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Amazon said it will impose a 5 percent “fuel and inflation surcharge” on third-party sellers who ship through Amazon starting April 28. The new fee for shipments to the US was detailed on Amazon Seller Central and applies to Fulfillment by Amazon (FBA) service, where sellers rely on Amazon to store products in its warehouses and ship them to customers.
The 5 percent fee applies to shipping fees for products shipped April 28 or later, including products purchased before that date. Amazon also said that this “surcharge is subject to change.” Amazon reportedly told sellers that the “surcharge applies to all product types.”
In a “note sent to vendors on Wednesday, the company said its costs have increased since the start of the COVID-19 pandemic due to increases in hourly wages, hiring workers and construction of more warehouses,” the company wrote Associated Press.
FBA products are eligible for free two-day shipping through Amazon Prime. Although Amazon also offers an alternative “Seller Fulfilled Prime” option, it currently “does not accept new registrations”.
The surcharge could go up or down, Amazon suggests
“In 2022, we expected a return to normal as COVID-19 restrictions eased around the world, but fuel and inflation posed further challenges,” Amazon said in the memo to sellers, according to NPR. “It’s still unclear whether these inflation costs will increase or decrease, or how long they will last, so instead of a permanent fee change, we will be applying a fuel and inflation surcharge for the first time — a mechanism widely used by supply chain providers.”
The new surcharge puts pressure on sellers to increase the prices they charge consumers, Bloomberg wrote:
“We absolutely need to raise prices,” said Molson Hart, whose Viahart Toy Co. sells educational toys and other products on Amazon. “Some sellers can’t because customers don’t accept the new higher prices.”
Hart said he’s already seen lower profit margins on some larger toys, which are more expensive to ship because consumers aren’t paying the higher prices.
The consumer price index for all items rose “8.5 percent for the 12 months ended March, the largest 12-month increase since the period ended December 1981,” the US Bureau of Labor Statistics reported Tuesday.
“Corner the market and raise prices”
While Amazon has reportedly told sellers that its new surcharge is lower than the fuel surcharges levied by UPS and FedEx, Amazon has already slashed FBA sales revenue significantly through a variety of charges. According to a December report by the Institute for Local Self-Reliance (ILSR), “Amazon is using its position as a gatekeeper to impose ever-increasing tolls on these companies. With a variety of fees, Amazon is now taking a 34 percent cut in revenue from independent sellers on its site, according to our analysis. That’s up from 30 percent in 2018 and 19 percent in 2014.”
Amazon started charging FBA storage fees back in February. In January, Amazon increased fees for labeling and box preparation, and for removal and disposal. “Amazon is increasing its fees for sellers… again. This is what monopoly looks like: They corner the market and raise prices,” ILSR Co-Director Stacy Mitchell wrote yesterday in response to the new fee.
Although joining FBA is optional, “Amazon’s algorithms strongly favor sellers who do, making FBA as good as necessary to generate sales on the site,” according to the ILSR report. Citing data from Marketplace Pulse, the report states that “84 percent of the top 10,000 sellers on Amazon use Fulfillment by Amazon.” That number now stands at 86 percent.
“Last year, sellers paid Amazon about $103 billion in fees, which accounted for about 22 percent of the company’s revenue,” the AP wrote.
To update: Amazon provided Ars with the full text of the memo sent to sellers. Here it is:
Hello sales partner,
Since the pandemic began, we’ve made significant investments in Amazon’s store and fulfillment operations to better serve you and our customers. We’ve nearly doubled fulfillment capacity, added over 750,000 full- and part-time positions, and increased our average hourly wage in the US from $15 to $18. These investments have enabled tremendous growth for sellers who have increased sales in our store by more than 70% during that time.
Like many others, we have experienced significant increases in costs and have absorbed these where possible to reduce the impact on our channel partners. As we increased fees, we focused on addressing persistent costs and making sure our fees are competitive with other service providers. In 2022, we expected a return to normal as COVID-19 restrictions eased around the world, but fuel and inflation posed other challenges. It’s still unclear whether these inflationary costs will rise or fall, or how long they will last will stop. As such, instead of a permanent fee change, we will be applying a fuel and inflation surcharge for the first time – a mechanism that is widely used across chain providers.
Beginning April 28, we will be introducing a 5% fuel and inflation surcharge on top of our current per-unit shipping fee for Fulfilled by Amazon (FBA). We know that changing fees impact your business, and our teams work every day to ensure that FBA continues to provide great value for the premium fulfillment and delivery service it offers. Since 2020 and including this change, Amazon has increased fulfillment rates less than other carriers and continues to cost significantly less than alternatives.
We thank you for your understanding and look forward to further cooperation.