Amazon has announced changes to its Fulfillment by Amazon (FBA) program in 2024. While Amazon has presented these changes as beneficial for sellers and aimed at improving profitability, many voices on platforms like X and LinkedIn suggest a different story. Most prominently, many sellers are concerned that these changes will tilt the balance in favor of Amazon’s interest over theirs. So, what exactly are these changes, and how might they impact sellers?
FBA is a key service for Amazon sellers aimed at streamlining their operations. It enables them to leverage Amazon's vast fulfillment network and hand off the packing, shipping, and customer service aspects of their business to Amazon. This relieves sellers of significant logistical burdens for a fee.
One of the key benefits of FBA is its cost-effectiveness. Amazon claims that shipping with FBA costs 30% less per unit than standard shipping options from major US carriers and 70% less than premium shipping options.
Fulfillment by Amazon is part of a suite of services known as Supply Chain by Amazon, which offers sellers access to Amazon's global network of fulfillment centers. Sellers using FBA can offer customers free, two-day shipping through Amazon Prime and enhance their competitiveness on the platform.
The recent changes to FBA have made sellers apprehensive about their potential implications. Amazon's ability to constantly evolve and optimize its operations is undeniable, but sellers need to understand exactly how these changes will affect their operations and profitability.
Understanding the Amazon FBA Fee Changes
Amazon's decision to increase FBA fees in 2024 is driven by the need to cover the costs of expanding and improving its fulfillment network. These investments aim to enhance order fulfillment efficiency and speed, potentially benefiting sellers and customers.
Amazon is innovating its services to stay competitive by introducing new features and programs that require resources and investment, partly funded by seller fees.
Here’s a summary of the recent Amazon FBA fee change:
Fulfillment Fee Adjustments
Fulfillment fees have been revised based on factors such as the size and weight of a product, with increases ranging from 20% to 30% across multiple categories. This change is likely to impact pricing strategies significantly.
For a quick overview of FBA fulfilment fees in 2024, check out the chart below.
Source: Recreated from Seller Snap
Product Size Tiers
New size tiers and more granular tier intervals have been added. These changes will affect the fees associated with various product sizes and ultimately impact seller costs. Refer to the chart below for further details:
Source: AMZ Prep
Referral Fees
Referral fees for certain price ranges in the apparel category have been decreased, providing some relief to sellers in this category.
For items priced under $15, Amazon will lower referral fees to 5% from the usual 17%. For items priced between $15 and $20, Amazon will reduce referral fees to 10% from 17%. The following chart has detailed breakdown of referral fee changes:
Source: Recreated from Seller Snap
Inbound Placement Service Fees
A new charge category has been introduced based on the destination or distribution of inbound shipments. This additional charge aims to ensure accurate cost allocation and pricing for inbound shipments based on their destination or distribution needs. Refer to the chart below for more details:
Source: AMZ Prep
Inbound Defect Fee
A new fee category has been added based on problematic or delayed shipments. The fee applies to shipments that are delivered to the wrong fulfilment centre or are deleted and abandoned. The following details the amount of the per-unit inbound defect fee.
Source: Recreated from Seller Snap
Dangerous Goods Fees
FBA charges additional fees for handling and storing dangerous goods that require special care.
New rate cards for various product sizes have been implemented on February 5, 2024. Additionally, starting on April 15, 2024, FBA fulfillment fees will be reduced for standard-sized and large bulky-sized products.
The chart below has a detailed breakdown of the fee changes:
Source: AMZ Prep
Removal/Disposal Fees
Removal fees have been increased based on size and weight tiers, potentially encouraging sellers to manage their inventory more efficiently.
Source: AMZ Prep
Returns Processing Fee
This group of fees has been further enhanced for most categories. Returns will incur added fees based on excessive return rates. For sellers, this change emphasizes the importance of reducing returns through accurate product descriptions and quality control.
Source: AMZ Prep
Storage Utilization Fees
Amazon has announced that effective April 1, 2024, new fee tiers will be implemented for the storage utilization surcharge. This fee will apply to Professional sellers whose storage utilization ratio exceeds 22 weeks. Inventory aged between 0 and 30 days will be excluded from the surcharge. The change will first appear in May 2024 charges for storage occurring in April 2024. Additionally, starting June 1, 2024, Amazon Warehousing and Distribution will waive the storage utilization surcharge for products that are auto-replenished. This change will first be reflected in July 2024 charges for storage occurring in June 2024.
Source: AMZ Prep
Aged Inventory Surcharge
This fee group is becoming more detailed through the implementation of fee changes across various additional age categories. It is aimed at incentivizing sellers to maintain fresh inventory. The surcharge is billed monthly, usually between the 18th and 22nd day of each month.
Source: AMZ Prep
Supply Chain Updates
Amazon is updating rates and benefits for the Amazon Global Logistics, Partnered Carrier, and Amazon Warehousing & Distribution programs. They are likely to result in potential cost savings and operational efficiencies for sellers using these services.
Seller Concerns with Amazon FBA Fee Changes
While Amazon FBA fee changes aim to improve efficiency and encourage sellers to manage their inventory more effectively, many sellers are not particularly happy with these changes.
There has been considerable discussion among financial influencers regarding the recent changes in Amazon FBA fees. According to Scott Needham, the Founder of SmartScout, a tool utilized by Amazon sellers to enhance their businesses, "Amazon often feels more like a landlord than a partner when you encounter those additional fees. Amazon employs fees to encourage certain behaviours. This year, they aim to incentivize sellers to optimize the entire network and reduce transshipping." You can find his detailed perspective here.
Similarly, Jon Elder, the Amazon Private Label Guy, advises sellers to engage with their freight forwarders to prepare for upcoming changes. He highlights that Amazon will now split inventory into 4+ FBA locations instead of 3, suggesting sellers ensure they have a reliable contact for this transition. He also notes that while Amazon presents this change as beneficial, it ultimately creates a new profit channel for the company.
In a recent LinkedIn post, Vanessa Hung, co-founder of SellerAssist by Carbon6, highlighted that FBA shipments are set to become significantly more expensive. She expressed concern that this change will complicate inventory management, leaving sellers to navigate three variable fees independently.
Impact on Profitability
The Amazon FBA fee adjustments, particularly the increase in fulfillment fees, have raised concerns among sellers about their profitability. Small sellers, in particular, are wary of the potential impact on their bottom line. Capterra's report on the 2022 holiday season shows how 48% of small sellers believe fee hikes on Amazon would make them less profitable.
This sentiment persists with the current changes, as brands of different sizes
expect to encounter higher costs due to the new inbound placement fee.
Per-Unit Basis
A key reason for dissatisfaction among sellers is the per-unit basis of certain fees. High-volume sellers with lower average selling prices (ASPs) could see a significant impact on their costs as a result of this. It means that the more units a brand sells, the more they will have to pay in the form of fees. This has led to concerns about the overall impact on their margins and competitiveness.
Re-evaluation of Fulfillment Strategies
The introduction of the new fee structure may prompt some brands to re-evaluate their fulfillment strategies. Some sellers may consider switching to Fulfillment by Merchant (FBM) or exploring Amazon's logistics programs as alternatives to mitigate some of these costs.
Strategies for Sellers to Thrive Amid FBA Fee Changes
As the Amazon FBA fee landscape evolves, sellers can implement several strategies to cope with the changes and thrive in the new landscape.
Optimize Inventory Management
One key strategy is to up your inventory monitoring and restocking game to cope with the limitation on stock allowed in Amazon warehouses. By monitoring your inventory levels closely and replenishing stock proactively, you can avoid stockouts and ensure a consistent supply to meet customer demand.
Find Cost-Effective Suppliers
Finding suppliers, manufacturers, vendors, and carriers that offer great deals and excellent service can help you keep costs low. By building strong relationships with reliable partners, you can negotiate better prices and terms and reduce the impact of increased Amazon FBA fee on your bottom line.
Build Liquidity
Building more liquidity in your business can help cope with the changes better. Having sufficient cash flow allows you to invest in your business, take advantage of new opportunities, and weather any temporary downturns in sales.
Evaluate Product Performance
Evaluate the performance of your products regularly and consider letting go of poor-performing products. By focusing on your best-selling and most profitable products, you can optimize your inventory and maximize profitability.
Explore Multichannel Selling
Diversifying your sales channels by going multichannel can reduce your reliance on Amazon's FBA services. By selling on other platforms or through your website, you can reach a broader audience and mitigate the impact of any changes in Amazon FBA fee or policies.
Navigate Amazon FBA Fee Changes with Oppdoor
Brand owners and sellers navigating Amazon FBA fee changes can significantly enhance their ECommerce success with OppDoor. Our specialized services in inventory management, demand planning, sales forecasting, cross-border logistics, payment reconciliations, and inventory level tracking & reporting will keep you ahead of the curve in coping with FBA changes.
Our Fully Managed Amazon Services are tailored to help you thrive on Amazon. Contact us today to learn more.