Amazon has a new invite-only program that could solve its growing warehouse congestion problem

Key Points
  • Amazon has been testing a new invite-only warehouse and shipping program called "FBA Onsite."
  • The new program would reconfigure sellers' warehouses and offer shipping services at a much lower rate.
  • In the invitation sent out to select sellers, Amazon describes it as a "groundbreaking" program.
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Amazon is testing a new invitation-only program that would provide sellers with more efficient storage and shipping options and allow merchants to add Amazon's software and logistics into their own warehouses.

Amazon described the new service, called FBA Onsite, as a "groundbreaking" program that combines the best parts of its existing fulfillment programs and brings down shipping rates, according to an invitation that was sent to sellers and viewed by CNBC.

The invitation also notes that the program should be considered a "work in progress" as Amazon will continue to refine the process based on user feedback. Bloomberg first reported the program on Monday.

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The trial program started about three months ago and invited less than 50 sellers, according people familiar with the matter, who asked not to be named because they weren't authorized to speak about it.

It's Amazon's latest effort to solve its warehouse congestion problem by using storage space owned by third-party sellers on the platform rather than just building out more fulfillment centers.

FBA Onsite could also draw more sellers to the Prime two-day shipping program with significantly lower shipping rates.

Warehouse congestion

According to two sellers, Amazon is scheduled to send a representative to visit their warehouse and help reconfigure the layout and general fulfillment process. One photo in the invitation shows a fenced area dedicated only to Amazon's inventory. Sellers participating in the program also get to install Amazon's own warehouse management program, which would significantly shorten the time to upload a product into Amazon's database and website.

An Amazon spokesperson declined to comment.

For the sellers, FBA Onsite would help save on shipping as they no longer have to get their inventory to Amazon's warehouses. Amazon is also offering much lower shipping rates for two-day delivery by letting the sellers take advantage of the low rates Amazon gets from shipping companies. One seller said he's using Amazon's own shipping accounts for FedEx, UPS, and the post office, getting discounts of up to 85 percent from what he normally pays.

What a warehouse under Amazon's FBA Onsite program would look like.
Source: Amazon

Amazon currently offers Seller Fulfilled Prime, which lets sellers ship Prime-eligible products directly from their own warehouses — but without the benefit of low shipping rates. It also offers Fulfillment by Amazon, where sellers send their inventory to Amazon's warehouses and use the company's logistics system.

"FBA Onsite is a way for Amazon to significantly increase their sales with almost zero additional overhead cost," one seller said.

Amazon's own delivery service

Chad Rubin, co-founder of e-commerce software maker Skubana, said FBA Onsite could help sellers that have struggled with warehouse management, a constant headache for most of them.

He also said that sellers have been reluctant to join Amazon's existing Seller Fulfilled Prime program because two-day delivery from their own warehouses is too costly.

Rubin said the biggest advantage to Amazon is that the company gets to test its delivery system to FBA Onsite sellers, potentially with its own trucks and personnel.

"Amazon is probably going to inject their own logistics and carrier system and offset USPS from doing final delivery," Rubin said.

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