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Amazon is not FedEx's biggest problem



<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The news about FedEx (NYSE: FDX) Express does not renew a contract with Amazon.com (NASDAQ: AMZN) has given new ground to the dissertation that the online shopping fighter presents a real threat to package suppliers UPS (NYSE: UPS) and FedEx There is, after all, strong evidence to assume that when Amazon enters an industry, it creates marginal pressure on industry's established companies, but the reality is that FedEx has more pressing issues to worry than Amazon. Let's look at. & nbsp; "data-response time =" 1
1 "> The news that FedEx (NYSE : FDX) Express does not renew a contract with Amazon.com (NASDAQ: AMZN) ] has given new head to the thesis that online sho pping giant poses a real threat to package suppliers UPS (NYSE: UPS) and FedEx . After all, there is strong evidence that when Amazon joins an industry, it creates margin pressure on the industry's established businesses. But the reality is that FedEx has more pressing issues to worry about than Amazon. Let's look closer.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " Why FedEx Express ditched Amazon "data-reactid =" 12 "> Why FedEx Express Fulfilled Amazon

From the Amazon decision, it is worth noting that it only concerns Express and not other contracts that FedEx has with Amazon. In addition, FedEx management has long pointed out that the e-commerce giant is not the largest single client – in fact, it was only responsible for less than 1.3% of the total FedEx revenue in 2018.

Small packages on a laptop.

Image Source: Getty Images.

In addition, there is a wide e-commerce world out there beyond Amazon. As the FedEx Declaration on the Amazon contract said, "There is high demand and opportunity for e-commerce growth, which is expected to grow from 50 million to 100 million packages a day in the United States by 2026."

It's not hard to see that FedEx is right. E-commerce sales in the United States continue to grow at a mid-tee clip, and if they continue at the same rate, they will double in six years.

US E-Commerce Sales as Percentage of Retail Sales Chart

< p class = "canvas-atom canvas text Mb (1.0em) Mb 0) – sm Mt (0.8em) – sm" type = "text" content = " US E-Commerce Sales as Percentage of Retail Sales data of YCharts React time = "50"> US E-Commerce Percentage of Retail Sales data by YCharts

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) –sm "type =" text "content =" As a reflection of the possibilities of FedEx, the company recently made a strategic alliance with Dollar General (NYSE: GD ) to offer FedEx dropoff and pickup services in thousands of Dollar General stores. & nbsp; FedEx has similar event events with retailers such as Walgreens and Walmart . Everything is told, Amazon is important, but FedEx has plenty of other opportunities for e-commerce growth. "Data Reaction =" 51 "> As a reflection of the options available to FedEx, the company recently made a strategic alliance with Dollar General (NYSE: DG) offering FedEx drop- off and pickup in thousands of Dollar General stores FedEx has similar events with retailers such as Walgreens and Walmart . All told, Amazon is important, but FedEx has plenty of other options for e- trade growth.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – -sm Mt (0.8em) – sm" type = "text" content = "As for the question of, Whether Amazon offers some form of existential threat to UPS or FedEx, the reality is that replicating those kinds of networks the packages have already simply aren't in the cards for Amazon. FedEx and UPS both have to invest billions in their networks in order to support e-commerce growth. "Data Reaction =" 52 "> As to whether Amazon offers some form of existential threat to UPS or FedEx, the reality is that replicating the kind of network that package deliveries have is simply not in the cards for Amazon. a sign of how FedEx and UPS both have to invest billions in their networks to support e-commerce growth.

When FedEx President Raj Subramaniam discussed media focus on so-called last-mile deliveries on third-quarter earnings calls, he said, " [V] ery few people think of the first thousand miles. When you see a FedEx truck on the road, it not only transports the local cargo shipments, but also the other shipments originating from all parts of the globe, creating density for last mile delivery and higher revenue per ship. Storage. "

Amazon is very unlikely to be willing or able to replicate such a dense global network.

<h2 class =" canvas-atom canvas-text Mb (1.0em) Mb (0) FedEx is a real challenge "data-reactid =" 59 "> FedEx is a real challenge

There are two of them, specifically, ensuring the profitability of e-commerce supplies and continuing integration of TNT Express.

The problem is not really one of the demand for e-commerce supplies, so losing Amazon's FedEx Express business will not have a significant impact over the near term. In addition, UPS and FedEx both have a turn to profitability due to the difficulty in meeting demand periods during the holiday season.

In this context, the decision not to renew the Amazon contract is likely to be down to e selective of e-commerce supplies rather than taking a shot over a potential rival. UPS continues to work with Amazon in a mutually beneficial relationship.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "As described above, FedEx and UPS both invest heavily in their network, which means that earnings and cash flows will be limited in the short term. The main question is how they will look to FedEx as the management describes as & nbsp; a transition period 2020. " reactid = "63"> As discussed above, FedEx and UPS both invest heavily in their networks, which means earnings and cash flows will be limited in the short term. The main question is how they will look to FedEx according to what management describes as a transition period 2020.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" Unfortunately, TNT Express continues the integration with problems. The purchase looked problematic from the start not least because TNT was already in the midst of a major transformation intended to win back customers and improve the margin when FedEx bought the company in 2016. "data-response time =" 64 "> Unfortunately, TNT Express continues to integrate with issues. The purchase was problematic from the start, not least because TNT was already in the midst of a major transformation with the aim of winning customers back and improving the margin as FedEx bought the company in 2016.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" Throw in NotPetya cyber attacks in 2017 and its impact on TNT Express – FedEx CEO Fred Smith thought it would have gone The bankruptcy of TNT, if it was a self-employed company – and it is clear that the acquisition integration has not gone as originally intended. The problem is that TNT Express lost customers due to cyber attacks which led to a shift in TNT's product mix to lower FedEx was forced to reverse its FedEx Express operating revenue forecast to rise by $ 1.2 billion – $ 1.5 billion from 2017 to 2020. "data response time =" 65 "> Throw in NotPetya the cyber attack in 2017 and its impact on TNT Express – Fed Ex CEO Fred Smith thought it would have been bankrupt if it was an independent company – and it is clear that the acquisition integration has not gone as originally planned. The problem is that TNT Express lost clients as a consequence of the cyber attack, which led to a shift in TNT's product mix towards lower marginal freight deliveries. FedEx was therefore forced to reverse its FedEx Express operating revenue forecast to rise by $ 1.2 billion – $ 1.5 billion from 2017 to 2020.

<h2 class = "canvas-atom canvas-text Mb (1.0 em) Mb) – sm Mt (0.8em) – sm "type =" text "content =" Stop worrying about Amazon "data-response time =" 66 "> Stop worry about Amazon

All in all, the Amazon threat is not really the big problem that FedEx investors should follow. Instead, the TNT Express integration and the company's transformation efforts are undoubtedly much more important. It will take time for these conditions to become clear.

Analysts have FedEx EPS rising mid-single digits in their fiscal 2020 and record high single-digit fiscal growth 2021. FedEx is certainly a stockpile for more patented investors.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-response time =" 69 "> More from The Motley Fool

<p class =" canvas-atom canvas text Mb (1.0em) Mb John Mackey, CEO of Whole Foods Market, a subsidiary of the Amazon, is a member of The Motley Fools Board of Directors. Lee Samaha (0.8em) – sm "type =" text "content =" has no position in any of the listed shares. Motley Fool owns shares in and recommends Amazon and FedEx The Motley Fool has a disclosure policy . "data-response time =" 77 "> John Mackey, CEO of Whole Foods Market, an Amazon subsidiary , is a member of The Motley Fool's Board of Directors. Lee Samaha has no position in any of the listed shares. The Motley Fool owns and recommends Amazon and FedEx. Motley Fool has an information policy.


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