Amazon illustrated that its customer obsession runs deep when it told sellers this week that it would no longer let them use FedEx's ground-delivery network during the holiday season, blaming the move on poor delivery performance.
But in doing so, the move threatens to throw many third-party merchants' businesses into a tailspin during the busiest shopping period of the year. Without FedEx's ground-delivery network for Prime orders, sellers are forced to develop a contingency plan, which more often than not means they'll end up paying more to make sure shoppers get their packages in time for Christmas.
Third-party merchants now account for 58% of Amazon's total merchandise sold. Sellers offer products, new and used, from all over the world that they purchase from official distributors, flea markets and clearance aisles.
"Some sellers exclusively use FedEx for Seller Fulfilled Prime [SFP] because they have negotiated good freight rates or have daily pickups," said Steve Yates, CEO of Prime Guidance, a company that consults third-party sellers on Amazon and other e-commerce sites. "Not being able to use FedEx for SFP shipments will cause sellers who negotiated good FedEx ground rates to incur higher costs and some may need to scramble to get another carrier to pickup orders."
Dave Bryant, an Amazon seller who sells automotive products and also advises e-commerce sellers, said the "total abandonment of FedEx ground basically overnight caught a lot of sellers off-guard."
Amazon told sellers it was only temporarily restricting their access to FedEx's ground-delivery network, according to emails viewed by CNBC. The company didn't indicate in its message to sellers when it would resume the service. It only said the decision was being made as a result of FedEx's poor performance.
"We have seen a drop in the delivery performance of FedEx Ground and FedEx Home ship methods for Seller Fulfilled Prime shipments," Amazon told sellers in an email delivered Sunday. "To protect Prime customer experience, FedEx Ground and FedEx Home will be temporarily unavailable in Buy Shipping for Prime shipments... until the delivery performance of these ship methods improves."
The email said Amazon would turn off access to these services beginning on Monday, but a follow-up email sent early Tuesday morning said the original message was "sent in error" and that FedEx ground shipping would be unavailable starting on Wednesday at 2 p.m. EST.
Amazon did not respond to requests for comment.
Not everyone in the third-party seller community was upset by Amazon's decision to limit their access to FedEx's ground-delivery network, citing previous issues with the service.
"FedEx ground was not prepared for the holiday season this year," Gregg Alper, CEO of Alper Innovations, which advises sellers on Amazon, said in a private Facebook group for third-party sellers. "I've had FedEx ground packages from Wayfair showing up a week late."
Karin Isgur Bergsagel, an Amazon seller, wrote in the group that the move "represents across the board service delays impacting all shippers through FedEx Ground, not special bad treatment for Amazon sellers."
Amazon told sellers they could still use FedEx's Express shipping service for Prime orders, or FedEx's ground and home delivery services for standard, non-Prime orders. However, FedEx Express is roughly "double or triple the cost of using FedEx ground," said John Haber, a logistics expert who previously worked at UPS.
"It's very problematic at this point in time from the service-level standpoint," Haber said. "The service has gotta be pretty bad for amazon to make this move."
Jonathan Garriss, CEO of novelty merchandise maker Gotham City Online, said he's concerned Amazon may eliminate other services his company uses to ship out orders.
"Most sellers will use UPS Ground or UPS. It will be a little more expensive vs. using an air service," Garriss said in an email. "There is also the possibility that Amazon will shut down UPS Ground the next day or two also."
Bryant added that Amazon's move to suspend FedEx ground delivery is a symptom of the two companies' already deteriorating relationship.
"You don't have to eagle eye vision though to read the writing on the wall," Bryant said in an email. "Amazon is eventually trying to decrease its reliance on all third-party carriers, and UPS is probably the next in line."
Amazon is constantly monitoring how its delivery partners are performing to identify pain points. The company is able to do this, in part, through data collected from its Buy Shipping service, which allows sellers to use the site to select a carrier and manage the shipping process, among other things. From there, Amazon can evaluate when carriers are meeting delivery windows and when they aren't, Yates said.
The company has halted access to other delivery services in the past. Last year, Amazon prevented sellers from using first-class shipping with the U.S. Postal Service for Prime orders, citing similar performance issues, Yates said. Many of the sellers switched to another carrier, but they faced higher costs as a result.
Amazon's seemingly split-second decisions around carrier services is also part of the company's efforts to prevent another holiday season akin to what happened in 2013, when delivery partners failed to get packages to customers on time. In the end, Amazon was forced to issue refunds following a barrage of consumer complaints.
It comes as Amazon has been ramping up delivery times to breakneck speeds by making one-day shipping the default for Prime subscribers. Amazon's Prime subscription service, which costs $119 a year, has become one of the company's primary levers to keep bringing customers back to the site.
