It’s All About the Dims.
In 2015, parcel carriers FedEx and UPS will be implementing dimensional (“dim”) weight pricing for all ground packages regardless of their size. For quite some time, carriers have been using dim weight pricing for all of their air service shipments and ground shipments over three cubic feet. Now in 2015, packages shipped by ground service that are less than three cubic feet will be subject to dimensional weight pricing. Most shipments shipped today are less than three cubic feet and will be subject to dim weight pricing in 2015. To better visualize approximately three cubic feet, imagine a medium sized microwave oven or a box measuring 17” on each side.
This pricing change will have major financial implications on unprepared manufacturers, distributors and retailers. The increased revenue to the carriers instituting this new pricing platform is slated to be approximately $550 Million dollars annually! This change also comes on the heels of UPS announced 4.9% annual general rate increase on December 29, 2014 and Fed Ex’s 4.9% general rate increase January 5th, 2015.
What is dimensional (dim) weight pricing? It is a method of determining price based on volume versus actual weight of shipments. The reason for this dimensional weight policy change is due to a growing number of packages from e-Commerce that are not being packed with regard to density of packing. Shipping containers are relatively large and light weight when compared to the items being shipped inside the container. This process can fill up FedEx, UPS and DHL delivery vehicles before any weight limitation is hit, in shipping terms, cubing out before weighing out, thus costing the carrier more money to transport.
How to Calculate Dim and Billable Weight:
Dim weight is calculated by determining the cubic size of a package – multiplying its length by width by height and dividing by 166 (for domestic shipments) or 139 (for shipments to Canada). When measuring, use the longest measurement in each dimension should the object not be cube-shaped. When dividing by 166 or 139 to get the dimensional weight, any fraction is rounded up to the next whole. The billable weight is the weight that is used to determine the shipping charge. Now in 2015 with the three cubic feet exemption no longer applicable, the billable weight is the greater of either the
For manufacturers, distributors and retailers, the impacts of dim weight pricing changes include both financial and operational considerations. It is estimated that companies could pay up to $550 million in total per year in shipping costs based on dim weight changes, this does not include the increased internal labor expense that come with this change.
On the financial side, to help avoid this scenario, companies should re-evaluate their packaging practices first as it is the easiest way to identify savings to start. Companies will need to have more container sizes on hand and reconsider the packaging they are using to protect shipments. Having the right packaging materials is essential to provide adequate protection during shipping, while taking up the least amount of space.
Looking at dim weight calculations from an operational perspective, the pricing changes add another layer of complexity to many of the challenges that have come with the rise in e-Commerce. These challenges mainly lie in the areas of processing and packaging shipments for online orders. Harris Poll conducted an e-Commerce Success Survey and discovered that 87 percent of Americans purchased items online in the past year, and 78 percent of Americans believe their orders should be processed in 24 hours or less. So that definitely means shipping clerks will need to spend more time measuring and entering the package dimensions into respective carrier shipping systems to avoid accounting nightmares in billing customers for shipping charges of a package.
To meet increasing e-Commerce demands, many retailers try to fulfill orders quickly and package density is being sacrificed for speed of packaging. Small or lightweight items often are placed in larger-than-necessary containers. The adoption of dim weight pricing will have a significant impact on these operations if companies don’t address. So what does this mean for you as a manufacturer, distributor or retailer?
The Wall Street Journal estimates that under the new pricing model, the cost to ship a two-slice toaster between 601-1000 miles will increase 35%. Net impact for a manufacturer, distributor or retailer that ships 50 toasters a week a year will see an increase of $3.43 per toaster shipped, multiply that over 52 weeks that is an increase of over $8,918 per year.
Customers returning packages and retailers offering free returns need to be aware of these changes too. Customers often do not take the time to find an ideal box for their return shipments and most use the same box in which they received their original order. However, if they’re only returning one item from a multiple item order delivered in a large container, they’ll be paying much more than they need to when they return that item. It could also drive up costs for retailers offering free shipping.
- Remember that size matters: choose the appropriate package based on the size of the item, and don’t forget mailers as an option.
- Optimize your packaging, using only what you need.
- Measure the actual outside length, width and height of the container after packaging when determining dim weight, as the measurements provided by a box manufacturer are inside dimensions of the container and do not reflect exterior dimensions of a package.
- Talk to your carrier representative and examine your agreement to understand your particular dimensional weight pricing structure.
- Audit your complete parcel charges weekly to validate you’re not being incorrectly charged on your parcel invoices as a whole.
- Don’t forget the returns process. Educate your customers that if they are returning one item from a multi-item order, they should find a smaller package for that one item versus using the original packaging.
- Look at alternatives like local couriers for shipments or United States Parcel Postal as an option.