Amazon’s new fee structure changes a lot about selling on the platform. But it more than just moving fees around, it fundamentally redefines what Amazon thinks is important for fulfillment purposes.
The topic of logistics and selling on Amazon has always been a loaded and confusing topic, and we think we have some strategies that you’re going to want to consider going into 2024 to reinforce your current fulfillment practices.
What Amazon’s Fees Mean for Logistics
Generally speaking, most of Amazon’s fees actually went down as a result of the 2024 changes. For most sellers who are on top of their logistics, everything should actually be more affordable fees-wise this year.
However, there are two fundamental fee changes that pull Amazon’s priority into focus:
- Inventory Utilization Charge
- Low-Inventory Fee
The Inventory Utilization Charge replaces long-term storage fees. Starting in 2024, Amazon will no longer track how long an individual unit has been in their warehouse.
Instead, Amazon will calculate what your average daily sales volume is for any given SKU. Then, they’ll take that number and project how many units you’ll sell in 26 weeks. As long as you stay below that number (which changes depending on sales velocity), you will never incur a inventory surcharge for having “too much inventory”.
Amazon’s also implementing a Low Inventory Fee. If, for any given month, your daily inventory level for any SKU drops below 4 weeks, Amazon will charge you for each unit you fall short.
So, Amazon’s made it clear that they, at all times, want 1-6 months of inventory for every SKU, for every seller. And the reason for this is very clear.
Amazon’s Same-Day Dream
Amazon’s logistical ethos has always been the same: always deliver faster.
It wasn’t that long ago when everyone thought it was crazy that Amazon offered 2-day shipping for free. Now it’s not unheard of to get same-day shipping. But that only happens if the product is in a nearby fulfillment center.
And that’s Amazons goal. If every product is always in every fulfillment center, Amazon can offer same- or next-day shipping for almost every product all the time.
But the only way that can happen is iff sellers always have a sufficient amount of inventory in stock, so Amazon can “spread it around.” And how does Amazon make sure that happens? By creating the Low Inventory Fee.
Then, once every product is closer to the customer, the actual fulfillment is cheaper. So Amazon can decrease Fulfillment Fees.
It’s genius, and evil, and incredibly frustrating.
Measuring Matters (Dimensional Weight)
We don’t want to spend much more time on the fees. If you’re curious how they work, you can check out our fee calculator for 2024.
But here’s the first take away for Amazon logistics in 2024:
While most fees are going down, the number of fees is going up.
It is for this reason, the little things end up mattering a lot. Amazon’s measuring system now uses dimensional weight, and unless you have a heavy product, your packaging could end up costing you a lot.
If you can reduce just a little bit of packaging here and there, you could significantly decrease the following fees:
- Inventory Distribution Fee
- Fulfillment Fee
- Return/Disposal Fee
- Liquidation Fee
- Storage Fees
- Return Processing Fee
- MCF Fee
It’s unlikely that any of these fees will individually make much of a difference. But collectively–that’s most of the fees, and a few cents on each of them ends up saving a lot of money over the long haul.
All of this means that a huge part of figuring out logistics for Amazon in 2024 is to really dial in your packaging. Take a page from IKEA’s playbook and disassemble, flatpack, or find some other way to reduce space and weight in your product packaging design.
Services Amazon Offers
Now we come to the actual issue of supply chain. Logistics on Amazon used to just be the second-to-last stop. Not long ago, selling FBA on Amazon just meant that you stored some (or most) of your inventory in Amazons fulfillment centers.
But as storage fees and fulfillment fees have grown more expensive over time, consideration for Amazon needs to occur earlier in the supply chain process. How you handle logistics and inventory may be the most important profitability factor in 2024.
Common Problems Sellers Run Into
Many of the issues that sellers encounter with logistics are predictable. And Amazon themselves have stepped in to try and remedy the following problems:
- Smooth importing from out-of-country manufacturers
- Bulk storage for large shipments
- Distribution of products to the appropriate marketplaces and destinations
- On-time delivery of shipments
- Predictable and affordable fulfillment to the customer
- Management of returns, disposals, and liquidations
In late-2023, Amazon announced the unification of many of their programs into an umbrella program called “Supply Chain by Amazon“. The goal of this overarching program is to streamline and simplify sellers’ logistics from the manufacturer to the customer.
Supply Chain By Amazon
The services that are included in Supply Chain by Amazon have already existed previously and separately. And you can still pick and choose which services you want to engage with, if any, to the extent that they benefit you. The hope is that since most brands using these services are already in the Amazon ecosystem, everything integrates more effectively (or something like that).
- Amazon Global Logistics (AGL): The AGL program is the part of Supply Chain by Amazon that deals with importing. Pickup from manufacturer, ocean freight, customs, carrier handoff, warehouse delivery–all of that is covered in AGL.
- Freight by Amazon: If you’re importing or shipping Full Truck Load (FTL) shipments, then Freight by Amazon allows you to connect, book, and pay for trucks to move those shipments to their next destination.
- Amazon Warehousing and Distribution (AWD): The AWD program is a network of bulk-storage warehouses where you can store the inventory you don’t plan on sending directly to the FBA fulfillment centers.
- Fulfillment By Amazon (FBA): The part of the supply chain that we’re all familiar with. The last-mile delivery service by Amazon that gets you that nifty “Prime” badge on the Amazon marketplace.
- Multi-Channel Fulfillment (MCF): This program allows sellers to fulfill purchases from other sales channels (Walmart, eBay, your website, etc.) using FBA.
- Buy With Prime: This service allows customers to buy products on Amazon using your website. Where MCF doesn’t guarantee delivery or handle returns, Buy With Prime means that your website becomes a portal to purchase your brand’s products on Amazon.
You can use all of, or none of the services–or something in between. But all of these services come with benefit and risks, which will cover a little later. However, some of these services are more immediately beneficial for most sellers than others.
Maybe Just AWD
The AWD program is probably the most obviously beneficial. Since Amazon’s emphasis in 2024 is about ensuring you have enough inventory but not too much, the AWD program means you send fewer, larger shipments, and forget about long-term and low-inventory fees.
It also means that when Amazon’s FBA warehouses become swamped in Q4, and processing times take longer, your inventory is already in their system, and can be processed faster.
The downside is that every unit sent to AWD needs to be palletized. You cannot ship individual boxes. Which means that you can only distribute pallets, not boxes. But it does remove a lot of the concern about getting product into FBA fulfillment centers.
Or Buy With Prime and MCF
One other major concern for your sales that are not on Amazon is fulfillment time and cost.
By using MCF, you have a flat rate for fulfilling a product to a customer. Since MCF uses inventory in FBA warehouses, delivery times and shipping costs can be standards and predictable.
Unfortunately, MCF isn’t cheap, and it’s not 2-day shipping either. It’s just easier than doing everything yourself.
And then there’s using Buy With Prime, which does give you 2-day shipping, and the ability to handle returns through Amazon. You get the benefits of being able to control the info on your website and collecting customer information, and the convenience and conversion boost of FBA.
But FBA isn’t cheap, so neither is Buy With Prime.
Potential Risks
Amazon logistics might sound great. But there are reasons most sellers don’t use all of these programs. And the issues with Amazon’s logistics programs aren’t small.
Fast, Convenient…but Expensive
The first is obvious. Amazon’s focus is and always been efficiency. Supply Chain by Amazon is the answer to the question “What is the fastest, easiest way to get a product to a customer?”
But faster isn’t always better. It comes at a heavy cost. For example, according to Amazon’s MCF rate card, even the smallest product in the world can cost over $7 for standard 3-5 day shipping.
Unless your product is just the right size and weight, Amazon might be the most expensive option out there. Is it really worth doubling your logistics cost so you can put “Buy With Prime” on your website?
Returns, Refunds, and Reimbursement
The ethos of a young startup is “Move Fast and Break Things.” This seems to be the ethos for Amazon logistics.
Even if Amazon’s the answer to “how to get the product to the customer”, they are almost never the best answer to “what happens if the customer doesn’t like it?”
When using FBA, Amazon’s return policy becomes your return policy, and you don’t get a say. FBA sellers will always require sellers to allow for 30-day returns, for any reason.
And if you want those returns to come back to you (since you can’t sell a return again on Amazon), it can get so unreasonably expensive that it actually becomes cheaper to just refund the customer and have them not return the product.
…And then there’s Amazon’s issue with accuracy.
Amazon will misplace or damage some of your units. It’s something you can count on with FBA. And unless you request it and provide evidence that it was Amazon’s fault, you are not reimbursed for lost or damaged units.
The more you use Amazon, the more these inaccuracies crop up. And the charges can add up to 1-3% of your gross revenue.
Recovering Funds with Seller Investigators
Recovering these funds can be difficult and SO time consuming. Amazon makes you wait months after the problem has occurred before they will even let you request a reimbursement.
Then, there’s a whole back-and-forth that happens–and there’s no guarantee that you’ll ever get your funds back.
That’s why we recommend using a service like Seller Investigators to handle the reimbursements process for you. They only charge a commission of the funds they actually recover, and they’re the best in the business and finding and recovering the funds.
All the Eggs in One Basket
The more you invest in Amazon’s logistical programs, the more you increase the likelihood of these risks becoming reality. And although Amazon makes it easy to start using their services, they make it as difficult as possible to pull away from them.
The more you use Amazon’s services, the better those services get. That sounds great, but if things start to go south, you need to rebuild your entire logistics program, which means things will get worse before they get better.
For many sellers, Amazon logistics are a bigger risk than a benefit. But the benefits are real.
So what do you do?
Creating Your Own Fulfillment Network
One of the key benefits of using Amazon’s logistics programs is their fulfillment network.
It’s not actually that Amazon’s better at shipping things than anyone else. Amazon’s core competency is in the fact that they have warehouses absolutely everywhere. And by taking from their playbook, you can also reap some of the same benefits.
Most sellers only have one warehouse in the US for housing their products. And that might be okay most of the time–at least if you’re in the middle of the states. But if you’re located on the coast, inevitably, you’ll get sales where shipping costs a lot, and times are slow.
But if you can build a fulfillment network, the more standardized your shipping experiences become.
Ship Faster by Being Closer
Amazon’s built an expectation for customers that orders don’t take long to deliver. And that expectation plagues most brands on platforms that aren’t Amazon.
With only one warehouse, sellers can’t always offer affordable or fast shipping times. So the more distributed your inventory across the US, the faster you can ship products for lower costs. The only issue is that many sellers can’t afford to own or lease multiple fulfillment centers themselves.
Using Fulfillit as a 3PL (or 4PL)
Fortunately that’s where Fulfillit comes in. Fulfillit provides the optimal mix of benefits between fulfilling your own products or using Amazon logistics.
Fulfillit has a growing network of fulfillment centers across the US and Canada that you can leverage to meet your 3PL needs. So no matter where your customers are, you have the flexibility that comes with fulfilling your own product and the efficiency of having a distributed fulfillment network.
With Fulfillit, you’re not owning or leasing warehouse space on your own. Instead, you only housing your products and paying for the space you use, as well as the pick-n-pack fees that might come from fulfillment.
In addition to owning their own fulfillment centers, Filfillit also is building a network of other 3PLs that they can integrate with, which increases your ability to distribute your inventory and offer fast and affordable shipping (Fulfillit refers to this as a “4PL”).
Building Robust Logistic Infrastructure
It’s important to understand that 3PL services like Fulfillit don’t need to be a complete replacement for Amazon logistics (although, they potentially could be for many sellers). Instead, by creating your own fulfillment network, you mitigate the risk that relying on any one warehouse or service would pose.
With a fulfillment network, if your warehouse in Colorado get snowed in, your business doesn’t need to put shipments on pause, which means you also don’t need to put revenue on pause.
This doesn’t mean that Amazon logistics programs are useful, you just aren’t reliant on them in the same way. Instead of sending all of your inventory to AWD, maybe you only send in a few pallets. This decreases the negative impact that an AWD mishap might have on your business.
Owning Your Supply Chain
There’s also something to be said for owning your own supply chain. We’ve seen time and time again that, the more ecommerce space Amazon owns, the worse it gets for sellers.
To be clear, the Amazon marketplace isn’t a sellers-first platform. And Amazon doesn’t have your best interest in mind. And the more control you hand over to Amazon, the more opportunity you give Amazon to exploit you.
This article isn’t meant to be philosophical in nature, but most sellers don’t create brands with the intent of handing off most of their profits to Amazon. And the more you can make Amazon one of your sales channels, the less likely you are to end up as one of Amazon’s sellers.
And ownership matters.
Avoiding Unnecessary Fees
The last thing we need to cover is the benefit of avoiding unnecessary fees with a distributed fulfillment network. Amazon wants you to know that you always need to have enough inventory in stock at all times. But you should have avoid having more inventory in Amazon than you need to.
By partnering with a company like Fulfillit, you can maintain the optimal amount of inventory to decrease the following fees and costs:
- Inventory placement fee
- Inventory replenishment costs
- Storage fees
- Lost revenue from out of stock
- Storage utilization surcharges
So in addition to helping sales, shipping, and supply chain off Amazon, there’s a compounding savings effect on Amazon.
Conclusion
There’s a lot changing in 2024, and many sellers are doing their best to make sure they’re prepared for it all. For this reason, we’d recommend taking a look at our recommended tools page, where we have a list of all our partners, of which, Fulfillit is our newest addition.
In our extensive experience on the Amazon platform, we’ve seen that the little things add up. Things like investing in the right logistics programs, trimming down packaging, or considering how much inventory to keep in Amazon. And the main thing that separates the good sellers from the great sellers is their willingness to invest in the little things.