Fulfilment by Amazon can be an excellent service for businesses that utilize the Amazon sales platform. Amazon is a high-quality fulfilment and shipping company, so you don’t have to worry about quality issues. Furthermore, Amazon helps businesses minimize delivery times and transit costs with hundreds of fulfilment centres across the globe.
However, there are some great challenges that merchants face with Fulfillment by FBA. Below we discuss some of these in detail, as well as offer up some strategic workarounds to keep your business functioning on all cylinders.
1. Amazon FBA Storage Limitations
Let’s face it – storage space is at a premium right now because of the global pandemic and extreme growth in e-commerce sales. Fulfilment companies multiplied over the last few years and have run out of their idle warehouse space capacity. As a result, fulfilment companies are becoming much more particular about utilizing their excess storage space. Most frequently, they are allocating customers to this space that ship a high volume of orders per month because this results in more profit for their business. Amazon is no different – and they are employing the same strategy regarding their excess warehouse space.
As a result, Amazon now has implemented a 10 cubic foot limitation for storage space for individual seller accounts. Storage limits are also based upon product types: standard-size, oversize, apparel, footwear, flammable, aerosol, and extra-large. The full details of their storage limitations are listed on their website.
To minimize the impact of Amazon storage limitation, the company advises sellers to focus on improving sales volume and improving IPI scores (inventory performance index). In a nutshell, this means their advice is to sell more and keep inventory levels low! That’s quite a task to ask merchants in the ever-changing macroenvironment that exists today, which supply chain challenges.
2. Amazon FBA Aged Inventory Surcharges
In addition to storage limits, Amazon also passes on surcharges to sellers for inventory that stays in their warehouses for an extended period. As of May 15, 2022, sellers with inventory in their warehouses from 271 days to 365 days will pay a premium of $1.50 per cubic for all aged inventory. Furthermore, inventory held for longer than 365 days is assessed a surcharge of $6.90 per cubic foot or $.15 per unit.
3. Amazon FBA SKU Labeling
As if managing storage restrictions, limitations, and surcharges wasn’t enough, Amazon also forces sellers to send goods to their facilities with specific labels. In addition to any manufacturer’s SKU labelling, Amazon requires merchants to use a Fulfillment Network Stock Keeping Unit (FNSKU). This label uniquely identifies your product from other sellers of similar items – and it certainly makes sense to have this mechanism in place. However, it is yet another hoop to jump through to utilize the FBA service. And if you need Amazon to apply the FNSKU labels, it will cost a whopping $.55 per item to do so.
Overcoming Amazon Challenges with an FBA Prep Service
Most FBA sellers utilize Amazon, so they don’t have to manage their own warehouse and therefore do not hold the warehouse space themselves or the resources to perform some of these preparatory and storage services themselves. That’s where Amazon Prep and Storage companies come into play.
This newer bread of service businesses, referred to as Amazon Prep companies, specialize in providing support services for Amazon sellers. Oftentimes, they provide a wide array of services, including:
- Receiving and inspection of product
- FNSKU labeling
- Kitting, bundling and multi-pack packaging
- Poly bagging or shrink wrapping
- Warning labeling
- Sticker removal
- Returns and removals
- Long-term storage of goods
- Freight shipment scheduling
Not only do Amazon Prep services perform an extensive list of services needed to support FBA sellers, but they also do it at a very affordable rate. According to a recent study, FNSKU labeling and other labeling services average around $0.20-$0.45 per label – a significant cost savings from Amazon’s $0.55 per label fees. Furthermore, storage fees are generally very reasonable with prep services, running on average from $20-$25 per pallet, which equates to an affordable rate versus Amazon’s inflated fees.
Most importantly, prep services offer an option for long-term storage when Amazon limits and restrictions kick in. Most fulfillment and warehousing companies will not help with long-term storage only scenarios, because they aren’t earning any profit from the fulfillment, pick and ship of products themselves. For merchants, prep services are virtually the only option aside from renting out a warehouse themselves, which could be extremely challenging with the cost of warehouse leases being so high and available spaces being extremely low.
The Final Verdict on Overcoming Amazon’s Self-Imposed FBA Restrictions
As the e-commerce fulfilment industry has evolved, it has become increasingly clear that most players are becoming extremely particular about who they help and under what confines. For both Amazon and traditional fulfilment companies, FBA labelling and long-term storage don’t bring in enough revenue and profits to aggressively target the business. Therefore, merchants are left with two primary options – source space themselves and perform Amazon prep services in-house or utilize an Amazon prep service. Because of the ease of use and flexibility offered through prep services, many merchants are opting to pass the work and focus on other tasks.
