Some online merchants are entering the peak season in a peculiar way, leaving e-commerce sellers using Amazon for distribution feeling perplexed.

Industry insiders indicated that there were initial expectations for an increase in Amazon's warehousing limits, but as preparations for peak season sales began, they found these limits had actually been reduced.

Sellers reported that in July, Amazon informed them that their warehousing limits were expected to double and encouraged them to send inventory to warehouses in August or September to prepare for the busy season. However, they later discovered that the warehousing limits had been cut by 25%, resulting in insufficient capacity to ship all holiday inventory.

It remains unclear why Amazon predicted a doubling of sellers' warehousing minimums in the summer, only to reduce them later. The capacity limits for those using Amazon's Fulfillment by Amazon (FBA) service typically depend on their inventory performance index, sales forecasts, and delivery center capacity ratings.

This is not the first time FBA users have faced unexpected reductions in capacity. In October 2022, they complained about a sudden cut in the capacity of Amazon’s distribution centers. Three months later, the e-commerce giant overhauled its system, merging restocking and warehousing limits into a single monthly "FBA capacity limit," along with a mechanism that allowed users to bid for additional space through an auction system.

According to Amazon, this should provide most FBA users with more warehousing capacity.

Bob Imbriani, Senior Vice President of International at Team Worldwide, pointed out that finding warehousing capacity has been a challenge since the pandemic, but earlier this year, as inventory levels finally decreased, the situation improved.

However, this relief was short-lived. Imbriani noted that pressure on import and export warehousing began to increase a few weeks ago.

One reason for this is that this year's peak shipping season has started earlier, as shippers have begun moving goods ahead of new tariffs (which have been postponed) and potential disruptions from labor contracts on the U.S. East Coast.

Export goods are bottlenecked, and factory shutdowns have exacerbated inventory backlogs. Furthermore, Imbriani indicated that the slowdown in the U.S. economy has resulted in many unsold items (such as the latest iPhone) failing to meet expected sales.

The dynamics of supply have also changed. The number of new warehouse construction starts has significantly decreased this year, partly as developers react to declining demand peaks and, to some extent, as a result of high interest rates and rising costs.

Meanwhile, opposition to warehouse construction within communities is growing. California has introduced a warehouse development bill aimed at preventing municipal and county governments from approving warehouse construction or expansion projects unless they meet certain standards.

This bill restricts warehouse construction to major commercial thoroughfares and requires that these buildings be several hundred feet away from residential areas, schools, and medical facilities. Additionally, if residential buildings are demolished for warehouse construction, developers will be required to build affordable housing and provide displaced tenants with 12 months of rent.

However, Amazon's demand for new warehouses appears undiminished. In July, the company opened its largest warehouse facility in the U.S. in California, a six-story building covering 4.5 million square feet and capable of housing over 7,000 robots.

Next year, Amazon plans to open its ninth warehouse on Long Island, and in 2026, it intends to establish a 3.1 million square foot facility in Buffalo, New York.

Competition for large facilities remains fierce. Retail giant Target recently opened a sorting center in Detroit capable of processing up to 60,000 packages daily. This is part of its initiative to accelerate delivery speeds while reducing costs. Target has allocated $100 million to increase the number of its sorting centers to more than 15 by 2027.

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