FedEx and UPS combined handle about 16 million ground parcels each shipping day. In May 2014, FedEx announced their plan to implement dimensional weight pricing to all shipments starting January 2015. Shortly after the announcement, UPS followed suit: The shipping world was greatly shaken by these announcements
DC Velocity‘s November issue stated, “To calculate dimensional pricing, companies use what is known as a ‘volumetric divisor.’ A parcel’s cube is first calculated by multiplying its length, width and height. The cube is then divided by the divisor, which is currently set at 166, to arrive at dimensional weight.” Before the decision to move to dimensional pricing, only air, international and ground packages three cubic feet or greater were subject to dimensional weight chargers. So why did FedEx and UPS decide to make the change?
According to the article Dimensional Pricing Could Add $550 Million Annually for UPS, FedEx published in the July 2014 issue of DC Velocity, “The pricing change was driven in part by the explosion of e-commerce transactions, which has results in what the carriers could consider an unwelcome increase in business-to-consumers shipments.” For years FedEx and UPS tried to convince businesses to package their shipments more efficiently, but there continued to be products delivered surrounded with excess amounts of Bubble Wrap, Styrofoam peanuts and other padding materials. The padding may add to the safety of products, but it also adds to the amount of space required for delivery. This extra space used causes delivery vehicles to “cube out.” This means the driver is forced to return to the station in the middle of the route to reload or carriers must replace t heir delivery fleets with larger vehicles. Each option is costly.
The article FedEx’s Shift to Dimensional Pricing: Tough Love or Power Grab? in the June 2014 issue of DC Velocity said, “The change adds an estimated $186 million to FedEx’s annual operating income without doing anything to change operations,” but that number had nothing to do with change. UPS and FedEx both hope that the dimensional weight changes bring fairer and more accurate pricing. Also, that it helps shippers to reduce excess packaging, which will improve efficiency and reduce environmental impact.
After understanding why, many companies are left with asking, “Now what?” Those affected by the change have several options:
- Minimize Waste Space: If shippers are using large boxes and excessively padding shipments, packaging items safely into smaller, more efficient boxes can reduce costs.
- Add Weight to Packages: If an item is heavier than its dimensional weight the customer will be charged the higher amount.
- Negotiate: FedEx and UPS will negotiate depending on order volume. If there is a substantial volume they may consider increasing the dimensional divisor from 166 to a higher number.
- Go Elsewhere: The U.S. Postal Service typically does not employ dimensional pricing, but with new business, the USPS may be forced to increase rates. Regional parcel carriers are another alternative.
There is one other option, companies can simply pay the higher charges, but who wants to do that. Whatever course of action companies decide to take, proper planning and budgeting needs to take place. Please remember, weigh all options before making a decision.