FedEx launches fulfillment service to take on Amazon

From its $1.5 billion air cargo hub to its growing network of contract last-mile delivery drivers, Amazon is increasingly looking like a logistics company, but shipping and logistics giant FedEx isn’t sitting idly by.

This week, it announced a new fulfillment service called FedEx Fulfillment. Geared to small and mid-sized businesses, the new service could be a viable alternative to Amazon’s Fulfilled by Amazon (FBA) service, which allows companies to store their products in Amazon’s warehouses and have Amazon fulfill them.

Amazon FBA is primarily used by businesses that sell on Amazon, but can also be used to fulfill non-Amazon orders as well.

FedEx is updating 130 of its warehouses in the U.S. and Canada to support FedEx Fulfillment. FedEx will handle the packaging of orders for FedEx Fulfillment customers and will give them the ability to use custom boxes with their own logos.

Amazon’s marketplace, Prime advantages

While FedEx Fulfillment will give small and mid-sized businesses a potentially useful alternative to Amazon FBA, the biggest challenge FedEx will likely face in luring businesses to FedEx Fulfillment is the fact that FedEx doesn’t operate a marketplace that connects businesses to customers.

While Amazon FBA can fulfill orders for businesses that sell in non-Amazon channels, Amazon FBA’s primary advantage is that it comes attached to Amazon’s huge marketplace, through which businesses can reach and sell to millions of consumers. Amazon product listings that are fulfilled by Amazon FBA qualify for free shipping on eligible orders. They’re also eligible for free shipping on orders made by Amazon Prime members.

According to a past Channel Advisor survey, 82% of Prime members will purchase a product on Amazon even if they can find it at a lower price through another retailer, so Amazon FBA’s Prime tie-in gives businesses that sell in any volume through Amazon very powerful incentives to use Amazon FBA.

But that doesn’t mean that FedEx Fulfillment won’t gain traction. Despite Amazon’s numerous advantages, many businesses are leery of the online retail giant. One of the most common concerns is that by relying on Amazon as a sales channel and fulfillment partner, businesses are giving some of their most valuable data to a company that could easily become a competitor as it expands its private label business.

With that in mind, it’s possible that small and mid-sized businesses that sell through non-Amazon channels will hedge their bets by considering FedEx Fulfillment for non-Amazon sales. Indeed, FedEx already seems to be playing up the fact that its interests are aligned with those of the businesses that might use its new service.

“We’re focused on the retailer, and doing what’s right for the retailer, in helping them grow their business,” stated Ryan Kelly, FedEx’s SVP of Supply Chain.