Street Positive on Amazon’s 5% Fuel and Inflation Surcharge to Fees for Online Sellers
2022.04.14 16:42
Street Positive on Amazon’s (AMZN) 5% Fuel and Inflation Surcharge to Fees for Online Sellers
Amazon (NASDAQ:AMZN) is adding a 5% “fuel and inflation surcharge” to fees it charges third-party vendors who use its shipping services in an effort to compensate for increasing costs.
The fee raise is set to come into effect on April 28 and will apply to apparel as well as non-apparel items, the company said.
The move comes a few months after Amazon hiked fees in January due to rising costs including higher hourly wages, hiring expenses, and construction of new warehouses. The e-commerce giant claims it hiked fees only to offset permanent costs and to remain competitive with other fulfillment services providers like FedEx (NYSE:FDX) and United Parcel Service Inc (NYSE:UPS).
“In 2022, we expected a return to normalcy as COVID-19 restrictions around the world eased, but fuel and inflation have presented further challenges,” Amazon said.
Inflation rose 8.5% in March, reaching the fastest rate in over 40 years, while gas prices are up 48% over the past 12 months.
Sellers paid $103 billion in fees to Amazon in 2021, accounting for roughly 22% of its revenue.
The surcharge will affect items ordered prior to April 28 but shipped and delivered after that date, Amazon said.
Morgan Stanley analyst Brian Nowak shared his 3 takeaways from the report:
- A 5% US fuel surcharge leads to an estimated ~$1.1bn in incremental ’22 EBIT;
- With 2022 estimated incremental fuel costs in the range of $3-$6 bn, this surcharge would offset ~20-35% of incremental fuel costs; and
- Not extending to Europe “could be a sign of relative lower levels of confidence in the health of the consumer and demand.”
UBS analyst Lloyd Walmsley is positive on the news.
“We think Amazon’s fuel and inflation surcharge on FBA fees adds ~$2.5B in incremental offsets to higher fuel prices, and more important, underscores its commitment to driving margin improvement in 2H 2022, in our view. We think investors had, appropriately, started to worry about the margin story this year with rising fuel prices and, now, the threat of unionization (which could spur more wage hikes). This move, in our view, bolsters the margin story considerably, particularly given how unprecedented the move is coming from Amazon,” Walmsley said in a client note.
By Senad Karaahmetovic
