Morningstar | FedEx Demonstrates Discipline, Declines to Renew Amazon Contract with U.S. Express
FedEx announced June 7 that it will not renew its domestic U.S. Express contract with Amazon.com. This does not affect contracts with FedEx Ground and international Express at this time. FedEx indicates that Amazon constitutes less than 1.3% of total FedEx companywide revenue, and we think it's likely there is still substantial Ground business with Amazon. We also think that Amazon packages would generate lower-than-average margins in any FedEx segment.FedEx's decision corroborates our opinion that the company has been judicious in limiting the influx of heavily discounted, high-cost-to-serve residential delivery packages it accepts into its networks. We believe residential deliveries have posed a material margin headwind for the integrated shippers for years, with many automation and route guidance investments only likely to offset the business-to-consumer headwind from the high cost of one package per stop and more-frequent missed deliveries. The company indicated that it remains dedicated to serving e-commerce customers--apparently only on terms it finds sufficiently remunerative, or perhaps limited to customers who are not building their own next-day/same-day delivery networks to cherry-pick dense parcel delivery regions.
The withdrawal of FedEx Express may make remaining market competitors (UPS, U.S. Postal Service) more rational and able to eke out somewhat better contract renewal terms, but given that Amazon can employ options like its own network or regional delivery providers in many areas, this pricing power notion is somewhat speculative. We maintain our fair value estimate for FedEx as we believe this decision will not materially affect our valuation assumptions.
FedEx provides transportation, e-commerce and business services through companies under the FedEx brand. These companies are included in the following segments: Federal Express Corporation, including TNT Express B.V., is an express transportation company; FedEx Ground Package System, Inc., which is a provider of small-package ground delivery services; FedEx Freight Corporation, which is a provider of less-than-truckload freight services; and FedEx Corporate Services, Inc., which provides sales, marketing, information technology, communications, customer service, technical support, billing and collections services, and certain back-office functions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.