Amazon to get tough on sellers using outside fulfillment, delivery firms

Citing terrible performance on Prime deliveries, Amazon to force merchants to develop nationwide footprint, offer Saturday pickups and deliveries to remain in SFP program Inc. (NASDAQ:AMZN) has been accused of squeezing merchants eligible to sell goods through its popular Prime service without having to use the e-tailing behemoth for fulfillment and delivery services. Effective Feb. 1, the squeeze may become a vise, especially on smaller merchants.

On that date, new rules kick in that could be the most stringent ever imposed on merchants who sell, fulfill and ship under Amazon’s Seller Fulfilled Prime (SFP) service. Sellers will be closely measured to prove they consistently hit the one- to two-day delivery targets called for under Prime. Sellers will be required to offer Saturday pickups and deliveries through their service providers, and must provide nationwide delivery coverage for all standard-size products.

In a letter to SFP merchants, Amazon said it acted because less than 16% of orders met the two-day delivery window even before the coronavirus pandemic slammed all e-commerce networks with volume spikes. The low delivery metrics are blamed on the fact that many sellers do not operate on weekends, Amazon said in the letter.

Steve Denton, president of Ware2Go, a UPS Inc.-owned company (NYSE:UPS) that provides e-commerce fulfillment to merchants, called the delivery performance “jarring” for a company so obsessed with customer service like Amazon. The e-tailer could not tolerate these metrics without taking action, Denton said in an interview Thursday afternoon. Amazon’s SFP business accounts for 12% of Ware2Go’s volumes, Denton estimated.

Still, there is little doubt smaller merchants will experience operational changes, and higher costs, from Amazon’s new edicts. There will be additional expense in providing Saturday pickups and deliveries, especially since small merchants have limited staff to begin with. In addition, Amazon currently allows SFP merchants to offer regional deliveries, which makes it more feasible to use ground delivery services and still hit the one- to two-day windows. Come Feb. 1, the geographic requirements will change. 

Tyler Robertson, CEO of South Carolina-based Diesel Laptops, which sells diesel diagnostics equipment to the commercial truck, automotive, off-highway and marine markets, said maintaining a nationwide footprint could force many merchants to rely on more expensive airfreight to hit the delivery targets. That could add $30 to $50 per shipment, and further compress already-tight merchant margins, said Robertson, whose company is an SFP merchant. 

Amazon’s new rules “will drop a lot of smaller SFP sellers out of the game,” said Robertson. At the same time, larger SFP sellers with the wherewithal to comply could gain market share as smaller firms disappear, he added.

The SFP designation allows merchants to leverage the powerful Prime brand to sell their goods without being required to use Amazon’s fulfillment and delivery services. Merchants opt to enroll in the SFP service because they have long-standing relationships with their own fulfillment partners and aren’t interested in using a company whose massive size may preclude it from delivering consistently personalized service.

According to research, Prime members spend about twice as much on Amazon per year as non-Prime members. Prime members pay $119 a year for the service, and it is surmised they order more on the site to justify the cost of the subscription. For merchants, who accept lower margins from Amazon in return for the opportunity to capture large volumes, an SFP designation is coveted because it opens the door to enormous traffic flows. Amazon has a 44% share of U.S. e-commerce traffic, and it is likely to grow that share.

Amazon’s critics said the company has in the past couple of years deliberately ratcheted up delivery standards on SFP merchants to make it impossible for them to meet the service requirements and stay in the program. Amazon’s goal has been to force merchants into its own fulfillment and delivery network, Fulfillment by Amazon (FBA), critics claim. 

The post-Feb. 1 focus will be more on inventory than ever before, experts said. Merchants who want to keep their SFP “badge” will need to prioritize keeping adequate product in stock and getting it out the door quickly. Merchants will need to have enough forward inventory to fill the equivalent of three to five distribution centers to meet Amazon’s requirements without being forced to ship parcels by air, Denton said.

Denton said merchants who can’t cut the stronger mustard could always opt for Amazon’s FBA service. There, the merchant picks, packs and ships the items to Amazon, which in turn unpacks the items, puts them on a shelf and repacks the goods after an order is placed. Merchants rack up costs and fees relying on internal and Amazon processes. In addition, they relinquish control of their choice of partner.

Another option might be to tap into companies like Ware2Go, which has 40 warehouses across the country. Ware2Go will aggregate parcels from multiple merchants that otherwise may not have enough stand-alone traffic to justify their own warehouses. Ware2Go hits the Prime delivery targets about 97% to 98% of the time, according to Denton.

A third might be to split the loads between SFP and FBA. Robertson of Diesel Laptops did just that, sending its high-volume loads through FBA because Amazon favors FBA when it comes to “winning the buy box,” e-merchant lingo for a product being placed in a shopping cart to consummate an order. Conversely, slower-moving orders are best kept under the SFP service because Amazon charges fairly high fees for storing goods in its warehouses, Robertson explained. 

Monthly unit sales for Diesel Laptops’ fastest-moving item quadrupled since the goods were handled under FBA, Robertson said. “We didn’t change the price, only the method it was sold on Amazon,” he said.

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes UPS (No. 2).

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.