Amazon Announces New Surcharge to Cope with Rising Costs
May 6, 2022
Due to rising costs tied to inflation, the war in Ukraine, and the ongoing pandemic, Amazon announced that it will be adding a 5% surcharge for all US-based third-party sellers who use Amazon Fulfillment Centers to store, pack, and ship products. The surcharge is scheduled to go into effect on April 28. Approximately 89 percent of Amazon’s two million third-party sellers use Fulfillment Centers for their sales’ shipping logistics. Analysts anticipate sellers will raise the prices on their products to offset the extra costs.
The move follows an increase in seller fees announced in November, which came into effect in January. US inflation jumped to 8.5% in March, its fastest climb in more than 40 years, while oil prices have jumped 48% in the past 12 months.
The company emphasized that inflationary costs may continue to fluctuate and are unsure of how long instability will persist. As a result, the 5% surcharge may increase or decrease depending on economic factors. Although costs for the e-commerce giant have grown in recent years due to macroeconomic events and substantial investments made into the company, Amazon’s profits have reportedly risen nearly 200% since the start of the COVID-19 pandemic.
Amazon’s relationship with merchants has been fraught in recent years, as sellers complain to regulators that the company’s power allows them to dictate terms. Amazon sellers are required to pay a $39.99 monthly fee to list their products on the Amazon marketplace, and the company takes an additional 15 to 30 percent of the revenue from each item sold. Sellers are also often required to pay for ads to drive sales. Yet, online sellers have few viable alternatives as Amazon covers 38% of the e-commerce market, trailed by Walmart with just 6%.
Stacy Mitchell, a co-director of the anti-monopoly group Institute for Local Self-Reliance, said Amazon was taking advantage of the moment in his statement: “Amazon keeps increasing its fees on the sellers that have to depend on its platform.” He added that the new surcharge was merely a way to “take money out of the pockets of independent businesses and put it into Amazon’s coffers.”
In 2021, sellers paid Amazon approximately $103bn in fees, which make up 22% of the company’s revenue. However, Amazon takes a smaller surcharge at 24 cents per unit sold to cover shipping costs than its competitors FedEx (49 cents per unit), and UPS (42 cents). Understanding how the surcharge will impact sales remains to be seen; however, sellers seem likely to increase their prices, offsetting at least a portion of the extra costs to consumers.