Amazon to Charge Sellers New Fee for Low Inventory Levels

Amazon has structured its fees so sellers don't park slow-moving inventory in its FBA warehouses, but sellers will soon find themselves between a rock and a hard place: Amazon is instituting a new "low inventory fee" in 2024, meaning that in addition to paying fees if they have too much inventory at Amazon, they'll also pay fees if they have too little inventory stored at Amazon.

In its announcement today, December 5th, Amazon explained the new fee as follows:

"We will introduce a low-inventory-level fee for standard-sized products. The fee applies if you carry consistently low levels of inventory relative to unit sales, as this inhibits our ability to distribute products across our network, degrading delivery speeds and increasing our shipping costs. Sellers can avoid this fee by maintaining more than four weeks of inventory relative to sales. These fees will apply starting April 1, 2024."

The new fee appears to be a direct result of Amazon CEO Andy Jassey's decision to decentralize FBA, which we wrote about in April shortly after it had completed the regional rollout and announced it to shareholders. 

Rather than operating a national fulfillment network, Amazon now operates 8 regional networks, each operating self-sufficiently in order to speed up delivery times. As we noted in our April article, Jassey's letter to shareholders about the new approach did not address the impact to sellers who use Amazon FBA to store and fulfill inventory, "so it's unclear if sellers will have to split inbound shipments more often, or if Amazon will handle the distribution to regional centers once it receives sellers' inventory," we had written.

Now it's clear that sellers will pay the cost of decentralizing the network one way or the other - as Amazon explained in today's fee announcement: "Maintaining sufficient inventory levels also enables us to place inventory closer to customers across our network, reducing costs to fulfill orders. In cases where you have low inventory levels, this drives transportation costs higher, and we will introduce fees to align with these underlying costs. Where your actions reduce our costs of fulfillment by maintaining healthy inventory levels, you will see lower fees for these items."

Because the new fee is tied to unit sales, it's unclear if there will be instances where sellers are tempted to temporarily throttle advertising to avoid low-inventory fees if sales take off unexpectedly, as counterintuitive as that may seem. Sellers will have to forecast demand for their products with unerring accuracy as a result of the new low-inventory fee. "You are now penalized for selling faster than expected," one seller wrote in reaction to the new fee announcement. (See update below - the new fee is tied to historical sales, so if sellers see an item do well, they presumably would have time to replenish inventory at higher levels going forward.)

Amazon will also begin directly charging sellers fees to cover its cost of sending inventory to 8 regional warehouses instead of a single warehouse by introducing an "inbound placement service fee" next year "to reflect our cost of distributing inventory to fulfillment centers close to customers," it wrote in today's announcement.

The fees will average $0.27 per unit for standard-sized products and $1.58 per unit for Large Bulky-sized products. 

Sellers who want to pay lower inbound placement service fees - or even bypass them altogether - will have the option of shipping their inventory to multiple Amazon warehouses themselves. But as sellers know, breaking up a single shipment would almost certainly result in higher shipping costs and might not even be feasible depending on their circumstances.

FBA sellers reacting to Tuesday's news seemed most concerned about their inability to predict their costs with the next year's new fee structure. 

Amazon is making additional changes - including reducing referral fees for apparel products; offering a fulfillment fee discount for eligible products in the Ships in Product Packaging (SIPP) program; and expanding its "returns processing fees" for products with high return rates to all categories (existing returns processing fees for apparel and shoes will remain unchanged on average). Amazon explained, "The returns processing fee will only apply to products that have the highest return rates relative to other products in their category and will apply starting June 1, 2024."

Amazon executive Dharmesh Mehta said that breaking fees into inbound and outbound fees as it is doing next year "allows us to create incentives for sellers to use our network more efficiently so we can share the cost savings, including the ability to avoid inbound fees altogether and pay lower overall outbound fees."

He characterized the new fee structure as providing sellers with more transparency and more control over their fulfillment costs and said that on average, the new fee changes were significantly less than those announced by other major fulfillment services.

You can see the full announcement on the Amazon Seller Announcement Board post along with seller comments.

Update 12/5/2023: Amazon told us the fee would only apply if a product's inventory levels relative to historical demand is below 28 days, and is not based on any predicted demand or forecasted inventory levels. 

Amazon said it would provide sellers with easy-to-use metrics to track their historical days of supply, giving them visibility and control over their inventory levels and the ability to avoid the low-inventory-level fee. 

The fee won't apply in many cases where demand may be uncertain, such as for new sellers with a professional selling account and new-to-FBA parent products for sellers enrolled in the FBA New Selection program.

There is a publicly-facing page that breaks down the new Amazon low inventory-level fee.

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