Amazon Says Fulfillment Fees Will be Raised in 2020
A recent report published by Reuters noted that Amazon is expected to raise its fulfillment fees for merchants by an average of three percent over the next calendar year. While there are some media outlets who have interjected that this is a money grab, it’s actually just par for the course in the order fulfillment game.
During the 2019 fiscal year, Amazon invested more than $15 billion to expand infrastructure, build better tools, and increase operational efficiency. All this in an effort to continually stay ahead of the competition. Amazon has also expanded PRIME membership offerings to customers, continued testing self-driving technology, launched a new fleet of regionally based cargo trucks, and made many changes to the company’s last-mile efforts.
These investments not only help to improve the customer buying experience but likewise help merchants connect with consumers. This has the potential to increase their sales and provide them with customer support that eclipses most other online merchants.
An email sent to Amazon merchants noted; “Driven by FREE One-Day Delivery, this was the largest one-year investment we have ever made in FBA. Nevertheless, in 2020, we will make only moderate increases (about 3%) in fulfillment fees, below the industry average, because we remain committed to your continued success.”
The email continued to state that some merchant referral costs would also be reduced. Nonetheless, even with a minor 3 percent upcharge, Amazon still provides merchants looking to reach consumers quickly, affordably, and with exceptional delivery standards with the best bang for their buck.
While the 3% uptick in merchant fulfillment and warehousing costs is assumed to be an effort to recoup their 2019 investments, its actually similar with the increase of multiple delivery carriers – UPS and FedEx among them, which are expected to increase ground and air services by nearly 5% in 2020.
The Price of Prime
One of the major changes made by Amazon in 2019 was an expansion of its PRIME delivery services. With customers paying nearly $120 each year, Amazon had to find a way to offer better value. They did so by offering FREE One Day delivery services to most US-based consumers. PRIME represents a larger percentage of revenue for the eCommerce conglomerate.
However, enhancing the customer buying experience comes at a cost. Rising shipping rates by transportation companies due to reduced carrier capacity, driver availability and other financial factors. Add the geopolitical uncertainty with trade agreements in North America and China into the mix, and it’s clear to see why costs across the board have seen an upward tick.
The 3 percent fulfillment fees increase in merchant services will likewise help to balance the companies profit margins. In the fiscal year 2019, market insiders expected Amazon’s stock to follow the industry’s performance. However, their 19.4% year-to-year return was nearly seven full points off the market’s exceptional 26.4% standard. Stock market analysts suggest that the companies reduced profit margins based on PRIME delivery services were a contributing factor.
Cutting Costs on Delivery Options
Along with the additional charges to merchants is a dedication to reducing the costs of shipping. One noticeable change is the deletion of FedEx Ground delivery for PRIME customers. But cost alone was not the sole factor. According to Amazon officials, FedEx Ground delivery options simply do not offer the expedited delivery their PRIME customers pay a premium to receive.
This move also permits Amazon’s in-house delivery service to expand its reach with the delivery of US-based shipments. Their 100-million customers who pay for the PRIME service receive multiple shipping updates via the communication platform of choice, can have deliveries sent to offices or residential facilities, or in some metro areas, the flexibility of picking up their orders at fulfillment lockers.