Photo: Amazon
Will Amazon’s fuel surcharge irritate its marketplace sellers?
Amazon.com marketplace sellers who use the company’s fulfillment services will see a five percent temporary surcharge for shipments, starting April 28, attributed to rising fuel prices and inflation.
It is Amazon’s first such surcharge. Amazon raised fulfillment fees in January by 5.2 percent on average.
“In 2022, we expected a return to normalcy as COVID-19 restrictions around the world eased, but fuel and inflation have presented further challenges,” Amazon wrote in an email to sellers. “It is still unclear if these inflationary costs will go up or down or for how long they will persist, so 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.”
About 90 percent of Amazon’s sellers use Fulfillment by Amazon (FBA) to stock, pack and ship their items. FBA is seen as the primary way products are made eligible for Prime.
Amazon said that even with the surcharge, its fulfillment rates “continue to cost significantly less than alternatives.”
When it raised fees in January, Amazon said it had more than doubled its U.S. fulfillment capacity since the start of the pandemic, hired over 628,000 and increased starting wages. At the time, Amazon said its fees remain 30 percent less expensive on average than if sellers were to fulfill orders on their own, “providing FBA sellers with premium expedited fulfillment and delivery speed for lower than standard service prices.”
Amazon sellers are expected to raise listing prices to offset the costs.
According to JungleScout’s “The State of the Amazon Seller” report based on a survey of 3,500 U.S. Amazon sellers in December, 76 percent are profitable and 45 percent increased profits from 2020 to 2021 despite extensive supply chain disruptions. Fifty-eight percent have aggressive growth plans in 2022.
The biggest concern among sellers, however, is increasing shipping costs for inventory and order fulfillment, followed by rising competition driving prices down and increased advertising costs. Over half actively sell on other platforms, and many plan to this year. The top platforms to join were Walmart.com, Shopify, eBay, Facebook and Etsy.
- 2022 US FBA fulfillment fee changes – Amazon Seller Central
- Amazon adds a fuel and inflation surcharge to the fees it charges to sellers. – The New York Times
- Amazon prices likely going up with new ‘fuel and inflation surcharge’ – The Verge
- Amazon is hitting its sellers with a 5% fee due to inflation and increased fuel costs, and there’s a good chance products will get more expensive as a result – Business Insider
- Amazon Fuel-Inflation Fee Has Sellers Poised to Raise Prices – Bloomberg
- Update to Amazon US referral and FBA fees, starting January 18, 2022 – Amazon Seller Central
- Amazon Seller Fees Raise This Month: What to Know – Feedvisor
- The State of the Amazon Seller – JungleScout
Discussion Questions
DISCUSSION QUESTIONS: Does the temporary fuel and inflation surcharge seem like a fair fee given escalating shipping costs? Where do you see Amazon’s online marketplace being most vulnerable to competition vying for its sellers?
Poll
Loading …BrainTrust
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Joel Rubinson
President, Rubinson Partners, Inc.
Virtually every headline today includes some reference to inflation – it’s everywhere. Amazon’s fuel/inflation surcharge seems reasonable and, as pointed out, costs would likely be a lot higher if these marketplace vendors were to conduct these services on their own. The fact is, Amazon is still the biggest marketplace player in the market, with a depth of services that others can’t match, so I’d say Amazon is still firmly in control.
While Amazon has a selection and convenience edge over Walmart, pricing is a concern for them. It’s never been the low-price leader, except close to it in electronics.
In the short-term, prices are still going up all over and sellers will adjust. Long-term, higher prices for sellers on Amazon push out lower-priced items and increase the threshold of gross-margin required to realize a profit on Amazon.
As it is today, if your gross margin is less than 55 percent, it’s difficult to build a sustainable Amazon business.
Every time we go to the gas station and see the price of fuel, we realize that transportation costs are increasing. As businesses, like Amazon, experience higher shipping costs, they can’t continue to just absorb the costs so they pass it on to their customers. Amazon’s marketplace sellers will likely pass the cost on to its customers in the form of slightly higher prices.
The marketplace may not like it, but it certainly is fair. They can’t expect Amazon or any delivery service to subsidize them through high fuel prices and inflation.
The solution is simple. It is the same one for every other retailer, raise your prices.
The Amazon marketplace will be no more vulnerable than the competition. If fact, they will have an edge in facing the challenges of inflation. And, they have 100,000 electric vans on order. Maybe that is why they announced a “temporary” increase?
The power and authority in retail belong to a select group of companies. It’s not a surprise that Amazon is hitting U.S. sellers with surcharges to offset inflation and fuel costs. It will be interesting to see how the smaller third-party sellers offset the cost increases. Unfortunately, to maintain profitability, the costs may ultimately extend to price increases for a customer already dealing with significant price increases in our inflation-fueled economy.
The challenging paradox is that price increases may compel customers to seek more affordable options, including private labels. However Amazon’s reach, scale, and prime fulfillment capabilities are an operating model that is very difficult to compete with.
The best private label company is Amazon, just not always Amazon itself. So many companies (many Chinese) are creating brands just to sell on Amazon.
You are absolutely spot on. Considering Amazon’s omnipresence in the private label space, all roads seemingly end up at Amazon.
Given the competitive alternatives, the inflationary dynamics currently at work in the market, and especially gasoline prices, this all seems fair and reasonable. The real test will be how and when these surcharges are taken off. If they hang around 5 minutes longer than seems appropriate, there will indeed be some legitimately unhappy players.
As long as Amazon is the frictionless, seamless and most convenient way to buy things, customers will remain tolerant of price hikes and inflated expense absorption. Competitors are also dealing with fuel costs so the marketplace is still on even playing ground.
It is fair — but I’m not sure it will be acceptable, especially as other marketplaces are promoting discounts and incentives to lure vendors. Walmart in particular is recruiting heavily for their marketplace. Vendors are working to flex their power as a general sentiment, like the recent Etsy strike. I am sure vendors will resist and shift some of their priority focus so not all their eggs are in one basket.
5% is a significant charge and the scales are loaded in favor of Amazon. They will get an additional 5% that the sellers may not be able to pass on to the customers. And Amazon will most likely not raise prices to match up with what it is asking its sellers to do. So more direct sales for Amazon. Amazon can optimize at multiple levels to its benefit.
The lesson for marketplace sellers has been same all along: Diversify the sales channels, develop own sales channel.
Fairness is a matter of perspective, especially in this case where small sellers will either absorb the costs or push them to consumers. It will definitely be a thorn in the side of sellers and it is unlikely, even after COVID-19 subsides, that Amazon will remove this charge altogether (though they may adjust it substantially). Just as telcos have added their government tax component, this will now be a part of the new price structure for Amazon sellers. Sellers will be looking for alternative selling opportunities to support (but not replace) their margins and, if anyone can hustle — they can.
I would be very surprised if the models that Amazon built for their 2022 post pandemic revenue forecasts included the current price for fuel. Fuel and labor are their two most volatile expenses. I think most consumers will realize the reason behind this increase in fees. And, since this situation affects everyone on the market, I do not suspect that there will be competitive challenges to these fees.
Does the temporary fuel and inflation surcharge seem like a fair fee given escalating shipping costs? Only if I get my donuts.
The key phrase is “temporary.” Let’s hope so and, by the way, let’s get to EV ASAP — who needs Russia holding leverage over anyone? Between them and Saudi Arabia, should we really be beholden to those guys all the way down to the retail level? The time has come, my friends. Thanks, autocrats, for moving us to a better place faster.
Interesting how Amazon is going about this. Rather than raising prices, just attach a fee, which is hopefully going to be temporary. There is a downside to this for Amazon, as they may be opening the door to cost-conscious consumers who will start looking at competitors who aren’t surcharging (yet).
Yes, it is fair. I’ll assume they ran the numbers to determine if that was the right percentage in terms of actually contributing to their costs and what sellers would tolerate without raising hell.
As for where they are vulnerable, nowhere at this point. Amazon packages are delivered multiple times daily to neighborhoods across America.
For independent sellers, unless they are very Facebook/Instagram savvy with their own Shopify stores, there won’t be many chinks in Amazon’s armor anytime soon. But Amazon’s website is a cluttered mess that is very functional. If someone applied Apple’s design sensibilities to an efficient e-commerce network, I could see people using that for certain products.
Yes, highly reasonable. These costs will probably get passed along to consumers. Amazon charges and higher costs to consumers for transportation costs are just the economic reality.
The fuel surcharge makes more sense than the inflation one: gas prices are — presumably — spiking and it’s a clear cost one can point to; inflation, OTOH…well I think it’s naive to assume prices are going to return to 2020 levels. More to the point there’s always been inflation, so retailers periodically raise prices; is Amazons thinking that it will have “base prices” set on 2018 — or whatever — and an ever-increasing surcharge (that is eventually many times the base price)? If so, it’s dumb idea.
I don’t believe this will have a meaningful impact on Amazon or its sellers but will just be passed along to the consumer. Since the other retailers are doing the same, it ends up being a wash for consumers. Now if a retailer wants to beat Amazon, then offering no surcharges or free shipping could win the consumer over.
The fuel surcharge is happening everywhere, so it’s no surprise Amazon followed suit. The expectation will be that it goes away as fuel prices go down, but I’d imagine they’d like to keep that extra income and will eventually roll it in somewhere else. The vulnerability happens if they keep the surcharge for too long and customers don’t see it so obviously displayed with competitors.
FedEx and UPS imposed fuel surcharges after the Gulf War and never stopped – increasing them each year regardless of their annual base-rate increases and whether fuel costs actually went up or down. Just like airline bag fees and cable company surcharges, it’s pure sugar to those who can impose, and it won’t go away.
Amazon Marketplace provides a great deal of value to sellers’ businesses, and this makes them choose Amazon over others. Speaking of imposing a temporary surcharge, it would have been unreasonable if: vendors were unable to boost their sales on Amazon while paying higher seller fees, or Amazon had a monopoly in the online marketplace, leaving sellers with no alternative but to sell via it. So, considering the significant inflation and growing fuel prices, the temporary surcharge appears fair in my perspective.
Amazon’s sheer volume of customers leaves its marketplace sellers at their mercy. The sellers do have other options, but chances are even with higher Amazon fees they still make more with Amazon overall. What goes unnoticed at times is when the other sites raise seller fees. Because they are not Amazon it does not get the same publicity, and therefore flies under the radar.