Amazon halting FedEx Ground deliveries by Seller Fulfilled Prime customers

Starting Dec. 18, Inc. (NASDAQ:AMZN) will prohibit companies that use its website for selling products but handle their own fulfillment from using a FedEx Corp. unit for deliveries, citing the FedEx unit’s inability to hit Amazon’s performance targets.

The prohibition takes effect at 2 p.m. ET on Wednesday, according to a copy obtained by FreightWaves of a communique from Amazon to “Seller Fulfilled Prime” (SFP) customers. In the communique, Amazon cited “delivery performance” as the reason for its decision.

According to two sources, FedEx Ground and its FedEx Home Delivery sub-unit have experienced problems meeting Amazon’s on-time targets for the SFP service. One SFP customer said his company stopped using FedEx Ground and FedEx Home Delivery more than a year ago due to service issues. Today, all of the company’s shipments under the SFP program move via UPS Inc. (NYSE:UPS), said the customer, who asked not to be identified.

Under the SFP program, merchants can select their fulfillment and delivery partners and maintain their coveted “Prime” selling status as long as they meet Amazon’s guidelines for delivery performance. Those whose shipments fall short of the guidelines risk losing their “Prime” designation on Amazon’s website, which can translate into hundreds of thousands or millions of dollars in lost sales.

FedEx and Amazon terminated their contractual relationships earlier this year for U.S. air and ground deliveries. According to a source close to FedEx, FedEx terminated the air express portion of the relationship, while Amazon ended the ground delivery portion, citing spotty delivery performance. Amazon, which is building out its own shipping and logistics network, today delivers about half of its shipments, according to estimates from Morgan Stanley & Co. (NYSE:MS) and market intelligence provider Rakuten.

However, another source has said that Amazon has engaged FedEx during the peak shipping period to supplement its internal network in handling massive holiday volumes and still meet its delivery commitments.