Shipping could get a lot more expensive in 2015
Like many consumers, we are ordering more products online. Consider the two real life examples: In the first case a running jacket was ordered and shipped. It was crammed into a large soft envelope for shipment. The second case was a spare part for an appliance. The part came in a box that was at least 2 cu feet larger than the part. The extra space was filled with plastic shipping air bags and styrofoam peanuts. Both packages weighed about the same, and the shipping rate from UPS was the same because cost is based solely on weight. Yet clearly the large box took up 10 times the space that the envelope did.
We are not sure how typical these two extreme examples are, but both FEDEX and UPS have stated that the second case is more common and affects their costs. Both companies are addressing this issue by using dimensioned weight for the shipping calculation on all domestic ground ship items. FEDEX has announced that they will change to this pricing method effective January 1st 2015 and UPS just announced that it will change to this in December 2014. Industry analysts are saying that the impact on shippers will be significant and if packaging practices don’t change, their total shipping costs could increase by 60%.
Dimensional weighing takes the weight of the package and compares it to the standard weight calculation based on the dimension of the package. The charge will be based on the higher calculation. UPS has stated in its press release that this change will drive shippers to more efficient packaging, reduce non-value added packaging materials and reduce fuel consumption. Dimensional weighing is very common in the industry and it is currently being used on air shipments and shipping packages greater than 3 cubic feet.
Even with more efficient packaging methods, most ecommerce companies will need to deal with more expensive shipping costs or at least more complex shipping calculations. Many ecommerce sites are calculating shipping costs by using an API (application programming interface) to pull data from FEDEX, UPS or USPS based on product shipping weight only. With the new calculation, the packaging dimensions will also have to be part of the data base. Many ecommerce websites will need to be updated with this new information. Also the packaging density calculation becomes much more complex for multiple products being shipped in one order.
Since both UPS and FEDEX are implementing this new policy at the same time, most shippers will have few options for alternate shipping. Some say that local shipping companies will see revenue increases.
How does dimensional weight work?
Let’s assume shipping from Minneapolis Minnesota to Tampa Florida via UPS ground. The container weighs 1 pound and the dimensions are 10”x6”x6” or 360 cubic inches. For 2014 UPS rates, this number is divided by 166 to determine dimensional weight. In this case the weight used for calculation would be 2.2 pounds. The weight is rounded up to the nearest pound so the shipping weight is 3. In this case if one pound was used to calculate cost, the shipping cost would be $13.30. If the dimensional weight was used, the shipping cost would be $15.30, a $2.00 cost increase.
How should shippers prepare?
Obviously companies will need to review their packaging systems; inefficient use of packaging space will now cost money. For most consumer ecommerce companies, it is highly impractical to create a custom box for every order, but from what we have observed, there is clearly room for improvement. Unfortunately, this may require carrying more packaging inventory. Additionally, companies should look at other shipping options as well as trying to negotiate lower rates with UPS or FED EX.