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Amazon’s fulfillment services will command premium prices in Q4

May 18, 2016 10:42 AM
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In January Amazon.com Inc. chief financial officer Brian Olsavsky said Amazon’s warehouses were “very full” during the fourth quarter, thanks to the growth of Fulfillment By Amazon, the service whereby merchants selling on the Amazon marketplace pay Amazon to store and ship their goods for them.

Now Amazon is adjusting the storage fees it charges sellers—lowering them in October and more than doubling them in November and December—as it looks to make sure the inventory merchants ship into its fulfillment centers is inventory that moves quickly.

Amazon, via email on Tuesday, began informing merchants that use Fulfillment by Amazon of the coming fee changes. The changes go into effect Oct. 1, and only for the U.S. Fulfillment By Amazon  network. Amazon provided Internet Retailer with that email. It reads in part:

“In 2015, FBA volumes, growth rates, and inventory levels were very high. This fullness was driven in part by FBA inventory that did not sell until well into 2016. To avoid potential capacity constraints during the 2016 holiday season, we are accelerating the expansion of our fulfillment capacity. Additionally, we are changing our FBA fee structure to encourage all sellers to send in and store products in November and December that are likely to sell by the end of 2016.”

For October Amazon will charge merchants who use its fulfillment services 54 cents per cubic foot to store standard-size products and 43 cents per cubic foot for oversize products, which is consistent with what it is charging from January through September of this year. But in November and December, the corresponding fee will be $2.25 per cubic foot for standard size products and $1.15 per cubic foot for oversize products, up 212.5% and 101.8% compared to 72 cents and 57 cents, respectively, in November and December 2015.

The goal with the rate changes, an Amazon spokesman says, is twofold. Amazon intends the lower October fee to encourage sellers to ship in inventory ahead of the holiday season, when Amazon’s fulfillment centers are less constrained than they are in November and December. And the higher fees in November and December are meant to push sellers to only ship in inventory likely to sell in Q4. In other words, if merchants are shipping in inventory not expected to sell in November and December, it will cost them more.

According to supply chain consulting firm MWPVL International, Amazon operates 77 large-scale fulfillment centers in the United States, spanning more than 60.5 million square feet. 17 more U.S. fulfillment centers are in the works.

Amazon will reduce some weight handling fees in November and December. Weight handling fees vary by the weight of the good being shipped out, and are charged in addition to pick and pack fees and order handling fees, which will not change. See the full rate card change details here.

Amazon has previously said sellers on Amazon’s marketplace accounted for 47% of units sold during Q4, and about 50% of those units were fulfilled by Amazon. In Q1 2016, 48% of units sold were by marketplace sellers. 331 of the 1000 largest e-retailers in North America list products for sale in Amazon’s marketplace, according to data compiled from Internet Retailer’s Top 500 and Second 500 Guides as part of the Top 1000 data service on Top500Guide.com.

Amazon does not say how many merchants use Fulfillment By Amazon, which has been around since 2006, but the service has grown substantially in recent years. Amazon in January said the number of sellers using Fulfillment by Amazon grew more than 50% in 2015, following year-over-year growth of 65% in 2014.

 

 

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