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Expert Insight: Gilmore's Supply Chain Jab
By Dan Gilmore
Date: March 11, 2015

Logistics Comment: Dimensional Weighting Programs by Parcel Carriers Can Raise Costs Substantially, but Shippers have Options for Minimizing the Impact

 

From Negotiations to Box Makers to Advanced Cartonization Software, Consider Options to Reduce Increase in Parcel Shipping Costs

The so-called "dimensional weighting" programs adopted this year by both FedEx and UPS could have a substantial impact on parcel shipping costs.

That's the bad news. The good news is there are some steps you can take to minimize the impact, from negotiating strategies to technology solutions.

The parcel carriers used to rate a shipment solely based on weight. Of course, parcels of the exact same weight could involve substantially different "cube" (length x width x height). Cube in fact is probably more consequential than weight in terms of a carrier's cost, so at one level it actually makes some business sense that they would want to charge more for a one pound box of heavier goods that uses a lot less cube than another one pound box that is much larger in volume.

So both UPS and FedEx came up with the concept of dimensional weighting, which is basically a way for the carriers to be able to charge both for weight and for the cube of a parcel - whichever is more in their favor.

So, UPS will measure the cube of each parcel once it is received into its facilities, using highly accurate laser measurement systems (as a note, the USPS does not yet have the ability to do this). That cube total is then divided by 166 for domestic shipments, and by 134 for international freight.

That number becomes the "dim weight." If the package weighs more than the dim weight, the shipper pays based on the actual weight. If the package weighs less than the dim weight, the shipper is charged for the more expensive dim weight instead - a price increase versus the traditional policy of charging based on weight alone.

So for example, a box that is 12 x 12 x 12 (inches) has 1728 total cubic inches. Divide that by 166, and you get 10.4. If the package weighs 12 pounds, the shipper will pay the rate for a 12-pound shipment. If the package weighs 8 pounds, the shipper will pay for shipping a 10.4-pound box.

Both express carriers had previously implemented dimensional weight pricing for air shipments and ground shipments over 3 cubic feet, but starting in 2015 they have now applied the approach to all ground shipments regardless of cube.

Experts are saying the impact could be from as little as 5% for some companies to as much as 25% more in shipping costs for others. That certainly bad news for parcel shippers, but especially for those involved in ecommerce, where profits have been tough to find. Additional parcel shipping costs will put still more pressure on the bottom line.

What Can Shippers Do?

There are a number of steps parcel shippers can take to reduce the impact of dim weight pricing.

First, as ex-DHL executive and now parcel industry consultant Jerry Hempstead likes to tell SCDigest readers, everything can be negotiated with FedEx or UPS.

A shipper, for example, might push back and say negotiate for a revised dim weight divisor. Instead of 166, ask for the 194 that it used to be, or maybe even 250. Of course, you have to be really willing to move some business elsewhere from a given carrier for such negotiating tactics to work.

Companies can also take a look at product packaging, as the size of the items in the end is what determines the size of the shipping carton needed. Many find they have products that are over-packaged. Looking at this is especially important now because often small reductions in even just one dimension can lead to significant savings because of the way the carriers round up and round down the measures.

Hempstead for example says he is working with one shipper that can shave a pound off the new dim weight by going to a box that's 9.49-inches high instead of 9.5 on one of it cartons, since that height will now be rounded down to just 9 inches in calculating cube.

Another related option is to look at the relatively recent new generation of equipment that will construct a precisely sized box on the fly inside a DC. Of course, some system needs to tell the box machine what size carton to produce, but the savings in shipping costs can be substantial. And every increase in parcel shipping costs such as the dim weighing programs make such automated equipment a more attractive investment. Some vendors in this business will also provide the equipment to a shipper at no charge - if the shipper agrees to buy the corrugate material for box construction from that vendor.

And software can certainly play an important role in reducing the impact of dim weighting. A company called ORTEC, for example, offers a variety of load and pallet optimization solutions used by some of the world's largest companies, but also recently shared some thoughts with SCDigest on how its technology is helping parcel shippers.

It starts with basic "cartonization" capabilities - what products should go in what sized boxes for each order. For single item boxes, this is a relatively straight forward computation, but as the number of items in an order grows, it becomes a lot more complicated to get the carton size and what goes in each box such that shipping costs are minimized.

Which leads to another factor - can your systems calculate dim weight rates? Today, few can do so. ORTEC's Bobby Miller, head of consumer goods sector strategy there, discussed with me some potential impacts from the lack of that capability say on ecommerce channels. If an etailer simply uses the weight-based rate to estimate shipping charges to the customer, and it turns out the dim weight rate it used, then either the customer will be unhappy with the higher actual shipping charge (perhaps $12 instead of $8), or the etailer will have to eat the difference - neither a very attractive option. ORTEC's system calculates what the real rate will be, either traditional or dim weight, so shippers can avoid this costly trap.

ORTEC's solution appears pretty sophisticated with regard to cartonization. I know from direct experience that the cartonization logic inside a WMS - if it has any - can vary dramatically by provider. And there are real costs, exacerbated now with the dim weighting - to not getting this calculus correct, for example suggesting using box C say for an order when box B would have worked, or not optimizing what products go in what cartons for a multi-case parcel shipment to minimize total cube.

ORTECs system can also determine for a given order if the best choice is a prefabricated carton, an on demand carton from one of the types of system providers referenced above, or a carrier provided carton. ORTEC actually has a partnership with one of those carton-making companies, Box on Demand, such that box size needed for an order is sent automatically to the machine's control system for carton creation.

So netting it all out, the dim weighting programs could be hitting some partial shippers hard and almost every shipper to some degree. But there are several approaches, from negotiations to process changes to software solutions, that can minimize the impact. It's worth taking a look.

Let me know your thoughts at the Feedback section below.


 

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profile About the Author
Dan Gilmore is the editor of Supply Chain Digest.
 

Gilmore Says:


I know from direct experience that the cartonization logic inside a WMS - if it has any - can vary dramatically by provider.


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