Here’s Why Amazon Won’t Let Third-Party Sellers Ship with FedEx

Earlier this week, Amazon announced that sellers on its site will not be permitted to use FedEx for deliveries to Amazon Prime customers.

The Wall Street Journal reported a “decline in performance” as the reason for the change but Amazon did not give specifics about what that decline was.

According to Forbes, a supply chain software company called Convey has done an analysis on 2.5 billion shipping events relating to tens of millions of packages shipped from over 500 thousand locations since Thanksgiving and the results are troubling to any FedEx shareholder: FedEx on-time delivery performance has dropped to 68.3% from 77.5% in the same period in 2018. And FedEx is not alone. The same analysis shows UPS’ on-time stats are down too, from 86% to 80%. Most likely, the increase in the number of packages and the higher percent going to consumers’ homes is overwhelming the companies’ systems and accounts for the decline in on-time performance.

Although these poor performance numbers from FedEx and UPS are bad for Amazon’s customer service in the short-term, this may be a big opportunity for Amazon in the longer term. Amazon is now leaning on these poor performance numbers to continue to build its own delivery business.

Amazon could become a potentially important competitor to FedEx and other delivery services.

 Why would Amazon build its own delivery service?

 It’s about the stock price. Amazon’s stock, unlike most other companies, rises on revenue growth where most companies’ stock prices rise on earnings growth. Amazon’s stock is critical because it’s used as an incentive for its employees. And its consistent rise creates an almost zero cost of capital for Amazon that allows it to deploy capital that other companies can’t dream of. The catch is that Amazon must continue to grow its revenue to drive its stock. With Amazon as big as it is in online retail, it’s hard to find growth opportunities that will be big enough to be impactful. Amazon has to find other places to increase revenue and the shipping business may be just such an opportunity.

P.S.

Some of our clients also experience delays in shipments from China to Europe by Fedex, due to the same reasons. We recommend to take it into consideration while planning your shipments to Amazon during the holiday season.

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