But whether it's UPS that makes the first move business or Amazon.com becoming a larger, more fully realized logistics and transportation company, those two parties will also one day likely part paths too.Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.Still, there could be some upside for UPS, which could pick up at least some of the additional volume that FedEx is dropping. “He is just trying to get UPS to the next level and figure out how he competes globally and with a customer who is also increasingly becoming a competitor.”UPS CEO David Abney (Dustin Chambers/Bloomberg News)Shares of UPS were outperforming its rival’s this year even before FedEx warned this week that a trade war and broad, global economic slowdown are tanking package demand — a view that UPS pointedly said it didn’t share. Signs of success — one of the smoothest peak seasons ever last year and an increase in operating profit in the second quarter for the first time in two years — have helped the stock rebound closer to its record-high in early 2018.Not that long ago, Wall Street fretted that tradition-bound United Parcel Service Inc. would lag nimble FedEx Corp., with its fully automated package-sorting hubs, in the race to cash in from surging shipments tied to e-commerce.Abney also touts UPS’ innovation in response to the explosive growth of online commerce, such as matching small businesses with empty warehouse space or helping retailers use their stores as delivery centers for online purchases.Abney’s decisions to place four outsiders on the 12-person leadership committee and shed longtime executives through early retirement have employees on edge, said Glenn Gooding, president of shipping consulting firm IDrive Logistics, who worked at UPS for 21 years. Year-to-date, the company’s stock was up 24% through Sept. 18, outpacing a 6.5% decline for FedEx and a 20% increase for the S&P 500 Index over the same span.Abney more than doubled annual investment to modernize sorting hubs and add new aircraft. “As long as it’s mutually beneficial, then that’s what we’ll do. But UPS won't follow FedEx lead anytime soon as its position with Amazon likely improves near term. He joined the company while in college as a 19-year-old package loader and later delivered parcels. Its trucks and planes are out delivering Amazon packages anyway so it can offer shipping at cost, instead of collecting a margin. He rammed through a union contract that allowed UPS to hire weekend drivers at new lower pay rates. Both couriers are managing through a time of upheaval in their business, and their fortunes could shift over time. But Moody's analyst Jonathan Root said Amazon was also one of FedEx's "least profitable customers on a margin basis" and severing ties with Amazon suggested the retailer "would not agree to financial terms that would meet FedEx' needs.
Returns as of 07/30/2020. FedEx canceled domestic contracts with Amazon.Amazon’s homegrown parcel business still threatens to steal volume and undercut shipping prices. Of course, it might have been more if Amazon hadn't been continuously developing its own capabilities. “E-commerce, I believe — along with emerging markets — is probably the greatest commercial opportunity that many of us are ever going to see because it is just changing the world.”“We have chosen to work with them,” Abney said. “You can’t have just a little clang. “They haven’t been meeting that challenge because we’ve seen margins go the other way.”A $20 billion investment spree detailed by UPS CEO David Abney last year, a plan that initially rattled Wall Street, is bearing fruit.

And even if international shipments are only a tiny portion of the whole business, they will likely be the next segment to fall.Analysts estimate FedEx handled only about 4% of Amazon's volume, while UPS accounts for about 17% (the USPS bears the heaviest burden, with about one-third of deliveries handled by the post office).But UPS won't follow FedEx lead anytime soon as its position with Amazon likely improves near term. But FedEx will find it easier to sever ties with Amazon than UPS will.FedEx said Amazon accounted for only 1.3% of its total annual revenue, or about $900 million based on last year's $70 billion total. Amazon — which has started offering its shipping capabilities as a service — will be able to ship products for about two-thirds the rates of UPS and FedEx, Pellas projects. Big Brown reportedly saw a 30% uptick in next-day-air volume in the second quarter after FedEx stopped Express air delivery for Amazon.Of course, Amazon also began doing one-day shipping for Prime customers, which could increase volumes while also further pressure margins.It was costly for FedEx to maintain its relationship with Amazon as a result of the discounts the e-commerce giant negotiated because of its high volume of shipments it generated.
Amazon just ordered 20,000 delivery vans. Profit margins are improving even as 112-year-old Big Brown copes with swelling volume from voracious online shoppers, who are typically less lucrative to serve than business customers.A new five-year contract that was barely ratified last year still rankles some union members, in part because it creates a new class of drivers for weekends who earn less than existing drivers.

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