What You Need to Know... In Three Paragraphs

With all of the new programs, restructuring of size tiers, and storage capacity updates, it is difficult to keep up much less comprehend how Amazon's annual fee update will affect your business. Even for someone that does Amazon for a living, it took a while to completely understand the changes happening in 2024 (thanks for the patience of those who have been waiting on this blog post). It is my goal to convey a summary of all the changes in the next three paragraphs. I want readers to understand what changes are important and the implications they'll have on their business. For those seeking more details, I included an appendix below the summary that outlines all Amazon's 2024 changes.

#1 - FBA Fees & Inbound Placement Service Fee

Amazon states they are implementing the fee changes to provide sellers with a great value, offer customers great service, and reduce collective costs. They expect sellers will see an average increase of $0.15 per unit sold. Although a broad statement I agree that it will be true for standard-size items. However, if you sell oversize items weighing between 50 and 70 pounds, expect an increase of $30+ to your base rate FBA fee.  For all other standard and oversize tiers, Amazon is reducing FBA fees on April 15th. However, this will be offset by the mandatory inbound placement service fee. There are two levels of this service, premium and discounted. Premium will replace the existing "Inventory placement service". The fee structure is similar but has more granular weight tiers. If you're already using inventory placement service for heavier standard size items, you'll save money as the new premium service has a cap of $0.68/unit for standard size items weighing up to 20 pounds (the current rate is $0.40 + $0.10/lb above the first 2 lb). However, the biggest change is going to be for those not currently using the inventory placement service. More specifically, if sellers aren't using the premium inbound placement service, they'll be required to use the discounted service. This might be a big deal because this fee or service didn't previously exist. There isn't much explanation but Amazon says that sellers can receive a discount up to 100% based on number of shipments and inbound locations. This concerns me because both the number of shipments and inbound locations are not determined by the seller but Amazon. This is something to monitor closely in April as we can't forecast the fees with the limited information available now. However, we can project total fees for sellers that will be using premium inbound placement service. Placement fees are effective March 1st and will be charged 45 days after receipt of product.

Key Take Away:

FBA fees are going down slightly but inbound placement fees are going to be a thing. Amazon claims the net effect will be $0.15/unit on average.

#2 - Low Inventory Level Fee

On April 1st, Amazon is introducing a low inventory level fee which will apply if you consistently carry low levels of inventory. This isn't a terrible change considering all the struggles sellers have had securing enough storage capacity over the past several years. Things like ASIN level quantity limits, restock limits, and capacity manager have been a pain point for sellers since the pandemic. This may come across to some as Amazon strong arming your inventory management or blurring the line between independent third-party seller and wholesale/vendor partner. I don't disagree but feel this change will promote sales growth and sufficient FBA inventory levels. This fee goes into effect April 1st and applies only to standard size items. The fee is assessed by a metric that Amazon is calling "Historical days of supply". Simply put, this is a sell through rate that Amazon evaluates on short-term (last 30 days) and long-term basis (last 90 days). If your inventory level isn't sufficient for both date ranges, you'll be charged the low inventory level fee on each unit sold. Using two ranges helps avoid unfair charges related to changes in sales velocity stemming from promotions or seasonality. A more detailed explanation of the historical days of supply calculation can be found in the "Low Inventory Level Fee" section of this article.

Key Take Away:

There's a possibility of a new fee and Amazon is strongly influencing sellers' inventory levels. However, if you have healthy and consistent inventory levels, this should not impact your business.

#3 Returns Processing Fee

The returns processing fee is not a new fee. It has existed in the shoes and apparel categories. However, starting on June 1st this fee will be charged on "high return-rate" products for all product categories excluding shoes and apparel. Shoes and apparel will continue to be calculated the same way with a moderate reduction (approximately 20% les starting February 5th). For all other categories, a return-rate threshold will be assigned on May 1st. If a seller's product return rate is above the threshold for that category, each returned unit will be charged. Standard size fees range from $1.78 to $5.00 + $0.05/lb above first 3 lbs. Large and bulky (formerly referred to as oversize) starts with a base rate of $6.74 and goes up to $157.35 depending on weight. Amazon calculates a product's return rate over a three month span so isolated instances should not result in fees. Also, if less than 25 units are shipped each month, the fee is waived. A more detailed explanation of the return rate calculation can be found in the "Returns Processing Fee" section of this article.

Key Take Away:

This is a new fee for sellers outside the shoes and apparel categories. It will only affect products that have consistent return issues over a three month window.

Appendix

• Inbound Placement Service Fee
• Decreased FBA Fees
• Size Tier Restructure
• Low Inventory Level Fee
• Storage Fees Reduced
• Storage Utilization Surcharge
• Aged Inventory Surcharge
• Returns Processing Fee
• Miscellaneous

Inbound Placement Service Fee

Starting March 1, 2024 the inbound placement service fee will be introduced. There are two types of services, premium and discounted service. The premium service will replace inventory placement service and appears to be moderately less expensive for heavier standard size items. The discounted option is a new service that most sellers would liken to "Distributed inventory placement" where Amazon splits a shipping plan into multiple destinations. The new discounted placement service is determined by item's size tier, weight, and inbound location. Amazon notes that West locations will have higher fees. If shipments are abandoned, Amazon will increase rates based on actual receipts and locations. Also. it is unclear how discounts are earned but Amazon states that sellers can receive discounts up to 100% based on number of shipments and inbound locations (for the discounted service option). The current fee schedule is below.

Decreased FBA Fees

Starting April 15th, Amazon will be reducing FBA fees. Keep in mind, this is the same time the new inbound placement fees will start getting charged. Products below $10.00 will continue to receive the $0.77 per unit discount. The new v. old fee comparison tables are below. I found the date ranges confusing at first because there are three. The first range ( 1/15/24 - 2/4/24) captures the non-peak current fee structure. The second range (2/5/24 - 4/14/24) is included because Amazon is adjusting the granularity of size tiers on 2/5/24 but not changing the fee structure until 4/15/24. The final range illustrates the more granular size tiers and new reduced FBA fees.

Size Tier Restructure

Starting February 5th, small standard-size items are going to be measured in 2 ounce intervals. The large standard-size tier from 1+ to 20 lb will be measured at intervals of 4 ounces. None of these changes apply to apparel. I don't see a significant impact resulting from these changes for standard-size items. Unfortunately that is not the same for certain oversize tiers.

Amazon is replacing the old oversize tier format (small, medium, large, special oversize) with "Large bulky" and "Extra-large" in various weight ranges (see above). I found it misleading that this wasn't addressed as a fee change given the steep increase under the new size-tiers. Simply put, on February 5th sellers with oversize items weighing between 50 and 70 lbs. will see an approximate increase of $30 to their per unit FBA fees. This is because small oversize items had a base rate of $9.73 and could weigh up to 70 lbs. Starting February 5th, those same items that weighed 50 to 70 lbs. are now considered "Extra-large" and have a base rate of $40.12/unit. I see this impacting lower cost heavy items sold in bulk (pet food, paper products, etc.). Large TVs will also be subject to the increased fees as a result of their dimensional weight and the new "Extra-large tier". However, with a higher retail price point, the margin might not be affected as drastically for items like TVs.

Low Inventory Level Fee

To reduce increased transportation costs caused by sellers having low inventory levels, Amazon is introducing a low-inventory-level fee on April 1st. In other words, this should reduce the need and expense of fulfillment center transfers for Amazon. As I said in the summary paragraph, I believe this is a good change and will have a positive impact on sellers. It was a struggle getting adequate inventory to Amazon during pandemic and post-pandemic times. This is a nice change.

The fee applies only if sellers carry consistently low levels of inventory relative to unit sales. It also only applies to standard-size products.

A metric known as "Historical days of supply" is used to determine if inventory is low or not. More specifically, historical days of supply is calculated by the following:

HISTORICAL DAYS OF SUPPLY = AVERAGE DAILY INVENTORY UNITS ON HAND / AVERAGE DAILY UNITS SHIPPED

This calculation is done on two date ranges; Short-term = last 30 days and Long-term = last 90 days. If your historical days of supply is below 28 for both ranges the fee will be charged. If you are only below 28 on one range, the fee will be waived. This helps reduce charges for outlier events such as Prime Day and general seasonality. However, charges will likely result from seasonal trends exceeding 90 days. This makes proper inventory planning important in those situations.

The fees will be added to the FBA fees for all shipped units on eligible products. The rate card is listed below and it is also worth noting that this is calculated on the parent level. That means that all child products in a variation will have the same historical days of supply.

Ways to Avoid Low Inventory Level Fees

• New professional sellers are not subject to the fee for the first 365 days after the first inventory received date
• "New-to FBA" parent products for the first 180 days are not subject to the fee
• Products that are auto-replenished by Amazon Warehousing and Distribution are not subject to the fee

Storage Fees Reduced

Effective April 1st, the Q1-Q3 non-peak storage fee was reduced by $0.09/cubic foot for standard-size only.

Storage Utilization Surcharge

Starting April 1st, there will be changes made to the storage utilization surcharge. The big take away here is the minimum ratio threshold was previously 26 weeks. Anything under that was not subject to the fee. On April 1st, the minimum ratio will be lowered to 22 and the charge will be $0.44/cubic foot. This is important for sellers that have ratios between 22 and 25 as they were not previously receiving storage utilization surcharges. Another thing to note about the upcoming changes is that ratios of 44 and above are going to be scrutinized. Previously, the $0.94/cubic foot fee capped at out a ratio of 39 weeks. In April, there will be three new tiers above 44 weeks and the fees double. The rate card is below but this is Amazon prioritizing their warehouse capacity. Sellers with healthy inventory turns will not be impacted.

Aged Inventory Surcharge

Following the theme of protecting warehouse capacity and promoting good inventory health, the aged inventory surcharge will increase by 43%. Last year this fee increased by 2.5X. ($1.50 to $3.80 - $4.20 depending on inventory age). The list below illustrates the specific increases.

• 271 - 300 days: $3.80 to $5.45 per cubic foot ($1.65 or 43% increase)
• 301 - 330 days: $4.00 to $5.70 per cubic foot ($1.70 or 43% increase)
• 331 - 365 days: $4.20 to $ 5.90 per cubic foot ($1.70 or 43% increase)
• 365+ days: will remain capped at $6.90 per cubic foot

Returns Processing Fee

As noted in summary paragraph 3, the returns processing fee is being expanded to categories outside shoes and apparel. For these new categories, the fee will be applied if a seller's return rate is above that categorie's threshold. The formula and logic for that return rate is below. Shoes and apparel will continue to be charged the same way and the fees will actually go down by approximately 20% starting February 5th.

The return rate is the percent of a seller's product's shipped units in a given month that's returned by customers over that month and the subsequent two calendar months. An example would be 60 units are returned in June with a total shipped units of 200 in June, 200 in July, and 200 in August. The return rate would be calculated by 60 (June returned units) / 600 (sum of returned units for June, July, and August) = 10%. Using this example, if the threshold were 5%, a fee would be charged for each unit returned.

Charges will begin in the expanded categories starting June 1st and the category thresholds will be published May 1st.

Miscellaneous

Ships in own packaging program, SIPP extended to Seller Central

Formerly SIOC or ships in own container was previously a Vendor Central program. Starting February 5th, sellers can start receiving discounts for items that can be shipped to customers in their own packaging. The discounts are minimal ranging from $0.04 to $1.32 per unit.

Referral fees on apparel reduced

Referral fees on apparel less than $20 will be reduced effective January 15th

• $15 and under goes from 17% to 5%
• $15 to $20 does from 17% to 10%

Vine fee reduction

The fee for vine used to be $200. Now it is based on the number of units enrolled and 1 to 2 units are even free! This back dates to products enrolled on 10/19/2023 and after.

Removal and disposal fees moderate changes

Starting February 5th there will be moderate changes to the removal and disposal fees. Liquidation fees remain the same.

Prep service fee increase on bubble wrap

The only change to prep service fees is for bubble wrap on standard size items. Bubble wrap on oversize items along with all other prep services will remain the same. This includes the most common service labeling which will remain at $0.55/unit.

Inbound defect fee

Starting on March 1, 2024 Amazon will introduce an inbound defect fee for shipments that are sent to a location that is different from the shipment plan, for domestic shipments that don't arrive within 45 days of shipment creation, for international shipments that don't arrive within 75 days of shipment creation, and for shipments that don’t arrive within 30 days of the first shipment in a multiple destination shipping plan. This charge will address the additional cost to re-direct, receive, and process shipments.