Amazon (NASDAQ:) 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 company stated that the increase in fees will be effective on April 28th. It will affect apparel items as well as other non-apparel articles.

It comes just months after Amazon raised fees in January to compensate for rising costs such as higher hourly wages, increased hiring expenses and the construction of new warehouses. According to Amazon, the e-commerce company raised its fees in order to offset ongoing costs and stay competitive with FedEx (NYSE 🙂 United Parcel Service Inc (NYSE:).

“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.

The March 8.5% increase was the highest in more than 40 years. Gas prices have risen 48% in the last 12 months.

Amazon’s 2021 fees were $103 billion. This represents roughly 22%.

Amazon announced that this surcharge will apply to orders placed prior to April 28th but shipped or delivered later.

Brian Nowak, a Morgan Stanley analyst shared 3 key takeaways.

1. An additional $1.1bn of incremental EBIT for ’22 is due to a US fuel surcharge of 5%
2. This surcharge, which would cover 20-35% (based on 2022’s estimated incremental fuel cost of $3-$6 billion), is designed to offset the $20-6 billion in fuel costs.
3. Not extending to Europe “could be a sign of relative lower levels of confidence in the health of the consumer and demand.”

Lloyd Walmsley, UBS analyst is optimistic about 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. Investors had started to be concerned about the margin story in this year’s rising fuel costs and the potential threat of unionization, which could lead to more wage increases. 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