Amazon shifts liability to sellers with new FBA inventory policy

Amazon has implemented a significant policy change affecting millions of marketplace sellers who rely on the Fulfillment by Amazon (FBA) service. The e-commerce giant announced on December 10, 2024, that it would introduce the FBA Damaged Inventory Ownership program, fundamentally altering how the company handles damaged inventory within its fulfillment network.

The new policy, which took effect on March 31, 2025, after a three-week delay from the original March 10 date, allows sellers to opt out of Amazon's damage-fault ownership evaluation process. Under the updated system, sellers can choose to retain ownership of Amazon-fault damaged inventory rather than receive reimbursements and have Amazon dispose of the products through its various channels.

According to Amazon's official documentation, the program "allows you to opt out of Amazon's damage-fault ownership evaluation process so that Amazon does not take ownership of and sell or remove your Amazon-fault damaged inventory through Amazon Resale (previously Amazon Warehouse), Liquidations, or other recovery or removal channels per the FBA inventory reimbursement policy."

The policy change represents a fundamental shift in how Amazon handles inventory responsibility. Previously, Amazon conducted two types of evaluation on customer-return units and damaged units: sellability evaluation and damage-fault ownership evaluation. Under the traditional system, Amazon assumed ownership of Amazon-fault damaged inventory and compensated sellers for their losses.

The new program enables sellers to bypass the damage-fault ownership evaluation entirely. When enrolled, eligible damaged units are automatically marked as "defective" and added to sellers' unfulfillable inventory. Sellers then manage these items through manual removal or automated unfulfillable settings rather than receiving monetary compensation from Amazon.

"By participating in this program, you will retain ownership of enrolled Amazon-fault damaged inventory and determine the final removal decision as it is added to your unfulfillable inventory," the company explained in its policy documentation. "Enrolled inventory will not be eligible for damage reimbursements per the FBA inventory reimbursement policy."

The technical implementation requires sellers to actively configure their preferences through the Fulfillment by Amazon settings page. Sellers can choose to disable Amazon's ownership assumption for all ASINs or select specific products up to 10,000 ASINs through CSV file uploads. The system provides granular control, allowing merchants to maintain traditional reimbursement processes for certain products while retaining ownership of others.

Seller reaction to the announcement has been mixed, with many expressing concerns about the financial implications. Industry professionals have highlighted that the default enrollment status could catch unprepared sellers off guard. Vanessa Hung, CEO of Online Seller Solutions, noted in a LinkedIn post that "Amazon is now making sellers by default setting take responsibility for damaged units in FBA."

"Previously, Amazon was obligated to reimburse you for any Amazon-fault damaged inventory. That hasn't changed but this new program makes it possible for them to get out of that liability," Hung explained to her professional network. "Once Amazon issues that reimbursement, it keeps the inventory, with full rights to resell it. Many of those goods reappear on other channels, often through different sellers at lower prices."

The policy change coincides with other significant modifications to Amazon's reimbursement structure. The company simultaneously announced updates to its FBA inventory reimbursement policy, shifting compensation calculations from retail pricing to manufacturing costs for lost or damaged inventory occurring before customer orders.

According to the reimbursement policy changes, effective March 31, 2025, Amazon reimburses sellers "based on the product manufacturing cost of the affected inventory" rather than the previous model based on selling prices. Manufacturing cost specifically excludes shipping, handling, customs duties, and other operational expenses that sellers typically factor into their total investment per unit.

The combined policy changes create complex decision matrices for sellers. Under the damaged inventory ownership program, sellers retain control over their products but forfeit financial compensation. The alternative traditional model provides monetary reimbursement but at reduced amounts based on manufacturing costs rather than retail values.

Amazon's documentation emphasizes that lost items which have been recovered remain ineligible for the damaged inventory ownership program. These products continue through the standard damage-fault ownership evaluation process and may appear on Amazon Resale or other channels if evaluated as Amazon-fault damage.

The company has integrated the damaged inventory ownership program with its existing FBA Grade and Resell service. Enrolled inventory units can be resold through this channel, which adds products to sellers' FBA inventory rather than listing them on Amazon Resale. Amazon Resale exclusively features Amazon-fault and Amazon-owned inventory, creating a distinction between seller-controlled and platform-controlled secondary markets.

Technical documentation reveals that product eligibility requires items to meet standard FBA requirements in their original state. Eligible inventory includes Amazon-fault customer returns and Amazon-fault warehouse damaged inventory, subject to legal, safety, regulatory, and other guidelines established by the platform.

The policy modification affects inventory tracking and reporting procedures. Enrolled inventory appears in unfulfillable inventory with "Defective" disposition status. Sellers can monitor these items through FBA Customer Returns reports for customer-returned inventory and Inventory Ledger reports for non-customer-returned inventory, specifically looking for "Defective" or "Distributor damaged" dispositions without corresponding "Reimbursed" status.

For ineligible Amazon-fault damaged units, sellers continue receiving reimbursements through the traditional system. These transactions appear in Reimbursements reports, with Amazon maintaining ownership transfer rights for compensated inventory.

The implementation timeline provided sellers with preparation periods. Amazon began gradually rolling out the Manage Your Sourcing Cost page in January 2025, ensuring all sellers received access by February 28, 2025. The company delayed the original March 10 effective date to March 31, 2025, providing additional configuration time for marketplace participants.

Amazon stated that the policy changes aim to provide "greater transparency and more predictability" in how reimbursements are calculated and to "drive a more consistent approach that works as we support sellers with supply chain services across their sales channels."

The damaged inventory ownership program represents part of broader strategic shifts in Amazon's marketplace governance. Recent policy updates have included product title formatting changes, category restrictions, and advertising platform modifications, reflecting the company's ongoing refinement of seller relationships and operational procedures.

Industry analysts suggest the policy changes reflect Amazon's maturation as a marketplace platform. The company's recent policy adjustments demonstrate systematic standardization efforts across multiple operational areas, from product listing requirements to fulfillment procedures.

The damaged inventory ownership program's long-term impact on seller economics remains to be determined. Sellers must evaluate their individual circumstances, including recovery capabilities, cash flow requirements, and product categories, to determine optimal participation strategies in the new system.

For sellers who frequently deal with high-value or unique products, retaining ownership through the damaged inventory ownership program may provide better economic outcomes than accepting reduced manufacturing-cost reimbursements. Conversely, sellers with limited recovery infrastructure or tight cash flow constraints may prefer traditional reimbursement models despite reduced compensation amounts.

The policy changes underscore the evolving dynamics between Amazon and its third-party seller community. As the marketplace platform continues expanding its service offerings and refining operational procedures, sellers face ongoing adaptation requirements to maintain competitive positioning within the ecosystem.

Amazon's documentation emphasizes that eligibility criteria for the damaged inventory ownership program may change "at any time and for any reason," indicating continued policy evolution as the company assesses program performance and marketplace impacts.

Timeline

• December 10, 2024: Amazon announces FBA Damaged Inventory Ownership program and reimbursement policy changes
• January 2025: Amazon begins rolling out Manage Your Sourcing Cost page to sellers
• February 28, 2025: All sellers gain access to cost management tools
• March 3, 2025: Amazon announces delay of policy implementation from March 10 to March 31
• March 31, 2025: FBA Damaged Inventory Ownership program and new reimbursement policies take effect
• January 3, 2025: Amazon implements 200-character limit for product titles
• April 15, 2025: Amazon surveys sellers about tariff impacts on operations
• May 2, 2025: Amazon introduces two-part product title format for enhanced discoverability

PPC Land explains

FBA (Fulfillment by Amazon): Amazon's logistics service where third-party sellers store their products in Amazon warehouses, and Amazon handles storage, packing, shipping, customer service, and returns. This service allows sellers to leverage Amazon's extensive fulfillment network while focusing on product sourcing and marketing. FBA products are eligible for Prime shipping benefits, which can significantly increase their visibility and sales potential on the platform.

Damaged Inventory Ownership: A new policy framework that determines who retains legal and financial responsibility for inventory that becomes unsellable due to damage while in Amazon's possession. Under this system, sellers can choose to maintain ownership of damaged goods instead of transferring ownership to Amazon in exchange for monetary compensation. This represents a fundamental shift from Amazon's traditional approach of automatically assuming ownership of damaged inventory.

Amazon-fault: A classification system Amazon uses to determine responsibility for inventory damage or loss. Amazon-fault incidents include damage caused by the company's handling, transportation, or warehouse operations, as opposed to seller-fault damage caused by customers, defective products, or improper packaging. This classification directly impacts whether sellers receive reimbursements and how damaged inventory is processed through Amazon's system.

Reimbursement Policy: Amazon's compensation framework that determines how much sellers receive when their inventory is lost, damaged, or destroyed while under Amazon's control. The policy has evolved from compensating sellers based on retail selling prices to manufacturing costs, significantly reducing the amount sellers receive for lost or damaged goods. This change affects sellers' financial planning and risk management strategies.

Manufacturing Cost: The base cost sellers pay to source, produce, or acquire products from manufacturers, wholesalers, or distributors, excluding additional expenses like shipping, handling, customs duties, or operational costs. Amazon now uses this figure as the basis for reimbursement calculations rather than the retail selling price, which can result in substantially lower compensation amounts for sellers who add significant value through branding, packaging, or marketing.

Unfulfillable Inventory: Products stored in Amazon warehouses that cannot be sold as new due to damage, defects, customer returns, or other issues. Under the new policy, sellers who opt into the damaged inventory ownership program will see Amazon-fault damaged items automatically added to this category marked as "defective." Sellers must then decide whether to remove, dispose of, or attempt to resell these products through alternative channels.

ASIN (Amazon Standard Identification Number): Amazon's unique product identifier system that assigns a 10-character code to every product listed on the platform. Sellers can configure the damaged inventory ownership program to apply to all ASINs or select specific products up to 10,000 ASINs through CSV file uploads. This granular control allows sellers to maintain different policies for different product categories based on their recovery capabilities and profit margins.

Amazon Resale: Amazon's secondary marketplace platform (previously known as Amazon Warehouse) where the company sells returned, open-box, and damaged products at discounted prices. Under the traditional system, Amazon-owned damaged inventory often appears on this platform, potentially competing with sellers' new product listings at lower prices. The new policy allows sellers to prevent their damaged inventory from appearing on Amazon Resale by retaining ownership.

Seller Central: Amazon's web-based interface where third-party sellers manage their marketplace operations, including inventory management, order processing, customer communications, and policy configurations. Sellers access the FBA Damaged Inventory Ownership settings through this platform's Fulfillment by Amazon section, where they can enable or disable Amazon's ownership assumption for their products.

Grade and Resell: Amazon's service that allows sellers to refurbish and resell customer-returned or damaged inventory through the FBA system. Unlike Amazon Resale, products sold through Grade and Resell appear as regular FBA inventory under the seller's control rather than Amazon's ownership. This service provides an alternative recovery channel for sellers who choose to retain ownership of their damaged inventory under the new policy framework.

Summary

Who: Amazon and its third-party sellers using Fulfillment by Amazon (FBA) services

What: Implementation of FBA Damaged Inventory Ownership program allowing sellers to retain ownership of Amazon-fault damaged inventory instead of receiving reimbursements

When: Announced December 10, 2024; implemented March 31, 2025 (delayed from original March 10 date)

Where: Amazon's global FBA fulfillment network affecting sellers worldwide

Why: To provide sellers greater control over damaged inventory recovery while reducing Amazon's reimbursement obligations and creating more predictable cost structures for both parties