Has Fred Smith shown Jeff Bezos the door? Or did Bezos walk through it under his own power?

FedEx Corp.'s fiscal fourth quarter and full-year 2014 results, released last Wednesday, contained this deeply buried but interesting nugget: Volumes for FedEx's "SmartPost" service, which it operates in concert with the U.S. Postal Service (USPS), fell 8 percent in FedEx's fourth quarter, which ended May 31. However, volumes actually increased 15 percent if the numbers excluded the "changes in shipping patterns from one large customer," FedEx said in the statement accompanying the earnings. Moreover, overall yields for SmartPost rose 8 percent quarter-over-quarter, FedEx said.

In the statement, Memphis-based FedEx declined to identify the customer. However, those who follow the business for a living said they have little doubt it is Amazon. There aren't many SmartPost users whose volumes can move the overall volume needle so sharply. Nor are there many users with the clout to beat FedEx over the head on pricing so that their absence would send the provider's yields springing sharply higher.

In addition, the move is consistent with published reports that Bezos, Amazon's founder and CEO, has been working to lessen the Seattle-based company's reliance on third-party providers in favor of building out its own shipping network.

Amazon declined to comment. FedEx did not return a request to confirm the customer's identity. Amazon ships about 400,000 parcels per day with FedEx, according to data from SJ Consulting, a consultancy.

Under the SmartPost joint service with USPS, FedEx tenders to the Postal Service residential packages mostly ordered online for so-called last-mile deliveries from the hand-off point in the FedEx system to the end customer. Because USPS is required by law to serve every U.S. address, companies like FedEx use it as their delivery vendor rather than bear the cost of shipping often lightweight, low-margin items to individual houses. FedEx rival UPS Inc. offers a similar service under the name of "SurePost."

Merchants, especially those using e-commerce, like the service because it is inexpensively priced and enables them to offer free shipping to their customers without it taking a big bite from their bottom lines.

Rob Martinez, president and CEO of Shipware LLC, a parcel consultancy, said Amazon is the only shipper that "can affect that big a swing" in SmartPost traffic within such a compressed time period. Martinez, noting FedEx's comments that the increase in SmartPost revenue was due to the dual impact of rate increases and improvements in customer mix, took that to mean that Smith, FedEx's founder and CEO, and his folks were not sorry to see Amazon's volumes—and marginally profitable business—hit the road.

The message from FedEx is that "our balance sheet is better off without low margin business" and that "we have no problem losing that customer," Martinez said.

Jerry Hempstead, president of Hempstead Consulting, said he believes Amazon began to shift business away from SmartPost during FedEx's fiscal third quarter, at the height of the pre-holiday buying and shipping season. SmartPost volumes have traditionally grown at a double-digit pace, Hempstead said. However, volume growth in the fiscal third quarter came in at only about 2 percent year-over-year. Severe weather in the first calendar quarter may have contributed to the volume decline. However, Hempstead said that only Amazon's defection could have precipitated such a pronounced drop-off.

Amazon is reportedly working on a dramatic revamping of its transportation network that would include a mix of its own fleet of trucks, regional parcel carriers, and USPS. In turn, it would lessen its reliance on UPS and FedEx. The plan was in the works before the much-publicized holiday snafus that resulted in about 5 million packages being delivered after Christmas Day.

The steps are Bezos' attempt to rein in Amazon's transportation costs, which have proven to be a problem as its business continues to grow. Its shipping expenses in 2013 rose 29 percent to more than $6.6 billion, according to the company's 10-K filing with the Securities and Exchange Commission. Shipping revenue generated from merchants whose goods are sold on Amazon, as well as firms that use the company for third-party fulfillment, rose 36 percent to slightly under $3.1 billion. Costs outstripped revenue last year by more than $3.5 billion, a $700 million increase over the 2012 gap, according to the filing.

MARKET SHIFT
As e-commerce expands, residential deliveries are accounting for a larger percentage of a parcel carrier's overall mix. This is an unfavorable trend for providers because business-to-consumer (B2C) packages tend to be lightweight and bulky and are delivered one piece at a time to residences. By contrast, business-to-business (B2B) traffic, which FedEx and UPS dominate, is generally heavier and delivered in larger quantities, thus maximizing a carrier' revenue and profit per stop. However, B2B delivery growth has been modest, while B2C growth has been extraordinarily rapid.

To offset margin compression, FedEx and UPS recently announced they would begin pricing ground packages measuring 3 cubic feet or less by the amount of space they occupy in a truck instead of by the package's actual weight. The carriers have said the moves would align the rate of a package's with the real cost of transporting it. It is expected to generate hundreds of millions of dollars in additional revenue each year for FedEx and UPS. It may also allow the carriers to shed marginally profitable B2C shippers unwilling to shift to so-called dimensional pricing.

FedEx's pricing takes effect Jan. 1, while UPS goes into effect Dec. 29. However, the full impact of the moves won't be felt for three or four years as the carriers phase in the changes.