Amazon Freight Allowance: How to Get the Best Terms
Amazon runs a tight operation, as any vendor knows. Their margins are thin for most products, and therefore the retail behemoth is always looking for ways to pass on their costs to someone else.
One way the company does that is through allowances, and a big one for vendors is the freight allowance, which has to do with shipping products – one of the biggest costs for Amazon, which pays tens of billions of dollars each year for shipping.
Here’s what vendors need to know about the freight allowance, and the best way to get better terms.
Related articles:
What Is Amazon Freight Allowance?
The Amazon vendor freight allowance is when Amazon pays for the shipping of a vendor's product, and then the vendor pays Amazon back through an allowance. The freight allowance will be greater the heavier and more difficult to ship the item is, and it is based on the average cost to ship the item.
Amazon operates on tight margins and tries to boost their bottom line through allowances like this, which allows the online retail giant to pass some of their costs off to vendors. It's key for vendors to limit their freight allowance to protect their own profit margins from being eaten up by shipping costs.
What Are the Freight Allowance Options?
A vendor has two options when it comes to freight allowance: prepaid freight terms and collect freight terms.
Prepaid Freight Terms
In the case of prepaid freight terms, the vendor is responsible for the shipping, both in terms of logistics and costs.
Advantages:
Can be cheaper if a brand gets better shipping rates than Amazon does (not likely, but possible)
Provides more control in terms of scheduling and better cadence of operations, particularly if the vendor has a direct relationship with a freight provider
Disadvantages:
Can be expensive, especially for smaller brands
Amazon has less incentive to optimize when and how often they pick up products
Collect Freight Terms
In this case, Amazon handles the cost of the shipping and makes arrangements with their own carriers rather than relying on vendors to do it. In return, Amazon deducts the freight allowance from the vendor's invoice based on the terms of the freight allowance agreement. Amazon bases this on average shipping cost, rather than the individual shipping cost of that item.
Advantages:
Cost is typically lower for Amazon freight
During the 4th quarter of the year, the busiest season during the holidays, Amazon prioritizes their own shipment source in terms of receiving at the warehouse, and vendors on collect terms receive faster
Disadvantages:
Vendors give up some management control to Amazon
In some cases, vendor can get better shipping rates than Amazon, but again this is not usually the case
Amazon Freight Rates
So what Amazon truckload rates can you expect to pay? The answer is, it depends on a lot of factors. Calculating Amazon FBA freight costs means taking into account the supplier address, the dimensions of the package, the quantity, and the destination. You can use an online Amazon FBA calculator to help you do this.
To get an accurate rate, gather the following information about your product:
Whether you are shipping a full container or a box/pallet
Load dimensions and weight
Load quantity
Origin and destination
Then run it through the calculator above to get your estimated rate.
Where Can I Find Freight Allowance Data in Vendor Central?
The Vendor Central reports that contain freight allowance data are in CoOp Invoices, distributor shipments, distributor returns, and distributor cost variances. All of these can be found in VC under Payments > CoOp.
Visit our Vendor Central Help Center for detailed descriptions of each report available to vendors.
How Can a Vendor Get Better Freight Allowance Terms?
The time to get better freight allowance terms is during vendors' annual review with Amazon. During this review, vendors will negotiate with Amazon for new terms going into the next year. If you are performing well according to Amazon's standards, you may be able to convince them to give you a percentage discount on your freight allowance.
As a result, vendors should start building a case now -- well before their annual review -- in order to get better terms on their freight allowance. During the last annual review, Amazon laid out their expectations, so vendors should review that and determine what steps need to be taken to ensure that the vendor can make the case to Amazon that they are performing well. A good way to come to the negotiating table with an advantage is to find a way to reduce freight costs overall.
To learn more about annual trade negotiations with Amazon and how to put yourself in a strong position, read our article, "Amazon Vendor Scorecard: What It Is, and How to Improve It."
What Are Typical Freight Allowance Terms for Vendors?
Typically, you will pay a freight allowance of between 2% and 5%. This is a percentage of average shipping costs. So if you paid $5.00 on average to ship each product and you had a freight allowance of 3%, you would pay $0.15 in freight allowance for each product.
Come to Negotiations Armed With Data
If you want to make a big improvement in your freight allowance terms, you will have to come from a strong position during the annual negotiations, and the only way to do that is to be armed with data from Amazon Vendor Central analytics that makes a solid case. However, it’s not easy to manually download these reports from Vendor Central and then combine them together. Multiple services exist that will do this for you, but they are not right for every company. Download our free whitepaper below to determine how to best access your data.
READ MORE:
Turn Amazon Data into a strategic Asset
The breadth of Amazon sales, marketing, and supply chain data lets brands find patterns and insights to optimize their Amazon business and other e-commerce channels. But only if you have a plan for extracting the data from Amazon systems, storing it, and preparing it for analysis.
This guide will help you take ownership of your Amazon data—by preparing your business for a data-driven future, and analyzing the most common methods for extraction, automation, storage, and management.
