Dimensional Weight Pricing: Change for the Better?
In 2015 we will see a change to how all UPS and FedEx shippers pay for ground packages. No longer based simply on physical weight, dimensional (DIM) weight pricing takes into account the exterior package size which is the amount of space a package occupies when in the cargo area of a transport vehicle. – Paul Steiner, Vice President of Strategic Analysis, Spend Management Experts
Excerpt from Supply Chain Brain | February 26, 2015
FedEx and UPS have both announced plans to apply DIM weight pricing on all ground packages. Prior to this announcement, both companies utilized dimensional pricing on packages measuring three cubic feet or greater. Both companies believe these changes will help reduce excess packaging materials and overall package sizes, which will lead to related reductions in fuel use, vehicle emissions and transportation costs. The United States Postal Service (USPS) already utilizes DIM weight pricing for packages moving more than 600 miles and which exceed one cubic foot. In September, the USPS noted it would not implement any further changes to their DIM policies. This is being positioned as a big cost differentiator for USPS but is likely due in part to its lack of infrastructure to accurately measure each shipment.
Shippers remain unclear as to how the pricing change will impact them. Some publications forecast that shipping costs will rise from 5.0 percent – 25.0 percent while others are suggesting price hikes of over 40.0 percent. This ambiguity surrounding the shipping cost impact stems mostly from a lack of understanding of DIM weight pricing. Compounding this confusion are the 2015 UPS and FedEx annual general rate increases, which went into effect on Dec. 29 and Jan. 5, respectively. The new DIM weight pricing goes into effect at the same time.
The most important task shippers should have underway is a transportation spend analysis to fully understand the pricing changes. Shippers are discovering that the impacts are significant and there is no room in their budgets. Most companies will not be able to pass the increases through to customers. Ecommerce shippers will find limited success passing increases to consumers who have become accustomed to expect “free” shipping and same-day, next-day, and two-day delivery.
In 2007, FedEx and UPS instituted dimensional weight pricing for ground parcels measuring 3 cubic feet or greater as well as for air shipments. We believe this pricing scheme is likely to spread to less-than-truckload (LTL) trucking. The same reasons as those given for ground parcel – reductions in fuel use, vehicle emissions and transportation costs – are applicable to LTL carriers like UPS Freight and YRC Worldwide. Both carriers have been piloting this pricing concept. In fact, YRC Worldwide is installing equipment in 38 terminals that can capture the cubic dimension of a pallet or shipment. Other carriers such as USF Holland as well as Reddaway were installing similar equipment in their terminals by the end of 2014. According to industry analysts, rates could increase “significantly” for shippers moving bulky, lightweight items via LTL.
We expect dimensional weight pricing to become the norm across the majority of transportation modes. Despite reducing fuel usage, vehicle emissions and transportation costs, shippers will experience higher shipping costs – how much higher is still unknown. Could it mean the end of “free shipping” for consumers? How will it affect a trucking industry already facing a shortage of drivers and increased regulations? These are questions shippers need to evaluate as well as their transportation spend and modal allocations.