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Technology News - A key metric on FedEx's balance sheet underscores why the shipping giant dropped Amazon as a customer (AMZN, FDX) Read more Technology News Here --> https://digitaltechnologynews.com FedEx Express, the company's air cargo segment, has ended its relationship with Amazon. According to FedEx's most recent quarterly report, the company certainly needs fewer Amazon-like customers — ones with huge volumes but low margins. Package volume through FedEx's non-overnight air deliveries has jumped by 24%, but revenue per package has decreased by 7%. Visit Business Insider's homepage for more stories. Amazon is a big customer for delivery companies, but moving millions of Prime boxes isn't a high margin business for some. Amazon packages are very small, and they don't take up a whole lot of space, but at the same time there's not a whole lot of money to be made by moving them, Cathy Roberson, an analyst with Logistics Trends & Insights LLC, told Business Insider. FedEx's most recent quarterly earnings highlighted that. The Memphis package carrier's segment of US deferred packages (non-priority shipments) jumped by 24%. But the revenue per package dipped by 7% — $16.52 to $15.41 per package. It shows the difference between volume and yield — a high-volume segment isn't necessarily one that drives operating profits. US deferred packages are non-overnight air shipments that don't need to be delivered before a certain time. It comprises about a third of FedEx's domestic business. But FedEx's air cargo network was built to carry priority, overnight shipments to deliver before certain times, but e-commerce doesn't have the same time crunch or service demands. Analysts say margins at Express have declined in recent years, partially because of that mismatch in Express's network and the fastest growing delivery segments. (A)t what point do we question the scale of the Express networks? Barclays Brandon Oglenski analyst asked FedEx CEO and founder Fred Smith during a call with investors on June 25. (B)ecause we've seen decade after decade of low returns, low margins and peak economic activity that can't put in a pretty good return, but still never really crossing that threshold of covering the cost of capital. Read more: China might blacklist FedEx for not delivering Huawei phones. To save as much as $1.3 billion in Chinese deals, the package giant is now suing the Trump administration. (T)he only way I can respond to that is obviously the plans and the programs we put in place were designed to create superior returns, Smith responded. We didn't just decide to do it for the hell of it and it reminds me a little bit about that old adage of Mike Tyson that everybody's got a plan till they get hit in the mouth. Amazon is a prime example of low margins and high business The margin confusion points to a key financial reasoning for FedEx's choice earlier this month not to renew its US air contract with Amazon. FedEx moved 200,000 Amazon packages per day, according to Moody's Investors Service. Amazon comprised some 1.3% of FedEx's 2018 revenue. But Donald Broughton, the founder and manager partner of Broughton Capital, told Business Insider that the operating profit from that revenue was under 0.25% — something between tiny and zero. The relationship will end June 30 and not impact FedEx's other relationships with the company, FedEx said. We respect FedEx's decision and thank them for their role serving Amazon customers over the years, an Amazon spokesperson told Business Insider. Our strategic decision to not renew the FedEx Express U.S. domestic contract with Amazon will also be a near-term headwind, which we expect to reverse to a positive in FY 2021, as we replace the lost volume and optimize the network, Brie Carere, FedEx's chief marketing and communications officer, told investors this week. SEE ALSO: FedEx no longer will fly your Amazon packages — and now pressure is mounting on the company as it gears up its in-house air-freight network Join the conversation about this story » NOW WATCH: This company turned the Model S into the first official Tesla race car Source/Original Post -> https://www.businessinsider.com/fedex-amazon-ending-shipping-service-why-costs-balance-sheet-2019-6 #tech #news #trending #leak #gadgets
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Technology News - FedEx just rejected millions in potential revenue from Amazon — but here's why an analyst says it's still the right business move (FDX, AMZN) Read more Technology News Here --> https://digitaltechnologynews.com FedEx announced on Friday it had decided not to renew a contract with Amazon for sending packages through its Express air shipping network. The decision will likely result in the loss of millions in potential revenue for FedEx, but analysts say the decision will pan out for the shipping carrier in the long run. FedEx's long-term play is for carrying more profitable packages without growing volume to keep up with Amazon's rapid growth. Visit Business Insider's homepage for more stories. FedEx may have just rejected millions in potential revenue from Amazon, but it has nothing to worry about. That's according to Moody's Jonathan Root, the company's senior vice president and lead analyst for FedEx. FedEx will achieve higher margins and better returns on its investments in its Express network by redeploying capacity to customers other than Amazon, Root wrote in a note to investors. While it will take time to fully replace the Amazon volumes with that from other customers, we nonetheless consider the news a credit positive event taking a longer-term perspective. He postulates FedEx will easily recover the lost business after deciding not to renew its contract with Amazon for FedEx Express shipping. Read more: FedEx says it will no longer deliver Amazon packages with its fast shipping service We believe Amazon, representing less than 1.3% of FedEx's nearly $70 billion of consolidated annual revenue, is one of FedEx's least profitable customers on a margin basis and that the decision implies that Amazon would not agree to financial terms that would meet FedEx's needs, Root wrote in a note to investors on Monday. We assumed an average revenue per package for Amazon of about $15.00 versus the disclosed composite average of $18.50. In total, all of FedEx' business with Amazon is worth about $850 million across its different package delivery networks, Root estimates. Amazon's other contracts with FedEx were not affected by the new development. While FedEx likely just turned down millions in potential revenue from Amazon by deciding not to renew the Express contract, it appears to believe it can make that up by focusing on the other large part of e-commerce that Amazon does not own. The volume of Amazon packages being affected by the policy change — which Moody's estimates is less than 200,000 packages a day out of a total of 2.9 million packages for FedEx Express US domestic — can be replaced with packages sent by e-commerce shippers who will pay more per package, resulting in increased revenue for the same volume sent through FedEx's logistics network, Root argues. In its statement about the Amazon contract, FedEx made clear it is looking to service other e-commerce customers apart from Amazon. FedEx has already made moves to chase this business, including making more of its last-mile FedEx ground deliveries directly instead of handing them over to the US Postal Service. It also announced a new seven-days-a-week delivery schedule that will start in 2020. Despite Amazon's large share in driving e-commerce's growth, most of its FedEx US package volume flows through the FedEx Express Network, Root wrote. This suggests that the impetus for adding year-round Sunday delivery in the FedEx Ground business is driven by a desire to maintain a competitive offering and smooth daily flow through its sorting facilities to improve operating efficiency rather than to serve volume growth from Amazon. We respect FedEx's decision and thank them for their role serving Amazon customers over the years, Amazon said in a statement after FedEx announced its decision on Friday. SEE ALSO: Amazon Prime Day, the made-up holiday that rivals Black Friday, is coming soon. Here's why it's such a big deal. Join the conversation about this story » NOW WATCH: We tried Whataburger, the 'In-N-Out of Texas' — here's our verdict Source/Original Post -> https://www.businessinsider.com/fedex-ending-amazon-contract-good-business-move-analyst-2019-6 #tech #news #trending #leak #gadgets
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