Over 40% Cost Increase for FBA Since 2015 - Is Amazon Fulfillment Still Worth It for Sellers?
Amazon has gradually increased fees for FBA sellers in recent years, particularly since the beginning of the Corona pandemic. With inflation and the war in Ukraine, additional challenges arose for the US corporation, which sellers also felt again. Since 2015, Amazon has increased FBA fees by an average of more than 40%, with an increase of over 30% alone since the beginning of 2020. For sellers, this raises the question of whether the FBA program is still worth it or whether self-fulfillment is not cheaper. In this blog article, we go into the price increases for shipping in the various package sizes and show concrete action steps for sellers.
Drastic Development of FBA Fees Since 2015
The fees for the "Fulfillment by Amazon" program (FBA) have continuously increased over the past years - since 2015 by an average of more than 40% for FBA shipping in all package sizes, with the outbreak of the Corona pandemic in spring 2020 particularly initiating a trend toward increasingly frequent price increases. Most recently, Amazon increased FBA fees in Europe in March 2023. This hit sellers with the third price increase within a very short time. After two price increases in the previous year (the first in March 2022 by about 6%, the second in May 2022 by an average of 4.3% as part of the fuel and inflation surcharge), the latest price increase for local and pan-European shipping in the various package sizes was now an average of 6.2%.
Oversize products were particularly affected by the recently increased FBA fees. However, Germany recorded a comparatively moderate price increase of only about 2% on average. In addition, many size ranges remained unaffected by the price increases. In contrast, the increases in other European countries were on average well over 5%, alongside France (3.2%). Monthly FBA storage fees were also increased by about 10% for all standard-size items effective March 1, 2023 - except for items in the clothing, shoes and bags category in the storage months October to December. We have already reported in detail about the changed FBA fees in our blog article in January.
Continuous Price Increase Since Pandemic Began Also in Germany
The extent of the increased FBA fees in Germany becomes clear when we look at the concrete shipping costs for some package sizes in domestic shipping. For example, Amazon has increased the shipping fees of a standard package ≤1.40 kg by 59.2% since 2015 - by 33.7% alone within the last three years since the pandemic began. In 2015, Amazon charged sellers 3.04 € for shipping a standard package ≤1.40 kg in Germany. At the beginning of 2020, the fees were 3.62 € after about two years of stagnation. By March 2023, the shipping costs for the corresponding package size have climbed to 4.84 € - that's a price increase of 59.2%. Similar observations can be made for the remaining package sizes. For illustration, we look at the price development of shipping costs for four package sizes since 2015, shown in the figure (Standard envelope ≤460 g, Standard package ≤1.40 kg, Standard package ≤3.90 kg, Large oversize ≤4.76 kg).
For the package size Standard envelope ≤460 g, shipping fees increased from August 2015 to March 2023 from 1.77 € to 2.39 € (total + 35%). For the Standard package ≤3.90 kg, the price was still 4.19 € in August 2015, but 6.55 € in March 2023 (total + about 56.3%). And for the package size Large oversize ≤4.76 kg, a considerable price increase from 6.05 € to 9.26 € can be observed (total + 53%). Here too, price development has increased rapidly since the pandemic began. Alone since January 2020 (when the price was still 6.71 €), shipping fees have increased by 38% until March 2023.
Interestingly, Amazon has gradually increased FBA fees since the pandemic began after a nearly two-year stagnation between April 2018 and January 2020. Between August 2015 and January 2020, shipping fees still changed to a moderate extent. After these had even remained largely unchanged from April 2018 onwards with few exceptions, Amazon then increased prices by an average of 5.89% in all package sizes in April 2020, followed by further price increases in September 2021, March 2022, November 2022 and finally March 2023.
For the four package sizes considered, this means concretely that FBA fees increased between August 2015 and January 2020 in the case of package size Standard envelope ≤460 g by 10.2%, while prices increased by 22.6% from January 2020 in the period of just over three years until March 2023. In the Standard ≤1.40 kg package size, prices already increased significantly by 19.1% between August 2015 and pandemic beginning and then by a further 33.7% from January 2020. The price increases are drastic in the package sizes Standard ≤3.90 kg and Large oversize ≤4.76 kg. Here, prices increased between August 2015 and January 2020 by only 4.1% and 10.9% respectively, while Amazon increased prices in these two categories by 50.2% (Standard ≤3.90 kg) and 38% (Large oversize ≤4.76 kg) from January 2020.
The price increases have surprised many sellers. In response to the FBA fee increases, sellers were forced to reduce their costs. Subsequently, sellers tried to find new manufacturers or further optimize processes - this was reported by the marketing blog ScaledOn. But that alone was not enough, it continues in the blog article. Sellers therefore had to pass on the costs to customers in part. 90% of top sellers on Amazon use FBA. The effects of the increased costs are therefore far-reaching.
What are the reasons for the price increases?
According to Andy Jassy, the reasons are diverse. In an interview with CNBC, the Amazon CEO explained that the US corporation is confronted with rising costs, particularly due to inflation, the late effects of the Corona pandemic and the effects of the Ukraine war, and was therefore forced to adjust the fees.
At the beginning of the pandemic, demand increased particularly, which is why the company hired more warehouse employees. Nevertheless, there was a staff shortage at some locations and packages often had to be sent over longer distances to other locations where sufficient staff was available, which also resulted in additional financial costs. In addition, the pandemic in China - or the strict measures of the regime, some of which continue to this day - has had significant effects on the supply chains of the technology industry. The restricted production as a precautionary measure with regard to new virus variants also poses a challenge for Amazon, as importing products from China is often significantly more expensive and time-intensive. Finally, the effects of the Ukraine war have not stopped before the US corporation either. Rising prices for oil, gas and metals as a result of Russia's invasion and associated geopolitical tensions were a reason for the fuel and inflation surcharge of 5% for FBA merchants.
In order to remain economically viable despite rising costs, Amazon was forced to pass on price increases to FBA sellers, as they use Amazon's logistics capacities. Sellers in the "Fulfillment by Amazon" (FBA) program pay for their inventory to be stored in Amazon's warehouses and to be able to use the company's supply chain and shipping services.
Do Amazon's Quarterly Figures Confirm the Cost Explosion?
Looking at Amazon's quarterly figures of the last four years confirms that the corporation has been confronted with increased fulfillment costs - i.e., costs that Amazon itself incurs for storing products from sellers, among others - since the outbreak of the Corona pandemic from Q1 2020.
So it becomes clear that costs (found in quarterly reports under Operating expenses: Fulfillment) have continuously increased from early 2020 to late 2021. According to Statista, fulfillment costs primarily include operating and personnel costs for international fulfillment centers. In addition, fulfillment costs also include operating and personnel costs for physical stores and customer service centers as well as payment processing costs. Even if the figures from the quarterly reports do not exactly correspond to what Amazon spends on shipping FBA packages, they can still show a certain trend, which we set in relation to net sales that Amazon generates with Third-Party Seller Services. This net sales, which we also take from Amazon's quarterly figures, includes both the commission and the fees for fulfillment and shipping that sellers pay to Amazon.
In Q1 2020, the costs that Amazon incurs for fulfillment according to the quarterly report were 34% higher compared to Q1 of the previous year. Looking at the whole year 2020, costs were even 45% higher than the previous year. From 2020 to 2021, annual costs then increased by another 28% and from 2021 to 2022 by still 12%. At the beginning of the first quarter of 2023, the cost increase compared to previous years seems to be decreasing again. So fulfillment costs in Q1 2023 were only 3% higher compared to Q1 of the previous year. However, compared to Q1 2019 before the pandemic began, costs have more than doubled by Q1 2023 - by a remarkable 143%.
At the same time, net sales that Amazon generates with Third-Party Seller Services has also increased since 2019, from 53.8 billion US dollars in 2019 to 80.4 billion US dollars in 2020 and to 103.4 billion US dollars in 2021 and to 117.7 billion US dollars in 2022.
When you now set the costs in relation to net sales, it becomes clear that the percentage share of fulfillment costs in net sales generated through Third-Party Seller Services always accounts for over 70% over the years 2019 to 2022.
It even becomes clear that this distribution shows a declining trend. Insofar as net sales has increased more strongly in relation to costs. In the first quarter of 2023, the percentage cost share even fell significantly again to 70.10% by now. From the above tables, it can be seen that net sales increased by 49.62% between the years 2019 and 2020, while fulfillment costs only increased by 45.45%. In the years 2021 and 2022, the growth rate of costs and sales is approximately equal.
Attempt to Explain Price Increases
Looking at the quarterly figures of recent years could therefore certainly serve as an explanatory approach for the increased FBA fees. The figures show that fulfillment costs that Amazon incurred have increased considerably, particularly since the pandemic began. According to Amazon, net sales generated from Third-Party Seller Services includes both the sales commission and fees for fulfillment and shipping. Amazon is naturally keen to keep the fulfillment cost share in net sales approximately equal. The percentage share of Amazon's fulfillment costs in Third-Party Seller Services net sales for the years 2019 to 2023 (where 2023 only includes Q1 so far), which we calculated in the table above, seems to confirm this. The distribution remains stable over the years, or it even looks as if Amazon has been able to increase net sales in relation to fulfillment costs - the percentage cost share in Third-Party Seller Services net sales has been declining since 2019.
FBA Soon Unaffordable for Sellers?
Given the steady increase in FBA fees, sellers are faced with the question of whether the "Fulfillment by Amazon" program is still the best choice. It is unclear how costs will develop in the future and whether further fee adjustments will come for FBA sellers. While the quarterly figures at least suggest that the costs that Amazon incurs in the fulfillment area are no longer increasing to the same extent as in the previous year, it remains to be seen whether this trend will continue. For sellers, it is therefore crucial to weigh costs and benefits and develop strategies to avoid having to accept losses in sales despite the increased FBA shipping costs.
Pass Price Increases on to End Customers
A possible strategy to deal with the increased FBA fees is to consider price increases for products to partially pass on the additional costs to customers. However, this requires careful market analysis so that sellers can ensure they remain competitive despite price increases. Too large price increases could lead to customers switching and choosing cheaper alternatives.
Hybrid Shipping
A hybrid shipping model, i.e., splitting the shipping business into Fulfillment by Amazon and self-fulfillment, could also be a possible solution to avoid increased FBA fees. Here it is advisable to look carefully at which categories shipping costs have increased most significantly. For the package size Standard ≤3.90 kg, for example, we calculated a cost increase of 56% in the period between August 2015 and January 2023 - 50.23% alone since the pandemic began in spring 2020. For the package size Standard envelope ≤460 g, shipping fees in this period increased by only 22.56%. This could be an argument for only listing small and light items of the cheaper categories with FBA and offering larger packages in self-fulfillment. Such a step would be further reinforced by Amazon's announcement that the "Small and Light" program for items with a selling price of up to 11 € and a shipping weight of max. 960 g, in which sellers benefit from discounted shipping costs after registration, will be abolished in the USA from August and the conditions will then be automatically transferred to the "Fulfillment by Amazon" shipping program.
The recent developments in Prime eligibility criteria could also influence sellers' decisions regarding the choice of shipping program once again. We have reported on this in detail in our last blog article. Since Amazon leaves sellers with self-fulfillment who want to qualify for Prime the choice of logistics partner, the Prime badge is no longer dependent on whether one cooperates with the shipping partners determined by Amazon. Rather, Prime eligibility can be acquired if certain criteria are met. For sellers with self-fulfillment, this means more flexibility. Against this background, the question arises even more for sellers on Amazon whether self-fulfillment does not represent a worthwhile alternative.
Nevertheless, the question ultimately remains open here as to whether the costs of Amazon itself can be significantly undercut even in the larger package sizes. Because the prices in self-fulfillment also remain not unaffected by the mentioned challenges. So it would be quite possible that price increases for items are ultimately unavoidable.
With regard to the significantly higher prices for larger packages as well as the considerable price increases in these size categories, sellers should look carefully at the product dimensions in particular. If there are discrepancies between the recorded and actual dimensions here, FBA fees can quickly increase. So it can make a big difference for shipping fees whether a package weighs just over 1.40 kg or just under.
Reduction of Inventory
Finally, it is also advisable for sellers to keep an eye on inventory at Amazon. Less inventory also means fewer fees. So returned items with insufficient quality (unfulfillable) should definitely be removed from the warehouse to reduce inventory. Minimizing total inventory also represents an option. Through efficient inventory management and optimization of the supply chain, storage fees could be reduced. But this strategy is also associated with potential risks. So careful balancing between sufficient inventory and avoiding unnecessary overstock is crucial, because too aggressive inventory minimization can lead to supply bottlenecks and customer dissatisfaction.
Conclusion
The future development of FBA prices cannot be clearly predicted. Against the background of rising costs and the challenges that Amazon still faces, further price adjustments cannot be ruled out. From Amazon's quarterly figures, it can be seen that the price adjustments are quite in proportion to the increased fulfillment costs.
When you look at the price increases in detail, it also becomes clear that shipping fees for larger packages have increased particularly significantly. Amazon can ship small and light packages cheaply with its own shipping providers. But large packages will probably continue to be outsourced to third-party providers in the future, which should continue to drive shipping costs. Here, sellers should consider the possibility of a hybrid model to at least avoid the increased FBA fees in these categories. Such a step would be further reinforced by the recent developments in Prime eligibility criteria, which enable sellers to obtain the Prime badge now also independently of the logistics partners determined by Amazon. Those who can offer self-fulfillment with Prime badge in the future could optimize their existing shipping provider conditions through larger shipping volumes and save additionally here.
In self-fulfillment, sellers also have the option to charge additional shipping costs. However, for the many Prime customers, this is an exclusion criterion, as they are used to items always being delivered free of charge.
The rising costs could move sellers to offer more in self-fulfillment in the future and step back from the FBA system.
