Dimensional Weight: A Game Changer for Many Shippers

Earlier this year both UPS and FedEx announced the full implementation of dimensional weight on all ground shipments in USA and Canada and between the two countries, beginning in January of 2015.

Surprisingly I have encountered many individuals and companies that regularly make small package shipments who have either missed the press releases or don’t understand what they mean; all of them will certainly feel the financial pinch of this change.

So… what is the impact of dimensional weight pricing? I have seen expert estimates of a $500 million cost increase to shippers. One of my colleagues who has worked on packaging optimization for more than 25 years and has visited hundreds of companies for observation thinks the cost hit to shippers will be in excess of $1 billion.

How then does dimensional weight or volumetric pricing as it is sometimes called really work? Basically, the carrier will weigh and measure the shipping box to establish a shipping cost by weight and by cube [box size]. And whichever cost is higher is the one that will be assessed to the shipper. Perhaps a clearer way to think about this is to recognize that the carriers have a formula that sets the minimum weight for each box based on its size. Regardless of how little is packed into that box – a flash drive for example - the minimum weight will apply. Whenever the shipping weight exceeds the established minimum, the actual weight will be charged. So the carrier will benefit regardless of what is shipped.
The density factor set by both small package carriers for dimensional is 10.4 lbs /cu ft. Essentially this means that all packages over that threshold will bill out on weight while those falling under that target will be billed on size. The comparable density factor used by Purolator and Canpar – the largest small package carriers in Canada – is 10.0 lbs/cu ft.

Based on my work with many clients on packaging projects, we have determined that the average e-commerce shipper achieves 60% cube utilization on outbound packages which means the outbound box contains 40% filler and air; we have even encountered multi-billion dollar companies whose shipping cases contained more than 50% filler and air. Because much of my time is spent on the science of packaging optimization, people save boxes for me or ship them to me as examples of companies who need help in this area. Consequently, I always have box samples in my office. I pulled the one below from my box collection to demonstrate the impact of dimensional weight pricing.

Shipper Product   Box Size in Inches   Weight   Dim     % Increase

Office supplier ink cartridge   9.375 X 6.625 X 3 8oz*   2 lbs       100%

*8oz would be charged as 1 lb

A minor change in box dimensions would hold dim weight at 1lb

The business reality is that whatever the total dollar impact of dimensional weight pricing, most of the brunt will be borne by small companies that lack negotiating leverage. The big national account shippers have contracts in place that lock in pricing for some extended period. However, anyone who thinks their company will be exempt from this impact – as several large shippers have already told me – will be in for a rude shock as a rising tide always lifts all boats. All contracts have an expiration date and when that arrives if the account profile is not within carrier targeted parameters such as profit margin there will be a move to raise price.

The main message is that whatever offset strategy a shipper chooses to employ, get started now. UPS and FedEx have given ample warning to allow for preparation. Don’t waste that opportunity.

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