery network act as a threat to established shipping companies like FedEx and United Parcel Service (NYSE:UPS). In view of strengthening its own delivery network, Amazon has bought cargo jets, vans and trucks and is on track to double its own package deliveries in the U.S. this holiday season as compared to the prior year. Amazon also rolled out a delivery drone in June, whose purpose is to accelerate delivery times for Prime members.

Amazon's CEO Jeff Bezos announced that the company would open a new Air hub in Kentucky in 2021, which will house 50 aircraft meant to provide faster shipping to customers. This will help the company in reducing its dependence on FedEx and UPS.

Conclusion

The Amazon annual prime membership of $119 is Amazon's primary sales driver. The company is also investing massively and deploying resources to ensure standard delivery time of 1 day to its most loyal customers. It would be interesting to see how the company manages its online sales delivery in this holiday season, given it has cut some of its ties with FedEx. Amazon is currently banking on its own logistics to make up the difference.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.