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From SCDigest's On-Target E-Magazine

- June 23, 2014 -

Logistics News: As UPS Joins the Dimensional Game for Ground, Time for Parcel Shippers to Start Strategizing

The Dim Weight Divisor can be Negotiated, Expert Says, and It May Also be Time for Package Re-Engineering

SCDigest Editorial Staff

PS announced last week that it would begin a dimensional pricing program for ground shipments in 2015, joining FedEx, which has already announced its own program.

Both express carriers have already implemented dimensional weight pricing for air shipments, and ground shipments over 3 cubic feet, but are now moving to apply the strategy to all ground shipments as well.

Dimensional weighting 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 the carrier's favor.

Dimensional weight is determined by first multiplying length by width by height, thus calculating a parcel's cube.

SCDigest Says:

Hempstead says he is working with one shipper that can shave a pound off the new dim by going to a box that's 9.49 high instead of 9.5 because of the math of one of it cartons.

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That number is then divided by 166 for domestic shipments, and by 134 for international freight.

That number is 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.

Do Parcel Shippers have any Options?

The impact of this move to dim weight pricing of course will vary based on a given shipper's parcel profile, and obviously will deliver the biggest total increase in shipping costs to thosethat tend to ship bigger and lighter product/boxes.

Experts are saying the impact could be from as little as 5% for some parcel shippers to as much as 25% more in shipping costs for others.

But shippers have options.

"I have taught for 40 years now that everything is negotiable," says Jerry Hempstead, a long time executive at DHL and Airborne Express who is now a consultant to the parcel shipping industry. He says the dim weight divisor is one of the things that can be negotiated.

A shipper, for example, might push back and say "Give me a revised divisor. Instead of 166 make it 194 like it used to be, or 250. Or 300," Hempstead says. He also says shippers might try to negotiate a phased in approach, where the dim weight pricing applies say to boxes 2 cubic feet and over the first year, then smaller boxes after that so the shipping cost pain is staggered in.

Hempstead also says that shippers could try to offset the hit from the dim weight method by seeking an increasing the base discount, a lower minimum charge, or a combination of the two.

"The goal being to remain as whole as possible, but the carriers want yield improvement, so there lies the dilemma," Hempstead added.

Estimating the Impact

Is there any way for a shipper to get a good handle on just how big the cost impact is going to be?

Unfortunately because currently shipments under 3 cubic feet (5184 cubic inches in) are exempt from dimensionalization, the carriers don't provide the shippers the dims collected at the terminals and hubs, a process that is automated and done by laser. Because today the carriers do not have to calculate and justify a dim charge, there is no reason for them to pass this data.

Hempstead says that if a shipper has a good reputation with their parcel carrier rep, it may be able to receive what's called a "dilution study."

He says both FedEx and UPS have all the dim data on every package and can quickly tell a shipper in a report how much additional cost the shipper would have spent under the new program for a certain period of time. Of course, Hempstead notes, "corporate" may not want the rep or the shipper to know that information.

If a shipper cannot get access to that report, the next step is to do a site audit of packages going out the door today that are under 3 cubic. Hopefully, the shipper has maintained data about the weight of each parcel shipped over some period, or it might track that information over the coming month.

(Transportation Management Article Continued Below)

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The shipper would then need to apply the formula to quantify what the new charge would be for packages that fall below the dim weight threshold. Of course that means a shipper also has to have the right dimensions for each parcel. For those using a series of standardized shipping boxes, that dimensional information may be easily available, but for others maybe not so much, such as those that recycle inbound cartons from suppliers as outbound shipping cartons.

Hempstead notes good news for some parcels shippers, observing that for those with very big ground shipments, which might not be as hurt much as others because many rate cells in the tariff may be for the minimum charge.

"So say if a 3-pound package goes to 5 pounds under the new rule and both your 3 pound and 5-pound rate are the same minimum charge, you have no financial impact even though your weight went up 66%," Hempstead told SCDigest, adding that this kind of scenario is actually quite common.

On the other hand, Hempstead says he know a shipper in Orlando which has a standard order that's 3 pounds in actual weight but which under the new rule will be classified as 8 pounds, delivering a big increase in shipping costs.

Hempstead also says that shippers need to beware of bulges in their cartons, as the laser beams used by the carriers to measure the dimensions are very precise. So even though shippers believe they are using a standard size box with a set cube, they might get bills for larger boxes because of bulging.

Another nuance shippers need to be aware of is how inches are rounded. 9.5 inches is rounded up to 10, while 9.49 inches is rounded down to 9.

Hempstead says he is working with one shipper that can shave a pound off the new dim by going to a box that's 9.49-inches high instead of 9.5 because of the math of one of it cartons.

So, in addition to straightforward rate negotiations, parcels shippers may need to do some carton and packaging re-engineering to minimize the impact of the new dim pricing. That could be in the shipping cartons themselves, or in the product packaging that holds specific items. SCDigest notes such packaging redesign efforts are almost always profitable exercises even without the dim weight change, and likely even more so now with this change.

Another related option is to look at the new generation of equipment that will construct the perfect size box on the fly in a DC, based on the dimensions of the items being shipped. Every increase in parcel shipping costs 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 from the vendor.

Finally Hempstead says shippers should also consider the USPS, which does not have the hardware or software to easily charge for cube for high volume shippers.

"We may see some diversion to the postal service come January - or actually in March, when the January bills from Fed and UPS come in and hit the bottom line and the boss says 'What the heck happened to our shipping expenses?'," Hempstead says.

What do you think of the coming dim weight pricing method? Any othr tips to add in terms of strategies to combat this? Let us know your thoughts at the Feedback button (for email) or section (for web form) below.

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