FedEx won't be transporting express delivery packages for Amazon as the e-commerce giant expands its own service, including Prime Air. Photo courtesy Amazon

June 8 (UPI) -- FedEx has decided not to renew its express delivery contract with Amazon as the retail e-commerce giant ramps up its air service.

On Friday, FedEx announced it was a "strategic decision" not to handle air service for Amazon "as we focus on serving the broader e-commerce market.


The decision doesn't impact any existing contracts with other FedEx business units, including ground service and last-mile delivery or relating to international services.

FedEx added that Amazon only accounted for roughly 1.3 percent of its total revenue in 2018.

"There is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026," the delivery service said. " FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space. We are excited about the future of e-commerce and our role as a leader in it."

Amazon in an email statement t CNBC said: "We respect FedEx's decision and thank them for their role serving Amazon customers over the years."

Amazon has been expanding its transportation system for delivery its products, including next-day and two-day service. It has contracted for cargo planes and trucks.

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Amazon Prime Air, which is based in Hebron, Ky., near Cincinnati, Ohio, uses its own branded aircraft operated by Air Transport International, ABX Air, Atlas Air and Southern Air.

Last May, Amazon broke ground on an Air Hub in northern Kentucky that is scheduled to open in in 2021 "to ensure fast, free shipping for customers."

Amazon has been testing a new online service that matches truck drivers with shippers since last year.

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A new program is called Delivery Service Partners lets entrepreneurs run their own local delivery truck business with Prime logos for the last-mile service.

And its freight services allows shippers to get instant quotes on the packages they want to ship between warehouses.

Last year, Amazon spent $27 billion on shipping.

"We estimate that Amazon will pay about $6 a box to move this themselves on their own air network," Morgan Stanley's Shanker told CNBC. "Versus what we estimate Amazon paying UPS and FedEx: about $8 or $9 per box today ... and given Amazon's scale, that could be a couple of billion dollars at least in savings."

But would be a "daunting task requiring tens of billions of dollars" to build and replicate FedEx's existing delivery network, FedEx's former executive vice president, T. Michael Glenn, said in 2016.