Amazon Cuts Shipping Fees in Threat to Alibaba’s U.S. BusinessBy
Prices drop 67% for small, flat items like USB cords, makeup
Chinese merchants can ship with low postal service rates
Amazon.com Inc. is slashing fees it charges merchants to sell USB cables, smartphone screen protectors and other small, flat items that can fit in envelopes, posing a potential threat to competing marketplaces owned by Alibaba Group Holding Ltd., EBay Inc. and Wish.com that connect Chinese sellers with U.S. shoppers.
The new rates will take effect July 1, according to an Amazon e-mail to marketplace sellers obtained by Bloomberg News. Merchants would pay $1.61 to ship three, flat, 1-ounce packages, 67 percent less than the current price, according to the e-mail. The change differentiates between small, flat items that can fit in large envelopes and items thicker than half an inch that are subject to higher fees.
The new rates apply to merchants using the company’s Fulfillment By Amazon Small and Light program, introduced last year to offer shoppers free shipping on thousands of popular small items such as makeup, mobile phone accessories and stickers. Most of the inventory comes from third-party merchants who give Amazon a cut of each sale for handling storage, packaging and delivery. Most items cost $10 or less, making low delivery costs essential for profitability.
Amazon shoppers in the U.S. order tens of millions of units annually that fit the small and light dimensions, according to company documents reviewed by Bloomberg News.
Amazon, through a spokesman, declined to comment.
Amazon’s program faces competition from marketplaces that help Chinese merchants ship directly to U.S. shoppers through the ePacket program, an agreement between the U.S. Postal Service and China Post that provides Chinese merchants cheap access to U.S. shoppers on small packages weighing as much as 4.4 pounds (1.7 kilograms). Chinese merchants selling on Amazon can also ship orders themselves through ePacket, meaning Amazon gets less money on the sale than if it had handled packing and delivery.
The U.S. Postal Service shipped 27 million small packages from China through the ePacket program in fiscal year 2012, according to an audit by the agency’s Inspector General, a figure that is expected to keep growing as online marketplaces expand globally. Amazon, FedEx Corp. and United Parcel Service Inc. have criticized the program in statements to Congress, saying the rates are unfair to U.S. businesses that pay more to ship an item to a customer in their own country than a Chinese merchant pays to send the same item from overseas.
“Amazon is worried about losing marketplace volume to Alibaba and others since merchants can just sell on there and ship to customers through ePacket,” said Jarrett Streebin, chief executive officer of EasyPost, a San Francisco company that helps retailers coordinate shipping labels and tracking with delivery companies.
The lower Amazon rates for small packages could make the small and light program more appealing to Chinese sellers because it will give them faster delivery times to U.S. shoppers with costs competitive to ePacket, said Neil Ackerman, a former Amazon executive who started the small and light program and now heads e-commerce initiatives at Mondelez International.
Amazon’s program offers delivery in four to eight days, compared with about two weeks through ePacket. Merchants using small and light have to ship their inventory to Amazon warehouses.
“China-based merchants sell the most small and light packages,” Ackerman said. “Amazon will continue to invest in this space to increase inventory and lower costs for its customers. There will be no reason for shoppers to go to other marketplaces.”
Luring Chinese merchants to send small items directly to Amazon’s American fulfillment centers would help another Amazon initiative to be the primary middleman facilitating the flow of goods from factories in China and India to customers in the U.S. and Europe. Amazon is looking to displace the multiple layers of handlers involved in international shipping by sourcing goods directly from factories and suppliers and taking charge of their shipments to Amazon facilities close to customers.
The new rate structure for its small and light program highlights how specialized Amazon is becoming as a logistics company, structuring different programs around the size and type of millions of products in its inventory and the preferences of its customers. The company’s $99-a-year Prime subscription -- which offers free two-day shipping nationwide and same-day delivery in many cities -- appeals to shoppers who want things quickly. Free shipping on smaller items appeals to those who want a good deal, but don’t mind waiting for the product. For large items such as televisions and ceiling fans, Amazon connects shoppers with local service providers who can install them. In 12 cities, Amazon offers Prime subscribers free delivery of meals from local restaurants within an hour.
Watch Next: How Pharmapacks Makes Millions Selling on Amazon
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