On April 28th, 2022, a change in Amazon FBA fees went into effect, adding a 5% fuel and inflation surcharge to FBA fulfillment per unit rates. What does this mean for sellers?
Amazon FBA Fees: Why Are They Increasing?
The surcharge is not a 5% increase for sellers on Amazon across the board. It’s an additional fee being added to the existing Amazon FBA fees, which is essentially the warehousing and logistics aspect of Amazon. Specifically, the fee is in response to the rising cost of those logistics.
Supply chain issues, storage limitations, increased container pricing, and gas prices are all big issues affecting Amazon. This fee is an attempt to offset some of these additional costs. As Adam Palmer, VP of Strategic Partnerships at Kaspien explains, this is an interesting move for several reasons. “It’s really the first time this has been done,” says Palmer. “No one has any idea of how long that’s going to last or if it’s going be permanent, but there is an assumption in the industry that this increase is the first of more to come.”
Should Sellers Be Worried?
As mentioned above, this new Amazon FBA fee is not a 5% increase across the board. It’s not that all fees are going up by 5%, or that companies will have to raise prices by 5%, or that all Amazon FBA fulfillment fees are going up by 5%. The 5% increase just applies to the cost per unit. It’s an increase that’s being tied directly to the size of products and category-specific industries. View the specific increases for each product size and category on the Amazon Seller Central announcement.
Products sold on Amazon fall under size tiers, and there are different fees associated with each. The way Amazon calculates some of those FBA fees is based on overall volume – length times width times depth. They look at the actual size of a product and they’ll calculate storage fees and fulfillment costs from there. Generally speaking, non-standard sized items and over-sized items are charged more than normal/standard-sized items.
How Can Sellers Respond to Increasing FBA Fees?
As a standalone increase, this new FBA fee wouldn’t hurt that much. But Amazon is an expensive marketplace, and when you combine this surcharge with the other logistics that are increasing in price, such as transportation and storage fees, for many, this fee will be like the straw that broke the camel’s back.
Sellers have one of three options: they can eat the cost if they have the margins to deal with it, they can raise prices, or they can shrink their products. This is where things can get interesting. Some larger players – think Samsung, Sony, etc. – can absorb a fee like this. There will be some who try to weather the storm at the same price, but the majority of the industry won’t be able to.
Most likely, prices are going to go up.
Who Will be Most Affected by FBA Fees?
When it comes to pricing, brands who sell directly to Amazon have almost zero control. “What we’ve seen in the past when these types of fees pop up unexpectedly is Amazon Vendor Central will only increase prices when requested about 30% of the time,” says Palmer. Furthermore, Amazon has upwards of 60-90 days to make that change.
This is worrisome for some brands because it means they don’t have control over that price change, so they don’t have the option to absorb the FBA fee increase. This forces these brands to absorb the new surcharges without any immediate recourse.
When you work with a third-party (3P) retail partner, you have a much higher level of control. You have the most control when you own your own account, even if you do work with an agency for management of aspects within the account. Brands with diversified fulfillment options also have greater flexibility when these types of fee increases occur. This includes brands who sell use 3P fulfillment, who sell across multiple platforms, and who maintain a Direct-to-Consumer (DTC) site.
Larger Trends in Amazon FBA Fulfillment
This latest change feels like another in a series of moves by Amazon to make FBA fulfillment facilities less appealing to certain products and industries. Amazon has designed their FBA facilities around housing conveniently-sized products that sell consistently at a high volume. A surcharge like this, especially one that affects the per-unit costs, illustrates how they are now incentivizing the exit from FBA for products that don’t fit their preferred criteria.
This fee increase will likely incentivize a reduction in the variety of products housed in FBA facilities, forcing complicated logistical issues back on the brand. This will motivate brands to look at either manufacturer-fulfilled options or retailer-fulfilled options outside of the Amazon network for all products that aren’t a standard size or that don’t sell at high volume.
Key Takeaways
This increase in Amazon FBA fees is going to affect everybody, whether we like it or not. It’s not enough to warrant panic, but sellers will have to make a decision. Increasing prices is the most logical and appealing choice for most brands, but this option will be tricky for brands selling directly to Amazon and easier for brands with more direct control over their pricing. It’s also likely to push more brands and products into other fulfillment centers, which could lead to greater diversification in e-commerce fulfillment options.
Amazon has consistently proven that the only constant is change. We encourage brands to consider working with an Amazon agency who specializes in predicting and adapting to these changes. Brands must understand their strategy and what levers they can pull to mitigate the impact of these fees. The more control you have over your product pricing and fulfillment strategies, the more likely you will be able to make informed decisions and pivot quickly in response to the next big change.
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