Earlier this year, both UPS and FedEx announced the full implementation of dimensional weight, a billing method that accounts for package length, width and height on all ground shipments in United States and Canada. Surprisingly, many individuals and companies that regularly ship small packages have either missed the press releases or don’t understand the implications. These shippers certainly will feel the financial pinch.

What is the impact of dimensional weight pricing? I have reviewed estimates from experts of approximately $500 million. However, one colleague who has worked on packaging optimization for more than 25 years and visited hundreds of companies for observations says the cost increase to shippers will exceed $1 billion.

How does dimensional weight or volumetric pricing as it’s sometimes called really work? Generally, the carrier will weigh and measure the shipping box to establish a shipping cost by weight and by cube (box size). Whichever cost is higher is the one that will be assessed to the shipper.

Perhaps an easier way to think about this is to understand that carriers have a formula that establishes a minimum weight for each box based on its size. Regardless of how little is packed into that box — a flash drive for example — the minimum weight will apply. Whenever the shipping weight exceeds that established minimum, the actual weight will be charged. As a result, the carrier will benefit regardless of what is shipped.

Most of the brunt of dimensional weight pricing will be borne by small companies.

The density factor set by both small package carriers for dimensional is 10.4 lbs./cu ft. This means that all packages over that threshold will bill out on weight while those falling under that target will be invoiced on size. The comparable density factor used by Purolator and Canpar, the largest small package carriers in Canada, is 10.0 lbs./cu ft.

Based on my experience of working with many clients on packaging projects, we have determined that the average e-commerce shipper achieves 60 percent cube utilization on outbound packages. This means the outbound box contains 40 percent filler and air. In fact, we have even encountered multi-billion dollar companies whose shipping cases contained more than 50percent filler and air.

Because much of my time is spent on the science of packaging optimization, people often send me boxes used by companies in need of help. The following example is based on one of these boxes which demonstrates the impact of dimensional weight pricing:

  • Shipper: office supplier
  • Product: ink cartridge
  • Box size in inches: 9.375 x 6.625 x 3
  • Weight: 8oz (will be charged as 1 lb.)
  • Dim: 2 lbs.
  • Percent increase: 100 percent
  • Note: a minor change in box dimensions would hold dim weight at 1 lb.

Due to today’s business realities, most of the brunt of dimensional weight pricing will be borne by small companies that lack negotiating leverage. The big national account shippers have contracts in place locking in pricing for some extended period.

Nevertheless, anyone who believes their company will be exempt from this impact — as several large shippers have already explained to me — will be in for a rude awakening. All contracts have an expiration date. And when that date arrives, if the account profile is not within carrier targeted parameters such as profit margin, there will be a move to raise prices.

The bottom line: whatever offset strategy a shipper chooses to employ, it should get started now. UPS and FedEx have given ample warning to allow for preparation. Don’t waste that opportunity.

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Jack Ampuja
About The Author Jack Ampuja
Jack Ampuja is Executive in Residence at Niagara University, Lewiston, NY. He has more than 35 years of supply chain management experience with five Fortune 500 firms.




www.supplychainoptimizers.com


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