This article originally appeared in the 2018 September/October issue of PARCEL.
Much has been written on FedEx and UPS rate increases, but what another large logistics provider, Amazon? Net sales from third-party sellers continue to grow for the e-commerce behemoth, often resulting in bulging fulfillment facilities. Net sales from third-party sellers for the first half of 2018 increased 41.2% over the same period in 2017, to almost $19 billion. Net sales include commissions and related fulfillment costs, shipping fees, and other third-party seller services. But what about Amazon’s own branded items, including private labeled foods, apparel, and high-tech goods? Third-party sellers are finding themselves both selling and often competing against these items in terms of sales as well as in space within fulfillment facilities. As such, Amazon’s success has also become one of its biggest problems.
Amazon fees are beginning to look a lot like FedEx and UPS rates and surcharges – numerous and costly. This year alone, Amazon is introducing at least three fee increases.
- In April, Amazon increased monthly storage fees by an additional $0.05 cents per cubic foot.
- On August 15, 2018, Amazon introduced a minimum charge of $0.50 per unit per month for items in fulfillment centers for 365 days or more. The greater of the applicable total long-term storage fee or minimum long-term storage fee will be charged.
- Starting September 15, 2018, long-term storage fees will be adjusted and the assessment dates will be changed from a semi-annual basis to a monthly basis.
In addition, effective July 1, days before Amazon’s fourth annual Prime Day, Amazon implemented a system called the Inventory Performance Index, which measures how well each merchant manages its inventory, removes products that aren't selling, and fixes its listings. Inventory that stays in Amazon's warehouses for too long without being shipped to customers removed will hurt a seller's IPI score. Sellers above a 350 score won't have any restrictions on storage space. Scores range from 0 to 1,000. However, those with a score below 350 will not be allowed to send more products to Amazon’s warehouses and will incur a monthly “overage fee” on the inventory that exceeds their storage limits. These fees can add up quickly and can be confusing.
According to Amazon:
If your existing inventory exceeds your storage limits for a given month, we will also charge an Inventory Storage Overage Fee on the portion of your inventory that exceeds your storage limits, in addition to monthly inventory storage fees and, if applicable, long-term storage fees. The overage fee will be charged monthly at $10.00 per cubic foot, based on the daily average volume of inventory that exceeded your storage limits throughout the month. We will be updating our tools to reflect cubic feet of storage instead of the number of units that we currently show.
Many third-party sellers, large and small, have benefited from selling on Amazon, but there are always other options to Amazon’s FBA (Fulfillment by Amazon) solution if pricing is taking a bigger chunk out of sales. Online platforms such as Magento, Shopify, and BigCommerce may be worth researching. These platforms often have a special relationship with Amazon that allows them to provide similar services while allowing sellers to continue to sell on Amazon. Also, don’t forget the 3PLs and carriers. It is becoming very common for them to offer specialized services for e-commerce shippers such as FedEx Fulfillment, UPS Supply Chain Solutions, DHL e-Commerce, and SEKO Logistics. Much like the need to review invoices regularly for any questionable small parcel charges, one should do the same for fulfillment charges. It all ties together to build an optimized supply chain network.
