Effective January 1st, 2015, all UPS and FedEx Ground shipments, regardless of size, will be subject to dimensional weight charges. For many shippers, this will amount to a double-digit rate increase, and that will be on top of the 2015 rate increases that that UPS and FedEx apply. Those increases typically range from 5% to 10%. Currently, only an estimated 15% of UPS and FedEx ground shipments — those 3 cubic feet or greater — are subject to these charges. Regardless of the carriers that you currently use, there is a very good chance that at least some of your shipments will be affected by these new charges.
The recent announcement from UPS and FedEx regarding dimensional weight-based practices effective in January 2015 is expected to generate the largest single increase in cost for the majority of shippers. Although it can be argued that the practice is consistent with how other transportation modes charge for shipments, it’s difficult to justify this change given the substantial impact it will have on many shippers.
The unfortunate thing is that this is penalizing the shippers that need the most help. Large shippers, such as Amazon, Walmart, and others have concessions in their agreements that make them exempt from these changes.
UPS and FedEx argue that dimensional weight charges ensure the shipper pays his or her fair share of the vehicle capacity his or her packages occupy during shipment by requiring a premium for lightweight, high-volume packages. Until now, these low-density packages have been billed at the same levels as smaller packages of the same weight, while occupying significantly more space. In the past decade, the trend has become that many companies have significantly increased shipments from distribution centers directly to consumer residences. That is often one pack per delivery, which is a much more expensive proposition than business-to-business shipments, which typically have several packs delivered to the same receiver at the same time. Delivering single packages to unique addresses is an expensive proposition in time, fuel and labor.
One of the by-products of the trend of shipping individual products directly to consumer residences is that each order is most often placed in a corrugated container to facilitate safe shipment. These containers are typically larger than necessary to ship the specific order because making a custom-shipping container for each order would be extremely inefficient and costly. Shippers, therefore, usually work with a small number of standard container sizes and fill any extra interior space with void-fill material. These low-density packages create low-density loads in the carrier vehicles. Each type of vehicle (typically, a trailer for truck shipments) is restricted in both the volume of freight it can contain and the maximum weight it can safely and legally carry. Traditionally, the cost of shipping a package has been based primarily on the total weight of the packaged item. The carrier receives the greatest revenue possible for shipments that reach maximum weight limits.
On the other hand, if the volume of the trailer is filled before maximum weight is achieved, the carrier receives less revenue for that shipment, but the costs of transport remain the same. In these cases, the carrier’s revenues and profits are lessened.
The logical thing for carriers to do is charge customers for the space a low-density package occupies, leading us to dimensional weight-based charges. For several types of UPS and FedEx shipments, the customer will now have to pay shipping based on the dimensional weight of the package instead of the actual weight of the package for shipments that are less than 3 cubic feet. The issue is that the 2 carriers were already operating at profitable margins prior to this change. Therefore, although the logic makes sense, we don’t see the carriers reducing charges elsewhere to offset the overall increase.
To determine the dimensional weight, it is important that the shipper obtain the dimensioning factor (Dim Factor) that is going to be used by a particular carrier. Carriers that require dimensional weight charges will make a decision based on a parcels minimum weight that they will allow for the volume that it occupies. This number, usually published on carrier websites, is known as the Dim Factor. For example, the shipper would take a Dim Factor of 166 (a popular Dim Factor with large carriers) and use it to divide the volume calculation. Therefore, the Dim Weight equation is L x H x W / 166
The shipper now has two weights, the actual scale weight and the calculated Dim Weight. The carriers will base their charges on the higher figure, and, for the lighter and bulkier items, it is usually Dim Weight.
It looks simple enough, but it isn’t. The variable is accuracy of measurement, particularly of a lighter and larger-sized package. When faced with different Dim Factors and application rules from the various carriers, selecting a cost-effective carrier and determining the actual charges can be a formidable task for most shippers. Those shippers who ignore the new reality of Dim Weight face an ever-increasing stream of supplemental charges from their carriers, usually sent to the shipper long after the package’s arrival. Then comes the dilemma of passing on that additional charge to the customer or absorbing it.
As we have seen, Dim Weight is not going away, and neither will those resulting incremental charges and financial penalties due to inaccurate shipping techniques. The new burden of dimensioning accuracy has been placed on the shipping departments because while commercial carriers publish Dim Factors on their websites, few are providing anything more than a few rules and mathematical equations to assist shippers in determining their billing rates.