This guest blog is written by Manish Chowdhary of Cahoot, a Riverbend Consulting partner.
Fulfillment By Amazon (FBA) recently announced a peak season Amazon FBA fees from Oct. 13, 2023, to Jan. 14, 2024. This news is not a surprise to sellers as the company announced peak season surcharge for the first time in 2022. Amazon further explains that the seasonal fee is similar to those charged by other major carriers, and covers increased fulfillment and transportation operating costs during the busy holiday shopping season.
Although the seasonal fee appears reasonable at first glance, it adds more pressure for FBA sellers who are already having a hard time dealing with additional Amazon FBA fees and limitations in 2023.
Let’s see some of the key restrictions and the impact they are having on sellers.
Sellers struggle to keep up with Amazon FBA fees, restrictions and charges
- Restock limit restrictions: In October 2022, Amazon lowered its inventory restock limits by 10 percent to 25 percent right before the holiday season, making holiday sales expensive. Restocking limits reduced sellers’ inventory performance index (IPI) scores, leading to higher storage fees.
- Overage fees: If sellers extend their restock limits, they have to pay overage fees until their FBA inventory levels once again sit below restock limits.
- Storage utilization surcharge: On April 1, 2023, Amazon imposed a storage utilization surcharge for inventory sitting in fulfillment centers for more than 180 days. This forces sellers to deplete products faster to avoid additional charges.
- Fulfillment fee changes for dangerous good: Amazon announced increases its fees for dangerous goods. Instead of having peak and non-peak fulfillment fee per unit, sellers must pay a higher amount throughout the year. Amazon also lowered the fulfillment fees from 6 pounds to 4 pounds.
- Off-peak monthly storage fees increases: On Feb. 1, 2023, Amazon announced increases to its off-peak inventory storage fees.
- Removal and disposal fee increase: Effective Jan. 17, 2023, FBA removal and disposal fees increased between $0.45 to $1.06 for standard-size products and between $1.62 to $4.38, depending on the product’s shipping weight.
While Amazon has not stated reasons for these charges, the company has been on an aggressive cost-cutting exercise. Amazon closed 99 warehouses, went on a firing spree and moved to a hub-centric air network.
One possible explanation for the FBA price hikes can be an attempt to boost margins. In light of all these surcharges, another peak season fulfillment charge only makes it harder for sellers to excel at FBA.
Moving on, we want to give you a detailed overview of Amazon’s peak season charges, hidden conditions and the impact the program has on sellers.
The peak season fulfillment charges are broken down into further categories spending on product type and size. Following are the key dates and categories to note:
- Apparel: Oct. 15, 2023, to Jan. 14, 2024
- Non-Apparel: Oct. 15, 2023, to Jan. 14, 2024
- Dangerous goods: Oct. 15, 2023, to Jan. 14, 2023
You can head to Amazon’s Seller Central portal for a detailed break up of fee changes.
What is the holiday season’s impact on sellers?
- Margins will erode further and are compounded with FBA inventory restrictions. For example:
Small and Standard: Similar to last year, there has been a $.20- $.40 average price increase for small and light products or a 6 percent increment over non-peak season. Small and light sellers dominate the FBA and have very slim margins. This charge puts small and light sellers at a higher risk. Moreover, setting reduced margins with higher volumes is going to be more difficult due to Amazon’s restock limitations and long-term storage charges.
Large: Even outside of peak seasons, using FBA for large and heavy products is costly. The increase is also higher than small and light products, ranging from $1 to $2.5, depending on the product type. This puts more strain on margins during peak season. If you sell big or heavy items only on FBA, now would be the right time to diversify beyond FBA to lower risk and maintain margins. Trying out Seller-Fulfilled Prime with a suitable 3PL provider could be a smart alternative.
Note: Changes are the same for apparel, non-apparel and dangerous goods.
- See a higher peak season fee for large standard and oversize products. The cost of Amazon FBA fees depends on the weight of the product. This means that heavier items cost more. Interestingly, it’s important to know that weight calculations aren’t the same for all categories. For big standard and oversize products, Fulfillment By Amazon (FBA) charges based on whichever is greater: the actual weight or the dimensional weight. This can result in higher expenses.
- Peak fulfillment charges apply to products ordered before Oct. 15 well. Amazon FBA fees are calculated and charged when shipments leave Amazon’s fulfillment centers. This means that even if your products were ordered before Oct. 15, but get shipped after that date, peak charges still apply. Sellers should plan for monthly inventories accordingly.
Fulfillment By Amazon (FBA) is still a great option for many sellers, but with costs mounting up it’s no longer an ideal long-term strategy. Sellers need to diversify beyond FBA. Seller-Fulfilled Prime (SFP) can be a great alternative to alleviate high FBA costs, especially during peak season. However, the right choice of 3PL can make or break your SFP experience.
Your ecommerce order fulfillment partner is critical to winning on SFP. To achieve nationwide delivery you need a partner with a warehouse network or multiple USA fulfillment centers. Even within that network, you need a partner that can distribute your inventory closer to the end consumer to meet and achieve the 1-2 day delivery requirements. With brand experience being at risk, increased pressure on sellers and higher FBA costs, SFP should no longer be your backup, but an essential FBA alternative.