August 28, 2015
FedEx’s – and now UPS’ – proposal could turn into a game of chicken between the major private carriers. If UPS had not follow suit with a similar policy revision (for now, mum’s the word), FedEx might have decided to balk on the proposed change to remain competitive. But as many have suspected, UPS likely found the promise of additional revenues too tempting, as the two companies have tended to move in tandem with announcements that shake up the industry. With this development, the United States Postal Service, which doesn’t charge dimensional weights in the same way, could emerge as the big winner.
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.
Change comes with each new year. Shipping companies are no exception. FedEx and UPS previously announced their dimensional weight shipping changes. These shipping changes are estimated to increase the cost of one-third of all shipments through FedEx and UPS. The United States Postal Service, however, has not made any changes to its dim weight shipping charges.
Now, you can’t change the distance your shipment travels, but you are in control of other aspects of your shipment, such as its packaging. Both in-the-box and standard packaging can be changed to reduce the size and weight of your shipment.
Dimensional Weight - The Facts
Dimensional weight is the package density, or the amount of space a package occupies in relation to its actual weight. In other words, how much space does the box take up in a truck or a plane?
To calculate dim weight:
Determine the true package dimensions from outside, not inside, of the box. Round to the nearest whole number using standard rounding rules. (5 or higher, round up. Otherwise, round down.)
Multiply length by width by height. *Note - Special instructions exist for irregularly shaped packages.
Divide by a dimensional factor that is dependent on carrier and shipping method. For a majority of the shipments, 166 is the dimensional factor.
The dim weight is then compared to the actual weight. The higher weight will be used to calculate the shipping cost.
Using this new shipping standard, small dense packages are favored to large light packages.
Prior to these changes, UPS and FedEx only applied dim weight standards to select shipping methods, such as overnight or when a box was oversized.
UPS and FedEx will soon implement what is said to be the largest pricing increase in their company's history. Both carriers announced they will be applying Dimensional Weight Pricing to all ground shipments, whereas today, only ground packages measuring greater than 3 cubic feet (5,184 cu. inches) are subject to Dimensional Weight pricing (this pricing is already in effect for all FedEx Air and UPS AIR services). This change is leaving shippers scrambling to try to quantify the financial implications. The Dimensional Weight rule change coupled with their annual general rate increase (GRI) only adds to the ongoing budgeting dilemma and pricing confusion.
Basically, a higher billable weight will apply to all packages where the Dimensional Weight exceeds the actual weight. Dimensional Weight is calculated by multiplying the length by width by height of the package (in inches) dividing by 166 (for domestic shipments) or 139 (for shipments to Canada) ... unless a customized Dimensional Weight factor has been negotiated, in which case that factor should be used (any fraction is rounded up to the next lb.).
Example: beginning December 29th, 2014 a UPS domestic ground package, Zone 2, weighing 4 lbs. with dimensions of 12"L x 12"W x 12"H will be billed at the 11 lb. rate (12 x 12 x 12 = 1728 / 166 = 10.4 lbs., rounded up to 11 lbs.; currently, this package is billed based on the actual weight of 4 lbs.. The Dimensional Weight rule change causes a base rate increase of 24% increase for this particular package. NOTE: this increase represents the Dimensional Weight Increase only (please click the following link to see the complete UPS 2015 rate chart for specific base rate pricing).
Industry insiders estimate that about 33% of overall Ground shipments will be impacted by this change, however, e-commerce companies, who ship mostly residential packages that are less than three cubic feet in size and typically weigh less than 25 lbs. will be impacted at a much higher rate. The bottom line is the change will likely negatively impact most shippers and you should be preparing for this monumental increase.
From the carrier's perspective, the Dimensional Weight rule change makes perfect business sense for UPS and FedEx and the change was inevitable. In every other mode of transportation, pricing is based on the combination of volume and weight. The Carriers typically run out of space in their trucks and planes long before they exceed weight limits. Yet, with the 3 cubic foot threshold, there has been little incentive for packaging optimization up to 5,184 cubic inches (3 cubic feet). In addition to this not benefitting the Carrier, it doesn't benefit the shipper either, other than minimizing box sizes and simplifying the pick and pack process. In fact, if shippers believe that they haven't directly or indirectly been penalized by Dimensional Weight pricing for less than 3 cubic foot ground shipments historically, they are mistaken. Carrier Pricing Departments pay close attention to package dimensions versus actual weight. They measure their profitability based on several factors... density is one of the primary drivers and impacts the discounts and other incentives that are approved. (Arguments can be made that additional space for dunnage is a necessity to minimize damages, and in some cases that's true, but in the majority of cases we find that there is wasted space).
This pricing change will require some type of immediate action by shippers who wish to avoid an additional financial burden. Unfortunately, the increase will continue to be impactful to many shippers in the long-term being that some shippers are limited by the operational changes that can be made and will need to resort to negotiating the necessary terms with the Carrier. For those that have the flexibility, this change in business practice may encourage shippers to evaluate options and utilize packaging that's more appropriate based on the commodities that are shipped. With space often being UPS and FedEx's operational bottleneck, these changes should help improve the revenue per cubic inch, resulting in opportunities to pass savings along to the shipper (the carriers ultimately operate on overall margin), especially in the long-term. Those with more favorable freight then become a desirable target for UPS and FedEx, which ultimately benefit the Shipper.
These Dimensional Weight increases were announced four months earlier than usual. UPS and FedEx understand that their clients need time to make the necessary changes, either operationally or contractually, or both. They expect their clients to demand changes to their contracts, which address these issues.
So how can this benefit you? If you have built your business exclusively around shipping lampshades and light bulbs, you may only be able to hold on to what you already have, if you're lucky...If you have more desirable freight however, this could be a great opportunity to evaluate packaging processes and identify potential changes. Start by gaining visibility to your data and then determine what changes can be made internally. You can then approach the Carriers to manage effective negotiations based on the remaining gaps. Now that many shippers will be taking significant increases, those that are aware of the options are positioned to negotiate more effectively than in the past.
What you can do to prepare for the Dimensional Weight Rule Change?
Examine your current shipments best you can and calculate the Dimensional Weight vs. the Actual Weight. If you don't have this information electronically, spend time in the warehouse measuring box sizes and weighing packages using the 2015 Dimensional Weight rule.
Speak with your vendors and third-party shippers to make certain they are packaging properly when shipping in-bound to you or using your account number to ship to third parties. It is difficult enough controlling your own warehouses and employees let alone trying to advise other companies.
- Consult with your carton manufacturer and /or a package design consultant and ask for package design help
- Consider increasing the amount of box sizes you use
- Reconsider your packaging material
- Consider Regional Carriers, Consolidators, U.S.P.S. SmartPost and SurePost
- Install a carrier neutral third party shipping system. UPS WorldShip, UPS ConnectShip and FedEx ShipManager systems are costing you a lot of money. They are not FREE!
- Look into Address Hygiene Software and Dimensional Weight Scales
- Audit your weekly carrier invoices for overcharges and errors. This is "FREE" money
- Negotiate, Negotiate, Negotiate - do not wait until 2015. Renegotiate your carrier agreement now.
- Ask for professional help from a third party contract negotiating company