For years, UPS and FedEx have been working diligently to expand volumetric pricing – or dimensional weight pricing. Each has paid close attention and watched eagerly to the trends driven by the e-commerce business model as it has exploded and redefined the customer purchasing experience.
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 "cube out" before they actually reach their physical weight capacity.
Understanding the impact to their network and after building out new hubs and retrofitting older delivery centers with Enhanced Dimensional Weighing Systems, both major parcel carriers have recently announced that beginning in 2015, they will eliminate the exemption that has existed for ground packages of less than three cubic feet. Historically, only air, international and ground packages greater than three cubic feet were billed at either the greater of their actual weight or their dimensional weight.
Moving forward in 2015, all ground packages will now be subject to dimensional weight, 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:
- Impact Study – An analysis performed from the Package Level Detail contained in carrier reports.
- Cube Study – In the absence of invoice detail containing dimensions, a cube study should be performed.
- Proper Box Selection – The use of cartonization logic software to evaluate the contents of an order to determine the number and size of each shipping carton required for the order. This normally requires dimensional information and weight for each product. It will be important to always select the smallest box possible, yet large enough to ensure the safe arrival of the product.
- Dunnage – Use less or more effective packing materials. (e.g. Air bags/pouches)
- Quality Boxes – Use stronger corrugated boxes to prevent the sides from "bulging" during transit.
- Box Optimization – Use of custom box manufacturing equipment or sending sample boxes to either the FedEx or UPS packaging labs.
- Dimensional Scanners – To accurately record dimensions at the time of manifest to prevent out of week shipping charge corrections.
- Modified Dimensional Divisor
- Cubic Threshold Modifications
- Existing Cubic Threshold Grandfathering
- Cubic Threshold Change with a Phased Approach
- Offsetting Incentives
- Regional Carriers
- Parcel/Postal Hybrid Solution
Under its Co-managed Logistics® approach, Transportation Insight can help shippers understand the potential operational and financial impacts of dimensional weight pricing and help them craft a plan for this new reality.