Dive Brief:
- Amazon will implement a 5% fuel and inflation surcharge on its fulfillment services for third-party sellers beginning April 28, the company announced Wednesday.
- The surcharge, a first for Fulfillment by Amazon, comes after Amazon already hiked fees in January to help offset higher operating costs. The e-commerce giant is among companies passing on added costs in an inflationary environment — FedEx and UPS' fuel surcharges remain elevated since the start of the year.
- "When Amazon increases fees you know inflation is getting real," said Celia Van Wickel, senior director for digital commerce at Kantar, in a LinkedIn post. She added that the surcharge will likely lead to price increases on Amazon as sellers' margins are impacted.
Amazon fulfillment fees increase with new surcharge
| Product | Size | Current fulfillment fee (per unit) | Fulfillment fee starting April 28 |
|---|---|---|---|
| Mobile device case | Small standard-size | $2.92 | $3.07 |
| T-shirt | Large standard-size | $5.07 | $5.32 |
| Baby cot | Small oversize | $11.60 | $12.19 |
SOURCE: Amazon
Dive Insight:
After increasing hourly wages and expanding its fulfillment network last year to meet a surge in demand, Amazon said in its recent announcement to sellers that it had "expected a return to normalcy" from elevated costs in 2022 as COVID-19 restrictions eased. But climbing inflation put more pressure on the e-commerce giant as they year progressed.
"It's still unclear if these inflationary costs will go up or down, or for how long they will persist," Amazon said. "Rather than a permanent fee change, we will be employing a fuel and inflation surcharge for the first time—a mechanism broadly used across supply chain providers."
Parcel carriers have upped their shipping rates and added fees since the COVID-19 pandemic took hold as they look to keep service levels high amid record demand. High fuel costs have added further pressure — AFS Logistics and Cowen Research's ground parcel index, which measures shipping costs, is expected to reach an all-time high in Q2, "primarily driven by carriers leveraging fuel surcharges to boost per package cost," according to an AFS news release.
Following in the carriers' footsteps is Amazon, which ranks among the top carriers for U.S. parcel volumes despite its focus on in-house shipments. The price hike decision comes months after CFO Brian Olsavsky called Amazon a "shock absorber" of higher costs for customers and sellers in October.
"I'm curious if this [surcharge] is really going to be temporary or not — when is it going to go away?" said Joe Stefani, president and founder of Desert Cactus, an e-commerce consumer products company that sells licensed products on Amazon.
Amazon did not respond to a request for comment on the conditions necessary for it to remove the surcharge. If the surcharge sticks around the entire year, Stefani said it would cost his business around $100,000. This is on top of the $150,000 in added costs from the January fee hike Desert Cactus was already bracing for this year.
Shipping through Amazon is still less expensive for Stefani than an alternative like the Postal Service's First-Class Mail service, "and obviously Amazon customers are still going to get it faster through Amazon fulfillment," he said.
Amazon's move could provide an opportunity for rival Walmart to instead absorb rising costs in order to achieve its own marketplace growth goals, Van Wickel said. Walmart has been pushing to add new sellers to its third-party fulfillment arm.
"Online was not immune to price hikes last year but was still a way shoppers looked for a deal," she said. "It will be important to think of other value drivers across products to offset the perception of high prices."
