Amazon 5% fuel, inflation fee has sellers poised to raise prices

The surcharge will apply to US sellers who use the Fulfillment by Amazon service. PHOTO: REUTERS

SEATTLE (BLOOMBERG) - Amazon.com will levy a 5 per cent fuel and inflation fee on online merchants that use its shipping services, according to documents reviewed by Bloomberg, putting pressure on sellers to raise prices.

The surcharge, which is scheduled to kick in on April 28, will apply to US sellers who use the Fulfillment by Amazon service that stows, packs and ships products.

In March, United States consumer prices surged 8.5 per cent from a year earlier, the biggest jump since late 1981. Petrol prices, already high, have also soared since Russia invaded Ukraine. The spiralling prices have prompted a range of companies to take action to offset rising costs.

Airlines are raising ticket prices, Uber Technologies and Lyft last month added fuel surcharges, and FedEx and United Parcel Service have raised prices, mostly through surcharges that vary by package type. Amazon merchants were already grappling with cost-related fee hikes that took effect in January and averaged 5.2 per cent.

"Consumers will lose," said Mr Dan Brownsher, who runs Channel Key, a Las Vegas e-commerce consulting business with more than 50 clients selling products on Amazon. "Amazon already raised fees in January, so sellers will have to raise prices."

In an e-mail sent to merchants on Wednesday (April 13), Amazon said it has made big investments since the start of the pandemic to meet surging demand. Those include doubling capacity, adding 750,000 employees and raising the average Amazon warehouse employee wage to US$18 (S$24) from US$15.

"Like many, we have experienced significant cost increases and absorbed them, wherever possible, to reduce the impact on our selling partners," according to the e-mail.

Amazon said that while it expected a return to normalcy this year as Covid-19 restrictions eased, fuel prices and inflation presented fresh challenges. Amazon shares rose 3.2 per cent to US$3,110.82 in New York on Thursday.

Merchants were already bracing for a blow to their profits.

"We absolutely will need to raise prices," said Mr Molson Hart, whose Viahart Toy sells educational toys and other products on Amazon. "Some sellers cannot because customers are not accepting the new higher prices."

Mr Hart said he has already had to take lower profit margins on some larger toys that are more expensive to ship because consumers would not pay the higher prices.

"In general, people reduce purchases of non-essential items when money gets tight," he said. "Hopefully, as an educational toy brand, parents will continue to view our products as essential, but only time will tell."

Join ST's Telegram channel and get the latest breaking news delivered to you.