The unstable relationship with Amazon may have contributed to the sharp drop in FedEx’s second-quarter earnings, but the courier company said it could turn a profit in fiscal 2021 and grow faster than Amazon. “If you think about all the positives we’ve said and seen, we’re going to start outbeating Amazon as we get into FY2021,” he said. Alan B. Graf Jr., FedEx CFO, said on a earnings conference call after Tuesday’s session. “We’re going to be better for the rest of the year and next. ”
FedEx has invested heavily in expanding its ground delivery service, which is open all year round. Mr Graff said the investments, combined with FedEx’s “operational synergy” in the European market, would begin to bear fruit in the company’s 2021 financial year.
After Tuesday’s session, FedEx reported weaker-than-expected results for the second quarter and cut its earnings forecast for the 2020 fiscal year, sending its shares tumbling more than 10 percent on Wednesday. FedEx’s market value has evaporated by more than $4 billion since Tuesday’s close. The company blamed the disappointing quarter on weak global economic conditions, rising costs associated with the expansion of ground delivery services, the shift in online holiday sales to the third quarter and the “loss of a major customer business,” while Graff later confirmed that the so-called “big customer” was referring to Amazon.
“The expiration of the contract for ground delivery services between FedEx and Amazon in August had an impact on first-quarter results, but had a greater negative impact on second-quarter results,” Graff said on a conference call. ”
FedEx announced in August that it planned to terminate its contract with Amazon for ground delivery services after suspending its U.S. express delivery contract with Amazon in June. Amazon hit back earlier this week by announcing it would temporarily ban third-party merchants from using FedEx’s ground delivery service, which now accounts for 58 percent of amazon’s total sales. Amazon said the decision was made because of FedEx’s poor delivery performance and guaranteed shoppers to receive packages in time for Christmas. Amazon did not say when it would resume the service.
For sellers, the annual holiday shopping season is the busiest of the year, and Amazon’s move could throw its business into disarray. Sellers are forced to find new delivery providers, and their upfront costs may rise as a result.
Over the past year, the “war of words” between Amazon and FedEx has risen markedly. FedEx, which at one point denied that Amazon posed a threat to it, began mentioning it as a competitor in September. Amazon is building its own delivery network, gradually pulling away from FedEx and UPS.