Inflation has rocked the economy in 2022. As a result, it affected the costs of goods, purchasing power, and more. For many businesses, it’s been dreadful and hard to stay thriving.
June was the most significant rise, with inflation reaching a 40-year high of 9.1%. Undoubtedly, this is far beyond a 25-year average and has affected Amazon sellers.
In this post, we’ll explain why. But first, let’s dive deeper into the forever-growing inflation rates.
Why is Inflation so High?
Most of the reasons why inflation is so high come from the pandemic in 2020. During these unprecedented times, it stopped economic trade, businesses declared bankruptcy, and many people lost jobs. Although we felt this during the time, many didn’t know how it’d affect us 2-years into the future.
Here are the four main reasons why inflation is currently so high:
- Demand – Over the last seven years, the online purchasing power of the US dollar has increased by 23%.
- Supply chain issues – When importing goods internationally (e.g., shipping from China to the USA), there’s been many delays from lockdowns, global conflict, port congestion, and space scarcity.
- Gasoline cost increase – Gasoline prices have reached an all-time high, increasing by 48.7% in less than a year.
- Government stimulus check – Over $5 trillion in stimulus checks, “aka free money,” were given to US residents in aid to support them from the tough times during the financial crisis of 2020.
Because of the above, Amazon sellers have started feeling the impact of inflation. Not only from the logistic side but also far beyond that.
How are Amazon Sellers being Impacted?
Inflation has affected us all. Whether it’s the increase in fuel prices, groceries, or shipments, we’ve all experienced it one way or another.
However, Amazon sellers have also started to get affected by this significantly. Here’s why:
1. Amazon fuel surcharge and increased inventory fees
Despite Amazon benefiting from quarantine and covid “stay at home” restrictions, inflation quickly caught up. In 2022, Amazon had its first quarterly loss since 2015, which netted $3.8 billion.
So, how will the eCommerce giant stop this from occurring again? By sending the additional costs to the sellers.
Starting from April 28, 2022, Amazon FBA logistics will include a surcharge fee of 5%. The newly introduced fee is commonly referred to as the Amazon fuel surcharge, which is understandable. Because of the forever-growing fuel prices, Amazon needs to offset its high operating costs by pushing them onto sellers.
Amazon FBA logistics hasn’t only increased from the surcharge either. This post suggests that monthly inventory storage fees will also increase, with non-dangerous goods costing a maximum of $1.20 to $2.40 per cubic foot and dangerous goods, $2.43 to $3.63 per square foot.
2. Rising freight costs to ship from China to the USA
Shipping from China to the USA has also increased tenfold for numerous reasons, including:
- Operational costs (gas, wages, etc.)
- Shipping container shortages (increasing container demands and cost)
- The Suez Canal accident is still impacting us because of port congestion
- Consumer demands for eCommerce goods are still increasing, despite the costs
- Commodities like raw materials, etc., have increased, leaving freight companies to pass on costs
In eCommerce, China plays a huge role for the USA because designing, manufacturing, and packaging goods are inexpensive. As a result, many sellers on Amazon choose to import products from there.
To put the increasing freight costs into perspective, let’s discuss containers. In 2020, containers were around $4,000 each. Fast forward to 2021, this price increased to $20,000, almost making it impossible for eCommerce stores to remain profitable.
With inflation, the problem can become progressively worse. As vital expenses for freight companies like wages, gas, and other commodities increase, it’ll negatively reflect on logistics.
3. Sales are falling, and PPC is getting more expensive
Although Amazon forecasted that it’d reach $729.76 billion in sales in 2022, sales are dropping. Recent analysis suggests that 2022 will only receive an 18,8% growth rate compared to the previous year. Over the last five years, this is the lowest rate, especially when compared to the 42.1% in 2020.
Growth and sales are decreasing for Amazon sellers, which is directly linked to inflation, logistic costs, and more. However, another expense that’s driving product pricing and less frequent growth is Amazon PPC.
At the start of 2021, Amazon PPC average at $0.93 per click. However, nowadays, it’s much more expensive. Now, sellers on the platform are experiencing clicks at an average of $1.20.
With most PPC tools, price is driven by demand. Therefore, it could suggest that there are more sellers on Amazon than ever before: More sellers, more competition, and fewer sales.
4. Amazon is pushing for lower prices
Amazon wants to offer products cheaper than anywhere else online. Because of this, either themselves or third-party sellers need to optimize pricing to remain competitive within its algorithm.
To win the “Buy Box” on Amazon, one of the leading factors is pricing. If you’re cheaper than all other sellers, you’ll likely get this selling position. The same goes for selling your own goods; the more affordable products usually get shown on the keyword’s first page (however, this is harder as it also relies heavily on reviews, etc.).
After reading the above, you should understand how inflation and international logistics costs affect Amazon sellers. Prices and demand are increasing everywhere, from containers to gas, which play a huge role in eCommerce.
To lower the severity of these problems, contact a helpful representative at Forceget Digital Freight Forwarder. We’re an Amazon FBA freight forwarder specializing in shipments from China to the USA. If you want to beat rising inflation and logistic costs, start today by speaking to us.
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