FedEx CEO Raj Subramaniam argued that Amazon's recent supply chain services announcement does not pose a threat to Fedex.
FedEx CEO Raj Subramaniam on Tuesday downplayed the competitive threat from Amazon's recent supply chain services announcement.
"Last week's announcement versus what 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 unveiled a new supply chain offering — Amazon Supply Chain Services — that will allow companies outside of its marketplace sellers to use its full suite of shipping, distribution, and fulfillment capabilities. The announcement sparked concerns that Amazon could replicate in logistics what it did in cloud computing with Amazon Web Services, making it a much larger competitive threat to traditional shipping companies. Shares of FedEx tumbled 9% following the news, though the stock has since recovered roughly half of those losses. Rival United Parcel Service, meanwhile, tumbled 10.5% on May 4. It's climbed a more modest 2% since then.
However, Subramaniam said comparing Amazon Supply Chain Services to FedEx's core business misses a key distinction.
"The true network is something you can pick up in any one part of the world and get it to any other part of the world in a couple of days," he said. "For that, you need a system like what we have here and the networks around the world." Subramaniam said "that's not what was announced at all." He characterized Amazon's announcement as more of a third-party logistics offering — a business FedEx already participates in, but represents only a small piece of the company.
FedEx's third-party logistics segment "is about a $2 billion business," he said. "It's not the biggest piece of our business." FedEx is projected to generate over $93 billion in its fiscal year ended in May, according to FactSet.
In a note to clients Monday, analysts at Barclays similarly described Amazon's move as "more noise than risk," arguing the announcement was largely a rebranding of logistics capabilities Amazon has offered for years rather than a fundamentally new competitive threat.
Subramaniam also emphasized that Amazon remains an important FedEx customer after the two companies renewed their relationship in recent years.
"They're a very valuable customer," he said. "We're very much a win-win relationship." Subramaniam spoke to Cramer a few weeks before FedEx spins off its freight division, which puts bulk shipments from multiple customers onto one truck, into a standalone public company. The remaining FedEx will house the logistics and parcel delivery operations that includes the cargo airline and residential businesses.
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