FedEx ending its contract with Amazon for express deliveries in the US is good news for UPS, according to analysts

fedex ups togetherMike Blake/Reuters

  • FedEx will not renew its contract with Amazon to provide expedited package deliveries for the online retailer in the US through its FedEx Express service.
  • That's good news for UPS, the bank UBS said in a note to investors on Friday.
  • FedEx appears to believe it will fare better with Amazon's e-commerce competitors, UBS said, which is a good idea in the medium-term.
  • But FedEx will probably need time to find new customers to replace the Domestic Express business it received from Amazon, the bank said.
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FedEx will not renew its contract with Amazon to provide expedited package deliveries for the online retailer in the United States through its FedEx Express service. That's good news for UPS, the bank UBS said in a note to investors on Friday.

"[FedEx] and UPS are the only companies with Express networks," the bank wrote. "While [Amazon] could potentially handle some business with their own leased air line-haul, we believe most of the packages would need to move on UPS, or [Amazon] could simply offer slower delivery on these pieces. We view the move by [FedEx] as a positive for UPS, and for pricing."

Read more: FedEx says it will no longer deliver Amazon packages with its fast shipping service

UBS said ending its Domestic Express deal with Amazon could lower FedEx's earnings-per-share by $0.40. The bank estimated that Amazon provides $700 million of business to FedEx in the US based on the logistics company's statement that the online retailer accounted for less than 1.3% of its revenue in 2018. UBS said it believes that FedEx provides a small amount of delivery services for Amazon in its Ground and International segments, though the bank estimated that 80% of FedEx and Amazon's business came from the Domestic Express segment.

FedEx appears to believe it will fare better with Amazon's e-commerce competitors, UBS said, which is a good idea in the medium-term. But FedEx will probably need time to find new customers to replace the Domestic Express business it received from Amazon, the bank said.

"F2020 is shaping up to be a difficult year for [FedEx] and we believe walking away from the [Amazon] US business would make it even worse," UBS said.

The bank has a "sell" rating and a $136 price target for FedEx. The logistics company's stock was priced at $159.78 when markets opened on Monday.

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