While the Christmas season's bells have yet to ring, Amazon sellers are already feeling the chill. Sellers who had pinned their hopes on strong holiday sales are now confronting an unexpected challenge: Amazon has dramatically reduced its Fulfillment by Amazon (FBA) warehouse capacity. One seller reported their storage allocation plummeting overnight from 55,000 units to just 25,000, creating significant uncertainty during what should be their most profitable season.
Making matters worse, some sellers discovered they couldn't create shipments even after their goods had already arrived at overseas warehouses or been packed for delivery, leaving them at risk of unsold inventory.
The Complex Factors Behind Storage Capacity Reductions
Amazon's decision to slash storage capacity wasn't arbitrary but resulted from multiple converging factors. While the company publicly states the move ensures all sellers maintain at least four months of inventory, the reality proves more complicated.
- Macroeconomic Pressures: The U.S. faces a critical warehouse space shortage. Data shows average industrial warehouse rents surged 21% year-over-year, exceeding $8 per square foot in Q2. The scarcity has grown so severe that major retailers have resorted to using shipping containers as temporary storage. Even if Amazon wanted to expand, it would face prohibitive costs and limited options.
- Amazon's Strategic Pivot: The e-commerce giant has been scaling back operations, canceling or delaying numerous warehouse expansions. In 2022 alone, Amazon scrapped plans for 16 new facilities. Surprisingly, it's now subleasing at least 10 million square feet of existing warehouse space. These cuts follow massive layoffs exceeding 100,000 employees across Q1 and Q2, including significant reductions in fulfillment center and distribution network staff—changes that inevitably impact FBA operations.
Ultimately, the capacity reductions reflect both Amazon's operational streamlining and external market pressures. The company aims to optimize inventory management while contending with America's strained logistics infrastructure.
Overage Fees: A Costly Threat to Seller Profits
Reduced allocations directly expose sellers to substantial overage fees—penalties that can reach thousands of dollars and devastate thin margins. One seller disclosed paying $10,000 in extra fees between April and June, averaging $3,000 monthly. Clarifying how Amazon calculates these fees remains crucial. While most understand charges apply to excess volume rather than unit count, sellers should verify specifics with account managers to avoid surprises.
Survival Strategies for Sellers
Despite the challenges, sellers aren't powerless. Consider these practical approaches:
- Avoid Risky Workarounds: Services claiming to bypass Amazon's limits carry high risks of account penalties. Thoroughly assess any such options before proceeding.
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Request Capacity Increases:
High-performing sellers can petition Amazon for expanded allocations, typically requiring:
- IPI scores above 400 (or being a new FBA user without a score)
- Guaranteed shipment within one week of approval
- Current capacity utilization exceeding 90%
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Optimize Inventory Efficiency:
Proactive management proves essential:
- Boost advertising to accelerate sales and inventory turnover
- Remove slow-moving stock to free up space and reduce fees
- Utilize third-party warehouses to maintain backup inventory and prevent stockouts
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Monitor Congested Warehouses:
Some fulfillment centers face severe backlogs, delaying restocking. Sellers report particular congestion at:
- High-congestion facilities: ONT8, LAX9, LAX1, SMF3, FTW1, IND9, LGB8, GYR3, GYR2, MQJ1, SJC7
- Slow-processing locations: LAS1, GYR2, IND9, MQJ1
- Appointment-restricted sites: ONT8/9, LGB8/9, SBD1
The holiday season presents both opportunity and adversity. By strategically navigating Amazon's constraints—through careful planning, inventory optimization, and operational flexibility—sellers can still thrive during this critical sales period.