Don’t blame Amazon for FedEx’s stock free fall

There are no Amazon packages in that truck.

There are no Amazon packages in that truck.
Joe Raedle/Getty Images

FedEx just slashed its 2020 expectations by a chilling 18%. Following that, the package giant’s shares plummeted by its largest one-day percentage loss since December 2008.

The culprit might be clear for those following FedEx’s public divorce with the nation’s largest e-retailer: Amazon.

Over the summer, FedEx Ground and Express publicly ended their contracts with Amazon. The e-commerce giant is a customer-turned-competitor to FedEx as well as UPS and the United States Postal Service since it started building up a massive logistics network.

“(W)e basically compete in an ecosphere that’s got five entities in it,” FedEx founder Fred Smith told investors on Tuesday. “There’s UPS, there’s DHL, there’s a US Postal Service, and now increasingly, there is Amazon. That’s who we wake up every day, trying to think about how we compete against and give the best services to our sales force.”

Read more: A key metric in FedEx’s financial statements underscores why the shipping giant dropped Amazon as a customer

But analysts aren’t blaming the loss of Amazon business for FedEx’s shocking slide. After all, Amazon made up 1.3% of FedEx’s overall revenue, and an even tinier part of its margins.

That’s partially because FedEx hasn’t been wanting for packages since booting Amazon. FedEx Express saw a 7% increase in US deferred package shipment volume, which is FedEx’s low-priority, often e-commerce segment, in June to August 2019 from the same period in 2018. FedEx Express stopped moving Amazon packages on June 30 of this year.

Instead, insiders are blaming something far less sexy: delayed integration of Dutch carrier TNT Express.

TNT Express.

TNT Express.
Thomson Reuters

FedEx bought the European package giant in 2016 for a whopping $4.4 billion, but integrations of the acquisition are way over deadline. It’s costing FedEx an extra $800 million to integrate TNT’s network into its own. “They still have some of the plants over there getting a TNT truck in the morning, and then a FedEx truck in the afternoon,” Kevin Sterling told Business Insider.

The TNT purchase is getting slammed by a slowing European economy in which businesses and consumers are shrinking their budgets and needing less and less package movement.

That Euro-slump matches spookiness seen globally. More than half of FedEx’s air cargo segment depends on non-US movements, but international air cargo has sank for nine consecutive months this year. Sterling as well as Trip Miller of Gullane Capital said FedEx’s stock free fall is tied to the trade war as FedEx, naturally, depends quite a bit on free, global trade.

Read more: China might blacklist FedEx for not delivering Huawei phones. To save as much as $1.3 billion in Chinese deals, the package giant is now suing the Trump administration.

“To me, it seems like the reason for the weakness is really is macro-related,” Sterling said. “They’re not quite as nimble to take out costs because they’re not fully integrated in Europe.”

Still, macro-pressures as well as the internal fumble of TNT could have benefited from some extra revenue from the Amazon side, Sterling said. FedEx leaders also said its loss of Amazon will impact its bottom line this year.

But, above all, FedEx CEO Fred Smith slammed global trade tensions – once again – and warned about how it would continue to impact companies like FedEx.

“(T)here’s no company and no person that has been more vocal in our opposition to the trade policies that we are pursuing,” Smith told investors on Tuesday. “Now, to be fair, I think it’s not just the US, I think China is also pursuing bad trade policy,” Smith said.

“So you’re taking a system over the last seven years that’s drawn more people out of poverty than in the entire previous history of the world, and essentially putting it all at risk.”