It’s no secret, at this point, that Amazon has its eye on the delivery business. The company has dominated the eCommerce space, the only logical next step is to do the same for delivery – not only for its own shipping but as a full-fledged carrier in its own right.
However, while Amazon’s march toward eCommerce dominance has been staggering, it has not been without competition. In 2019, Walmart began to close the gap with Amazon by focusing on next-day delivery and more flexible options for customers.
So how can Amazon fully solidify its advantage? A novel solution has been proposed: acquire FedEx.
Recently, Forbes posited this scenario as a necessity for Amazon to retain its position as the eCommerce leader.
Why Amazon Purchasing FedEx Makes Sense
The basic argument was made last year by an analyst at Loop Capital. The analyst stated that FedEx’s current stock is currently undervalued and that Amazon’s acquisition of FedEx at this time would give access to the “best global network for a fraction of the cost of building it themselves.”
The shipping space has already become cutthroat, with incumbent players fighting against each other – but much of the fire has been aimed at Amazon directly, and Amazon has responded in kind.
In the Summer of 2019, FedEx effectively severed its contractual relationship with Amazon, first for Express Air and then for ground shipping.
Amazon has slowly been building out its shipping infrastructure but at great cost to the company’s bottom line. The company’s on-day shipping model, for example, has been costly and net-negative in terms of profit. The company has been willing to take a fiscal hit in the near term for future profits.
However, acquiring FedEx now would negate further money-losing ventures and rocket them to the head of the pack of carriers.
Other Potential Outcomes
It’s far from a sure-thing that Amazon will actually acquire FedEx, but there are other scenarios that are equally interesting.
Given Walmart’s position in the eCommerce space, as well as its incredibly deep pockets, they may be the perfect candidate to take over FedEx. In addition, Walmart has one of the most efficiently run, and complex, transportation networks in the world. If Walmart were to acquire FedEx and absorb it into their network, they would be putting Amazon on their back foot in the shipping space and considerably close the gap between the two.
The Walmart scenario might have merit since there were some rumblings that FedEx’s decision in 2019 to not renew its contracts with Amazon was, in fact, orchestrated by Walmart. This scenario has no solid proof behind it, but Amazon’s stated reason for not continuing its Amazon contract was to “focus on serving the broader eCommerce market.”
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