22 November 2022
Amazon inflation surcharge will be permanent with 2023 FBA fee hike
Amazon is raising fulfillment fees for storage, outbound and more.
Amazon is raising fulfillment fees for storage, outbound and more.
Amazon will make a fulfillment upcharge introduced for inflation permanent in 2023, as the ecommerce giant makes a series of increases to fees in its program that provides logistics for third-party sellers.
Fulfillment by Amazon (FBA) provides storage, processing and shipping services for seller orders, making Amazon's logistics network available to the merchants that sell on its marketplace. Such services also have a growing importance to Amazon's business, as the third-party marketplace provides an expanded selection for Prime members, as well as revenue earned through both sales as well as shipping orders. According to Marketplace Pulse, Amazon fulfillment fees increased 30% between 2020 and the third quarter of 2022. In 2023, they are set to rise again.
Amazon VP of Worldwide Selling Partner Services Dharmesh Mehta announced the following changes to fees in the Fulfillment by Amazon (FBA) for 2023:
A 5% fuel and inflation surcharge that was introduced in April was advertised as being a temporary fee at the time to account for rising transportation costs. But now, it will be factored into overall rates, effectively making it permanent.
“These cost increases have not attenuated as quickly as we had hoped, so we will adjust our standard FBA fee rates to account for these increased and supply chain costs and we will remove the separate Fuel & Inflation Surcharge at this time," Mehta wrote.
FBA fees will be changing in part as a result of observed inefficency patterns by the company.
“This year, we saw some sellers use more of our storage than we expected or believe was needed to serve customers well, and that constrained how much product from other sellers could be sent into FBA,” Mehta wrote.
The company is making the following fee changes:
FBA outbound fees are increasing by $0.22 on average.
For apparel, the company is creating a new weight tier that will use the greater of unit weight or dimensional weight to determine the shipping weight for all large, standard-size products.
Returns processing fees for apparel and footwear will decrease by an average of $0.20 per return.
Off-peak storage fees for standard-size products will increase by $0.04 per cubic foot and $0.03 per cubic foot for oversize products.
Peak storage fees for the non-sortable network will increase by $0.20 per cubic foot. Sortable fees will remain unchanged.
A storage utilization surcharge will be introduced for sellers who have “a high cube of inventory stored in our fulfillment centers relative to the cube of their recent weekly sales.” Amazon estimates that 7.5% of sellers will be affected by this change, which takes effect April 1, 2023.
Inventory surcharges will be increased for items stored 271-365 days.
Aged inventory surcharges will be introduced for inventory stored 180-270 days in the categories of apparel, shoes, bags, jewelry and watches.
Removal and disposal fees will increase.
The U.S. FBA New Selection program will have reduced fees. A rebate on sales for eligible new-to-FBA parent ASINs will decrease from 5% to 10% on average. The New Selection program aims to incentivize sellers by offering free monthly storage fees of up to 50 units for 90 days.
The Small & Light program will expand (again) by increasing the item price for eligible products from $10-or-less to $12-or-less. This will allow more sellers to access the lower prices in this program, which provides lower prices for shipment of small items.
More details can be found here.
The new increases come as logistics providers and carriers including UPS, FedEx, the US Postal Service and Pitney Bowes have all announced their own rate increases for 2023.
These aren’t the first fee changes Amazon has announced this year. Along with the inflation surcharge, the company has raised fees for peak season months of October-December, and US sellers shipping to Mexico and Canada.
Amazon has also sought to increase services for sellers through a new account health rating and marketing tools that allow for emails to customers, among other new features. An upstream storage service called Amazon Warehousing and Distribution is also expected to grow in 2023. Some sellers are also involved in early stages of Buy with Prime, a service that allows merchants to embed Prime benefits on direct-to-consumer sites through a checkout badge.
Amazon is facing a delicate balance on many fronts heading into 2023. It overbuilt its logistics capacity during the pandemic and is attempting to rebalance, but is also seeking to grow its third-party marketplace, which accounts for roughly 60% of items sold and brings big revenue from FBA. It also faces competition, from carriers, from Walmart and its growing third-party marketplace, from American Eagle and its Quiet Logistics "frenemy network" of brands and retailers, and from Shopify and its new fulfillment network. Elevated costs and a consumer pullback from inflation hang over all of it. Fee increases have been a constant in recent years, but Amazon must make those decisions with all of these elements in mind.
Amazon's FBA increases are just the first step in a chain that eventually makes products more expensive consumers, and spreads to ecommerce channels beyond just Amazon, as MarketPlace Pulse explained.
"When Amazon increases fees, sellers increase prices to maintain a profit margin, and when it reduces available FBA storage, they watch products sell out and miss out on sales they could have made," writes Founder Juozas Kaziukenas. "Furthermore, since Amazon penalizes sellers for offering their products cheaper on other channels, sellers inevitably raise prices across all marketplaces."
Amazon cut another 18,000 jobs in late 2022.
Amazon is set to undergo a second round of layoffs in the coming weeks, bringing the total number of employees let go over the last six months to 27,000.
The latest round of cuts will reduce the number of roles at the company by 9,000.
The layoffs will zero in on several of the fast-growing, high-margin divisions that grew to become forces in their industry verticals after Amazon built them out to provide services for its ecommerce platform. Affected areas will include advertising, the cloud computing division AWS, the streaming platform Twitch and people ops division People Experience and Technology (PXT). Amazon did not break down the number of layoffs in each division.
In advertising, the cuts come in a division that has become a success story for the company. Amazon revealed a $31 billion advertising business in early 2022, meaning the division was larger than the advertising arms of media giants like YouTube on its own. In the fourth quarter of 2022, Amazon posted 19% growth in advertising as the business reached $11.6 billion in revenue.
While the ecommerce division, known internally as Stores, was not exposed in this round, it marks the second time that PXT will face cuts.
In a company memo, CEO Andy Jassy wrote that the additional layoffs follow the conclusion of Amazon’s annual planning process. The goal of this process, Jassy said, was “to be leaner while doing so in a way that enables us to still invest robustly in the key long-term customer experiences.”
“For several years leading up to this one, most of our businesses added a significant amount of headcount,” Jassy wrote. “This made sense given what was happening in our businesses and the economy as a whole. However, given the uncertain economy in which we reside, and the uncertainty that exists in the near future, we have chosen to be more streamlined in our costs and headcount.”
Jassy added that the additional round of cuts is expected to be completed by mid-to-late April. While companies often seek to avoid multiple rounds of layoffs in a short period of time, Jassy said the multipart process was a result of the planning calendar.
“Some may ask why we didn’t announce these role reductions with the ones we announced a couple months ago,” Jassy wrote. “The short answer is that not all of the teams were done with their analyses in the late fall; and rather than rush through these assessments without the appropriate diligence, we chose to share these decisions as we’ve made them so people had the information as soon as possible.”
Alongside the job cuts, Amazon has also scaled back on many expansion projects. Most recently, the company said it will close eight of its cashierless, in-person Amazon Go convenience stores.
While tech layoffs were a top story of late 2022, the cuts are continuing into 2023 as ecommerce faces continued headwinds on discretionary spending from inflation, and investors continue to turn cautious in an atmosphere of interest rate hikes and falling post-pandemic stock prices.
Among major companies in ecommerce, Facebook parent Meta said last week that it will lay off an additional 10,000 workers beyond the previously announced reduction of 11,000 workers in 2022, as CEO Mark Zuckerberg dubbed 2023 the “year of efficiency.” Meanwhile, SMS and email marketing automation platform Klaviyo laid off 140 people across all divisions last week, TechCrunch reported.
The cuts come after tech companies saw their fortunes soar during the pandemic, leading to a hiring frenzy.
Yet tech is proving to be an anomaly in the current economy. The labor market as a whole hasn’t cooled off coming out of the pandemic. U.S. companies, including retailers, continue to add jobs at a sizable clip, and unemployment remains at historic lows.