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What is dimensional pricing? Will it be the end of your business?On January 2, 2015, FedEx and UPS changed how they will price shipments. We detail how this could greatly increase shipping costs for e-retailers and other businesses that use companies like FedEx and UPS to ship their products.
In addition, we breakdown why the carriers are making the change and provide examples of how the new calculations work.
Lastly, we provide possible solutions for companies that would like to reduce their shipping costs and help minimize the impact that could come from dimensional pricing.
- Will It Be The End of Your Business? WHAT IS DIMENSIONAL PRICING?
- How does pricing work now? The historical way for calculating costs to send a package was based on a very simple method; Carriers use a table that assigns a “base rate” for every combination of weight (1-150 lbs.) and distance (Zones). The heavier the package and/or the farther you ship, the more it costs. Other surcharges and fees are then added to the base rate as they are applicable (E.g. fuel surcharge).
- Does it work? Historically, this pricing structure was ideal because transport trucks could use these same variables in their formulas to calculate transportation costs, and therefore determine the profit margin for each truck transporting goods.
- What is dimensional pricing? In other words, many of the lightweight packages you ship today could see A BIG INCREASE IN COST!!! Every package you ship will now have two weights – actual weight and dimensional weight. The larger of these two will be used to calculate the cost of your shipment (Height x Width x Length) Dimensional Factor* = Dimensional Weight * The standard Dimensional Factor that UPS and FedEx will use is 166
- Why the change? The convenience of online shopping with in-home delivery, has resulted in an increase in the number of lighter weight packages in bulkier boxes being shipped to homes across the world. Consumers now purchase bath robes and teddy bears online! Bigger boxes take up more room in a truck; so less space and less weight = less revenue per truck for the carriers.
- How will this affect my shipping cost? 3 lbs. x Zone 8 $9.84 Base (Daily Pickup) Rate 3 lbs. package shipped in a 12” H x 12” W x 18” L box From: Knoxville, TN (ZIP 37923) To: Reno, NV (ZIP 89501) TRADITIONAL (12 x 12 x 18) / 166 = 15.6 lbs. 16 lbs. x Zone 8 $18.86 Base (Daily Pickup) Rate DIMENSIONAL
- 3 Questions to Consider What will my margins be if I eat the cost? If I pass this cost on to my customer – how many will I lose? Will I still be in business 1 year from now?
- Solutions Take the Air Out Negotiate your dimensional factor Find a partner with negotiating power (E.g. a 3PL)
- Take the Air Out Deliberately engineer packaging to remove as much “air” as possible. If additional packaging is added when preparing to ship, educate your packing team on the effects of their decisions. This should be the first step for any company looking to avoid large dimensional weights You might be surprised how much opportunity there is
- Negotiate Dimensional Factor Larger Dimensional Factor = Smaller Dimensional Weight = Less Effect on Your Business Must negotiate with each carrier you use (i.e. FedEx and UPS) There are no guaranteed outcomes Shipping Revenue = Power
- Find a strategic partner Quality 3PL fulfillment operations minimize effect to their clients Strategic Partners help with these various strategies Examples: Negotiating power with Carriers Package consolidation Packaging engineering
- FOR HELP REDUCING COST OF DIMENSIONAL PRICING 800.815.STAG (7824) email@example.com www.redstagfulfillment.com
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Download a blank questionnaire, or the questionnaire with our answers for your own internal use.