Higher Shipping Costs Could Add to Amazon’s Woes

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To say that Amazon.com Inc. (NASDAQ: AMZN) faces a few headwinds may be an understatement. Some 20 states have begun to collect sales taxes on purchases, the company raised its Amazon Prime fee from $79 to $99 for new and renewing subscribers, and now FedEx Corp. (NYSE: FDX) could take another bite by raising shipping fees.

When FedEx announced its latest fuel surcharges last week, the company also included a statement that beginning in January it would charge shipping fees based on “dimensional weight pricing,” a method that takes into account the volume of the package as well as its weight. The impact on shipments of routinely replenished, bulky items that consumers like to buy from Amazon could be significant. A shipping software developer told The Wall Street Journal that a five-pound, 30-roll pack of toilet paper traveling the up to 150 miles would see a shipping charge boost of 42%.

And while it is true that Amazon uses United Parcel Service Inc. (NYSE: UPS) for the majority of its shipping, there is every reason to expect that UPS will follow FedEx’s new pricing scheme.

Amazon-owned Zappos.com encourages shoppers to order multiple pairs of shoes that the company ships free, keep the ones they like, and return the rest with no return shipping charge to the customers. The company may not be able to do that any longer without raising prices somewhere, either on the merchandise or the shipping fees. And if the new shipping prices have not been factored in the new Amazon Prime price, more pain could be on the way.

Amazon is testing its own delivery service, but this is still quite limited and very likely will remain a local rather than a nationwide service. At least big shippers like Amazon probably will be allowed to phase in the higher shipping charges.

Still, Amazon’s ability to avoid paying some of the costs that brick-and-mortar and other online retailers have had to pay is eroding. It is not yet a landslide, but the Grand Canyon wasn’t formed overnight either.

Amazon shares were down about 2.6% in early afternoon trading, at $289.97 in a 52-week range of $255.33 to $408.06.

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