Amazon’s recent policy changes regarding long term storage fees represent a potentially disastrous situation for sellers who don’t make adjustments to their operational model.
Over the last year Amazon has made several adjustments to its policy of charging long term storage fees (LTSF) for sellers’ inventory that has aged in their FBA facilities. Among these changes are a new policy of assessing inventories eligibility for LTSF on a monthly basis and establishing a minimum LTSF amount per item. Many sellers will have an inclination to ignore these policy changes and not truly diagnose the ramifications until it is too late. The penalty for this behavior will unfortunately be financially painful and surprising.
What is Amazon’s LTSF Policy Now?
Here is an excerpt from Amazon’s page outlining their current LTSF policies and rates:
On the 15th of each month, Fulfillment by Amazon (FBA) conducts an inventory cleanup. On these dates, inventory that has been in US fulfillment centers for 181 to 365 days incurs a long-term storage fee (LTSF) of $3.45 per cubic foot. Items that have been in US fulfillment centers for more than 365 days on the inventory cleanup date incur a long-term storage fee of $6.90 per cubic foot.
In addition, Amazon outlines it policy regarding minimum long-term storage fees here:
Starting August 15, 2018, items that have been in a fulfillment center for more than 365 days will be subject to a minimum fee of $0.50 per unit per month. Either the long-term storage fee or the minimum fee will apply, whichever is greater.
Examples of LTSF Application
So what does it look like when LTSF are applied to an item of inventory? Let’s use an item that measures 11” x 8” x 4” as an example. This hypothetical items has a cubic feet footprint of 0.204 cubic feet. So lets apply a couple different quantities and lengths of time at FBA to this item and see how LTSF works out.
|0.204 CF||Time at FBA||LTSF||Min. LTSF||LTSF Charged|
|1 Item||181-365 Days||$0.70||Not Applicable||$0.70|
|1 Item||More than 365 Days||$1.41||$0.50||$1.41|
|10 Items||181-365 Days||$7.04||Not Applicable||$7.04|
|10 Items||More than 365 Days||$14.08||$5.00||$14.08|
|100 Items||181-365 Days||$70.38||Not Applicable||$70.38|
|100 Items||More than 365 Days||$140.76||$50.00||$140.76|
Remember that with Amazon’s new policy to assess LTSF every month, the LTSF charged on this item would be on a monthly basis until the item either sold or was take out of the FBA facility.
In the example above, the minimum LTSF doesn’t come into play because the item is big enough that the standard LTSF is larger than the $0.50 per item fee. Unfortunately, there is nowhere to hide sellers of smaller items. Let’s look at a smaller item to see how it works out under the new policy. Let’s use an item that measures 8” x 6” x 0.5”. This smaller hypothetical item has a cubic feet footprint of 0.014 cubic feet.
|0.014 CF||Time at FBA||LTSF||Min. LTSF||LTSF Charged|
|1 Item||181-365 Days||$0.05||Not Applicable||$0.05|
|1 Item||More than 365 Days||$0.10||$0.50||$0.50|
|10 Items||181-365 Days||$0.48||Not Applicable||$0.48|
|10 Items||More than 365 Days||$0.97||$5.00||$5.00|
|100 Items||181-365 Days||$4.83||Not Applicable||$4.83|
|100 Items||More than 365 Days||$9.66||$50.00||$50.00|
A New Business Model
So what can Amazon sellers do to optimize their businesses and protect their profitability by avoiding costly Amazon long term storage fees? The benefits of having Amazon handle fulfillment via FBA for Amazon orders is still undeniable. I propose a new business model that inserts a warehousing and prep service provider between your factory and Amazon’s FBA fulfillment center. So the model goes as follows:
develop a product
ship your finished inventory to a warehousing and prep service provider
ship bi-weekly or monthly replenishment shipments into Amazon FBA fulfillment centers
market the listing through Amazon and other distribution channels
Advantages to the New Proposed Model
So what advantages do Amazon sellers gain from adjusting the standard model to my new proposed model. I see them as the following:
Most sellers will save money using this model by lowering their standard warehousing rates and taking long terms storage fees out of the equation. While some expenses are picked up under this model, the savings will outweigh the increased costs in most cases.
A good warehousing & prep service provider will offer access to a variety of prep services including: quality control inspection, bagging, labeling, safety labeling, bundling, finish manufacturing, etc. This makes it significantly easier for Amazon sellers to ensure their inventory shows up to Amazon’s FBA fulfillment centers ready to be sold and minimizes customer issues and returns.
Under this model, Amazon sellers gain a large amount of flexibility when it comes to what they can do with their inventory. By utilizing order fulfillment and returns processing services from their warehousing & prep service provider, Amazon sellers can engage new sales channels and grow their business.
This model significantly lowers the risk of inventory receipt issues with inbound shipments to Amazon. By holding the bulk of your inventory back, if an issue arises with a shipment to Amazon, an Amazon seller has the option to just send in another shipment from the inventory they are holding back.
Gaining the Benefits of the New Model
Oxspring Paul has developed a suite of services with the challenges that Amazon sellers face in mind. By using our Amazon storage & preparation services, Amazon sellers can save money, grow their business and save valuable time.
If you are interested in a complimentary analysis of your business and the possible benefits you could experience from updating your operations model with Oxspring Paul…