fedex CEO Raj Subramaniam on Tuesday downplayed the competitive threat from Amazon’s recent supply chain service announcements.
“What we announced last week and how FedEx operates is completely different,” Subramaniam told Jim Cramer on CNBC’s “Mad Money.” “FedEx is a true end-to-end global network.”
On May 4, Amazon announced a new supply chain service, Amazon Supply Chain Services. This makes full shipping, delivery, and fulfillment capabilities available to businesses other than marketplace sellers. The announcement raised concerns that Amazon could replicate what it has done with cloud computing with Amazon Web Services in logistics, posing a bigger competitive threat to traditional shipping companies. FedEx stock fell 9% on the news, but the stock has since recovered about half of its losses. rival united parcel serviceOn the other hand, it fell by 10.5% on May 4th, and has since risen by a more modest 2%.
But Subramaniam said there are important differences missing when comparing Amazon’s supply chain services to FedEx’s core business.
“A true network is one that can be obtained in any part of the world and delivered to other parts of the world within days,” he said. “To do that, we need systems like the ones we have here and networks around the world.”
“Nothing like that has been announced,” Subramaniam said. He characterized Amazon’s announcement as representing only a small portion of the company’s third-party logistics services offering, a business that FedEx is already a part of.
FedEx’s third-party logistics division is “about a $2 billion business,” he said. “It’s not the biggest part of our business.” FedEx is expected to generate more than $93 billion in revenue in the fiscal year ending in May, according to FactSet.
Barclays analysts similarly described Amazon’s move as “noise rather than risk” in a note to clients on Monday, arguing that the announcement is not a fundamentally new competitive threat but primarily a rebranding of logistics capabilities that Amazon has long provided.
Subramaniam also emphasized that Amazon remains an important customer of FedEx, even after the two companies renewed their relationship in recent years.
“They are very valuable customers,” he said. “We really have a win-win situation.”
Mr. Subramaniam spoke with Mr. Kramer a few weeks before FedEx spun off its cargo division, which loads bulk packages from multiple customers onto a single truck, into a separate public company. The remainder of FedEx will be responsible for logistics and package delivery operations, including cargo airlines and residential businesses.
