Small Package Dimensional Pricing Will Create Cost Increases for Shippers– Are you ready?
By Rick Holden
Back in May of 2014 FedEx announced it would change its pricing model to apply dimensional weight pricing to its ground services. UPS followed suit with a similar announcement in June. Both companies new pricing will take effect at the end of 2014.
For years, UPS and FedEx have been working diligently to expand volumetric pricing – or dimensional weight pricing. Both companies have seen a substantial increase in e-commerce business that traditionally ship B to C (direct from the Business to Consumer).
Although this model has benefited the carriers with historic shipping volumes, it has also brought increased cost and a decrease in per package density. Many times, due to improper box selection, the carriers find themselves delivering boxes that are much larger than required for the safe delivery of a given product. When magnified across all shippers, this causes vehicles to fill up before they actually reach their physical weight capacity.
Starting at the end of 2014, all ground packages will now be subject to dimensional weight factors along with the potential for increased cost. The carriers’ position on this issue is to better align the rates that they charge with costs, which is influenced by BOTH the SIZE and WEIGHT of packages. In addition to creating additional revenue, the carriers hope that by subjecting all packages to dimensional weight billing that it will encourage shippers to reevaluate their packaging and ensure proper box selection when shipping.
From the carriers’ perspective, this change saves them from having to make additional capital expenditures in centers, hubs and vehicles. From the shipper’s perspective, it will be important to properly understand existing packaging characteristics and the potential negative impact while encouraging them to implement a proactive plan to mitigate any increases.
A critical issue for any company to understand is that the change to dimensional weight pricing has the potential to increase UPS Shipping Charge Correction fees or FedEx “audited” charges. Unfortunately, many shippers simply weigh their packages and do not enter the dimensions because it’s less labor intensive. Moving forward, if shippers do not enter the dimensions at the time of manifest, they will receive out of week billing adjustments and potentially lost profit. This is especially true if the shipper passes the shipping cost along to the consignee. By not capturing the true dimensional weight, shippers will only pass along a portion of the total cost. Not only will they lose profit, but it will become very challenging to properly understand total landed cost for a particular order.
Dimensional Weight Basics
In its simplest form, dimensional weight is determined by using the following calculation: Length x Width x Height of the box divided by the applicable dimensional factor. Unless a shipper’s agreement calls for a modified dimensional divisor, then UPS and FedEx both use 166 domestically and 139 for international. When performing this calculation, fractions of an inch are either rounded up or down. If the measurement is one-half inch or greater, then it is rounded up. If the measurement is less than one-half inch, then it is rounded down. Shippers must be sure to measure the outside box dimensions, as some manufacturers quote the inside box dimensions. Also, shippers should be aware that as a package moves through the small package environment, that these packages may “bulge” and their dimensions may change during transit, which may result in adjusted charges.
Dimensional Weight Best Practices
As soon as possible, it will be important for companies to evaluate their current packaging practices and address the following areas:
• Box sizes vs. what is being shipped – Reduce the empty space in the box.
• Use stronger boxes to eliminate bulging.
• Dunnage – Use less or more effective packing materials.
• Dimensional Scanners – To accurately record dimensions at the time of manifest to prevent out of week shipping charge corrections.
As soon as possible evaluate your agreement with FedEx and UPS
• Look at your modifying your Dimensional Divisor.
• Cubic Threshold changes with a phased in approach.
• Grandfathering existing contract language concerning cubic thresholds.
• Offsetting incentives
As soon as possible look at how your company can utilize alternative carriers
• Look at regional smaller carriers
• Parcel/Postal Hybrid Solutions
At Riverside we work with our clients to keep them abreast of the market changes that will affect their business and we continually work to match the best value transportation with the different client shipping needs.