The cost of doing business keeps climbing, this time affecting all Amazon sellers and their customers. The company recently announced an Amazon inflation surcharge that will add 5% to all third-party fulfillment orders from U.S. sellers. In effect as of April 28, how can Amazon FBA users curb their losses?
For many FBA sellers, the surcharge has them rethinking their e-commerce sales and fulfillment strategies. Here’s how sellers can handle the Amazon inflation surcharge.
What Is the Amazon Inflation Surcharge?
The Amazon FBA program imposes a number of fees on sellers that use the service. These fees range from inventory storage to packing materials to shipping fees and more. The recent Amazon inflation surcharge is a separate fee that will go directly to offset the rising costs of fuel, increased wages for workers, ramped-up hiring, and other effects of inflation.
Reports note that the charge will be applied to all product types, such as apparel, non-apparel, light items, and dangerous goods. Amazon notes their surcharge equates to about 24 cents per unit, which is lower than the UPS fuel surcharge of 42 cents per unit and Fedex’s additional fee of 49 cents.
The new surcharge is expected to impact the 89% of Amazon’s two million sellers that use Amazon’s FBA services.
What’s Driving the Amazon Price Increase?The surcharge, according to Amazon, is the first in the company’s history. Inflation has worsened in recent months, along with the ongoing “pain at the pump.” Amazon is imposing the surcharge as a way to pass on some of its increased operating expenses to FBA sellers that rely on the network to connect with customers.
However, this isn’t the first time that Amazon has raised the prices of its services to sellers. In February 2022, Amazon increased its FBA storage fees by $0.08 per cubic foot for standard-size products and $0.05 per cubic foot for oversized items. Amazon also previously increased its fees for labeling and package prep, as well as its removal and disposal fees. Taping fees have tripled, while services like wrapping glass items, bagging liquids, and bubble wrapping sharp items have increased by $0.20 or more per item.
Overcoming the FBA Price Increase
Currently, Amazon pockets about 34% of the revenue earned by third-party sellers on its sites when all fees are taken into account. In total, sellers paid about $103 billion in FBA fees – about 22% of the company’s revenue. Adding an additional 5% on top of the assortment of other fees means sellers may need to rethink their pricing strategies – or their selling options.
One obvious solution is simply to pass on the price increases to the customers. However, given the competitive nature of Amazon FBA, many sellers are reluctant to increase their prices too much for fear of ending up in a pricing war with other sellers.
An alternative, therefore, would be to absorb as much of the increase as possible, but this strategy erodes razor-thin margins even further.
A third option is to explore other alternatives for inventory storage and fulfillment. Lower cost, non-FBA 3PL options exist, and diversifying fulfillment can benefit sellers in a number of ways:
Lower Inventory Storage Fees
One of the biggest fees e-commerce sellers face is storage. With Amazon’s recent price increase per cubic foot (about the same amount of space as a kickball), it may be worthwhile to compare pricing at other warehouses. If you have a diverse product line that requires ample inventory space, saving even a couple of cents per cubic foot can add up to major savings each month.
A good 3PL partner can also help you optimize your inventory by setting realistic reorder points and par stock levels. This way, you only pay for the space you need and can avoid overstocking on inventory that will drive up your overhead.
Additional Customization Services
Amazon remains limited when it comes to customizing your packaging experience. They will provide bubble wrap for sharp items or wrapping paper for glass vases, for example. But the overall shipping experience is largely unbranded.
Working with a non-Amazon FBA network can open up new opportunities for custom packaging. Use boxes and bags with your company’s logo and colors, add personal messages to packing slips, or create entire boxing experiences that look like they came from you and not a warehouse.
Improved Customer Loyalty
Paying less in fees can allow sellers to widen their profit margins and free up resources to better serve their customers. Sellers may choose to pass some of their savings on to their customers, which may improve their reputation as a seller and drive greater customer loyalty.
Working with a smaller 3PL warehouse may provide more support to your business. You’ll usually have a dedicated account manager who cares about your business as much as you do. They can answer questions, make recommendations, and even find ways to optimize the logistics piece of your business.
Exploring Non-FBA 3PLs with Zenventory Fulfillment Network
You don’t have to be a billion-dollar company to compete with one. If you’re concerned about the Amazon inflation surcharge and the prospect of future price increases, it might be time to take a look at the Zenventory Fulfillment Network.
Our fulfillment network connects you to a 3PL that we’ve vetted on your behalf. Quickly and easily find a fulfillment partner that fits your needs and can help you lower your fulfillment costs to keep your business running profitably.