FEDEX: We aren't afraid of Amazon
- FedEx addressed concerns around Amazon's growing shipping ambitions on its quarterly earnings call on Tuesday, stressing it doesn't see Amazon's air delivery as a threat.
- FedEx's management highlighted that it is not directly competing with Amazon and that the two companies have a close relationship.
- Instead of labeling Amazon as the biggest threat, FedEx said the biggest enemy to its business right now has been bad political choices.
- Watch FedEx trade live.
Despite recent analyst reports suggesting that Amazon's growing shipping ambitions could take market share from the legacy delivery giants FedEx or UPS, the former insists that it doesn't see the e-commerce giant as a threat.
"We don't see them as a peer competitor at this point in time," FedEx CEO Frederick Smith told investors during an earnings call after Tuesday's closing bell.
"We have very strong strategies, well understood by the management team. The addressable markets that we deal with are growing."
Earlier this month, Amazon announced plans to build a regional air hub at Fort Worth Alliance Airport, which would support a handful of daily flights and infrastructure for sorting packages.
Amazon's ambitions in air delivery can be dated back to August 2016, when it unveiled its first cargo plane, Amazon One, - a converted Boeing 767 operated by Amazon partner Atlas Air - highlighting its desire to take over package-delivery logistics. At the time, Amazon said it leased 40 fleet units through air cargo partners Atlas Air and ATSG, and had invested aggressively in its first air-cargo hub located in Hebron, Kentucky, in order to reduce its reliance on the traditional logistics companies like UPS and FedEx.
"Our current work shows that despite being in the early innings of Amazon Air's rollout, Amazon's volumes moving onto Amazon Air are costing UPS/FDX roughly 200-300 bps [basis points] of volume growth," Morgan Stanley analysts led by Ravi Shanker wrote recently in a client note.
But FedEx's management stressed that the market has misunderstood its relationship with Amazon.
"We don't have any concerns. So far as you can see, our volumes in the domestic networks are continuing to increase, and we value Amazon as a good customer of ours," FedEx's executive vice president Rajesh Subramaniam said during the call.
FedEx's management said the Amazon Air network is set up to move inventory within the Amazon system and still outsources most of its shipping needs to companies like itself and UPS. They added that Amazon's system is scheduled differently than FedEx's or UPS' system, so the two systems are not directly competing with each other.
Instead of labeling Amazon as its biggest threat right now, FedEx said "bad political choices" that have led to global economic uncertainty are creating problems right now.
"Most of the issues that we're dealing with today are induced by bad political choices, I mean, making a bad decision about a new tax, creating a tremendously difficult situation with Brexit, the immigration crisis in Germany, the mercantilism and state-owned enterprise initiatives in China, the tariffs that the United States put in unilaterally," Smith said.
The logistics giant slashed its 2019 earnings forecast between $15.50 and $16.60 per share - from $17.20 to $17.80 a share - and said its goal of achieving an operating income of $1.5 billion by fiscal 2020 won't be achieved, citing global trade slowdowns especially in Europe and Asia.
FedEx was down 8% ahead of Wednesday's opening bell and 33% this year through Tuesday.
Now read:
- Amazon's fleet of 767s is bad news for FedEx and UPS, Morgan Stanley says
- FedEx insists that Amazon's expanding shipping network isn't a threat
- FedEx just slashed its 2019 forecast because of 'global economic uncertainty
