Even as Amazon continues its dominance, the stock is up 55% year to date compared to just 4.8% for the S&P 500, starting in mid June, some of its Prime members received an unexpected shock. Their Prime Membership annual fee had increased by 20% to $119 from $99. The announcement, had been deftly slipped into the Amazon’s Q1 earnings call in April and is expected to generate hundreds of millions of additional revenue for Amazon. The $119 annual price took effect on May 11 for new subscribers, and the company  announced that existing Prime members would be seeing their bills rise starting June 16 when they come up for renewal.

But Amazon had reported net income of $1.6 billion for the first quarter, up 125% from $724 million the year prior. So why does it need to boost the price of Prime. The answer lies in shipping costs. With free delivery, Amazon Prime members are buying more products than ever. The increased cost of warehousing products within range of delivering next day to the customer is coming from the trucking companies. The trucking industry, that accounts for 70% of all US freight, is suffering from a massive shortage of drivers. The employee turnover rate amongst truckers is an astounding 94% and existing drivers are asking for more pay with bonuses. This additional cost is now flowing upstream. Amazon saw its shipping costs rise by 38% in first quarter and hence the rise in Prime membership fees.

Future Wealth’s View

The problem the trucking industry faces is one of shifting demographics. The industry that spawned an unique lifestyle for long haul truckers who spend days, even weeks, criss-crossing the US before returning home, is now finding that millennials and Gen Zers are simply not interested in committing to a job that has no work/life balance.

The other problem is that the industry has simply not embraced technology to encourage new truckers to come onboard. Lane assist systems, adaptive cruise control and other features that are standard in passenger cars are not available in long haul trucks. Of course, autonomous trucking, if and when it happens, could end the problem for trucking companies. But, with every crash of a car that is in autopilot mode, the dream of self driving trucks gets more and more distant.

In the meantime, despite the price increase, Prime is still the best deal in retail. It is highly unlikely that Prime members would cancel their subscription for the additional $20 in fees. Prime members have been spoiled by Amazon and most will dread the thought of going back to driving to the store, dealing with traffic, standing in line to buy paper towels, clothes, electronics among others. And Amazon knows this all too well.