Amazon Levies Fuel and Inflation Surcharge on Third-Party Sellers

The Cowen/AFS Freight Index, which predicts ground transportation costs by analyzing data across transportation modes, will grow to a record-high 27.1% over 2018 baselines in Q2, up from 25.2% in Q1. 

The Freight Index projection for Q2, issued this month by 3PL provider AFS Logistics and Cowen Research, is expected to plateau at 27% as the pace of rate-per-mile increases slows down and market forces, including driver shortages and higher labor costs, begin to soften truckload demand, AFS said.

AFS said the ground parcel index has been driven to an all-time high by skyrocketing fuel costs and carriers leveraging fuel surcharges that are boosting per-package costs.

“In a tight capacity market, carriers are responding with significantly higher fuel surcharges,” said Tom Nightingale, CEO, AFS Logistics, in a statement.

“Shippers should expect rising rates across the board, as those higher fuel surcharges join the usual suspects like capacity constraints, GRIs, firm pricing policies and steep accessorial increase to intensify upward pricing pressure,” Nightingale said.

On April 28, Amazon will implement a 5% “fuel and inflation” surcharge on its fulfillment services for third-party sellers, the first time the e-commerce behemoth has ever leveled a fuel surcharge on its distribution network.

Other shippers, including FedEx and UPS, increased fuel surcharges at the beginning of the year.

Amazon said in its announcement of the fuel surcharge to sellers that it had “expected a return to normalcy” from elevated costs in 2022 as Covid-19 restrictions eased. Instead, spiraling inflation has put more pressure on shipping costs as the year has progressed, the company said. A statement issued by the e-commerce giant hinted that the surcharges will be temporary.

“It’s still unclear if these inflationary costs will go up or down, or for how long they will persist,” Amazon said. “Rather than a permanent fee change, we will be employing a fuel and inflation surcharge for the first time—a mechanism broadly used across supply chain providers.”

Despite its focus on in-house shipments, Amazon’s fulfillment network, which doubled in capacity during the pandemic, ranks among the top carriers for US parcel volumes. Since the beginning of the pandemic, Amazon has more than doubled the revenue from its third-party seller services, to more than $100B.

Amazon held the line against fuel surcharges for several months; in October, Amazon CFO Brian Olsavsky declared that Amazon would be “shock absorber” against inflationary cost increases for its customers and third-party sellers.

According to reports, Amazon’s third-party sellers, including small businesses who are seeing their annual shipping costs rise by more than $100K, are expressing skepticism that the fuel and inflation surcharge will be temporary.

Industry analysts also are watching to see if Walmart, which has been pushing to add new sellers to its third-party fulfillment unit, will follow Amazon up the fuel surcharge ladder or choose to absorb rising costs to increase its market share.