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Amazon risks alienating sellers with a new surcharge as its labor struggles continue

The news: Amazon is adding a 5% fuel and inflation surcharge for sellers who use its fulfillment services, per CNBC, following in the footsteps of companies like Uber, FedEx, and Instacart.

  • The fee will go into effect April 28, and applies to all product types.
  • The surcharge will cost sellers 24 cents per unit.

What this means: This measure is guaranteed to annoy sellers, who already face high fees for transacting on the marketplace.

  • According to some estimates, Amazon’s current share of every merchant sale is 34%—a steep price to pay even before the surcharge is added in.
  • An Amazon spokesperson noted to CNBC that surcharges are “a mechanism broadly used across supply chain providers.” However, unlike Uber and Instacart’s surcharge, which customers shoulder, merchants on Amazon’s platform must pay the fee, making it likely that they will pass the cost onto the consumer in the form of higher prices.
  • But shoppers may not be willing to stomach price increases: Some Amazon merchants told Bloomberg they’ve had to accept lower profit margins on certain items because customers refused to pay more.
  • Amazon’s third-party seller services netted the company $103.37 billion in sales in 2021, almost as much as Target’s total revenues for 2021 ($106 billion).

Labor problems continue: The fuel surcharge comes amid Amazon’s struggles to recruit and retain workers, as well as its efforts to fight unionization at warehouses around the country. While Amazon aims to be “Earth’s Best Employer,” its employees tell a different story.

  • A report by the Strategic Organizing Center found that the serious injury rate at Amazon warehouses is over twice that of non-Amazon warehouses, a characterization the company disputes.
  • Amazon has expanded its recruitment efforts to high schools and boosted employee benefits as it continues to grapple with high turnover rates that, per The New York Times, “[have] made some executives worry about running out of workers across America.”
  • With over 50 warehouses contacting the Amazon Labor Union in the wake of the successful unionization drive at a New York warehouse, the dissatisfaction among workers is clear.

The big takeaway: Amazon has never been stronger. In his first annual letter to shareholders, CEO Andy Jassy noted the company achieved the equivalent of three years’ forecasted growth in roughly 15 months.

  • In that light, both its decision to pass fuel and inflation-related costs onto sellers and its refusal to accept the results of the New York union vote are puzzling. While Amazon is grappling with higher labor and fulfillment costs like every other company, it has several major profit generators, including its marketplace, ad business, and AWS, that can help offset lower margins in the rest of its consumer business.
  • The more Amazon fights labor organizing—and the more negative stories appear about Amazon workers’ experiences—the harder it will be to find people willing to work in its warehouses.