(Bloomberg)—FedEx Corp. CEO Fred Smith isn’t sweating Amazon.com Inc.’s move to expand its own delivery network, saying the e-commerce giant is likely to take more business from the post office than the package courier.
“Amazon is a good customer. We think they’ll be a bigger customer in years to come if they continue to grow and they certainly should,” Smith said in an interview Tuesday in Singapore, where he was attending the Bloomberg New Economy Forum. “The biggest single entity that will lose traffic as Amazon puts out its contractor delivery force is U.S. Postal Service.”
To gain more control over deliveries, Amazon this year began forming its own network by supplying vehicles, uniforms, technology and packages to third-party contractors it calls Delivery Service Partners. Most Amazon volume now is handled by the post office, FedEx and United Parcel Service Inc.
The bulk of the new program is for residential customers. Those are less profitable for couriers than businesses, which typically receive multiple packages for each delivery. The growth in online retailing has forced FedEx and UPS to invest more in automation to preserve profit margins.
FedEx announced this week it will increase shipping rates effective Jan. 7, 2019, by an average of 4.9% for U.S. domestic, U.S. export and U.S. import services.
In October, the post office revealed a list of proposed rate hikes for fiscal year 2019 that would raise prices on the kinds of shipping services used by Amazon.com Inc. and other e-retailers. According to the proposal, rates for traditional parcel delivery—which applies to packages weighing more than a pound—would go up 9.3%, while the rates for lightweight packages would rise 12.3%. If approved by the Postal Regulatory Commission, the changes would take effect on January 27, 2019. UPS has not yet announced 2019 rate hikes.
Memphis, Tennessee-based FedEx meanwhile is assessing how it might be affected if the Trump administration carries through with a threat to impose tariffs on all Chinese imports.
“A lot of our customers are telling us they’re looking to shift some of their supply chains to Vietnam and Thailand, away from China. Some of them are trying to ship a lot of product in advance of the peak season so they avoid tariffs,” Smith said. That, however, is easier said than done.
“You can’t just move a factory to Vietnam,” Smith said. “I think at the moment there’s more talk about it and advanced planning and everybody’s hoping the tariff dispute will get resolved.”
Amazon is No. 1 in the Internet Retailer 2018 Top 500.